Kerala salvages $250 million World Bank loan by agreeing to tap funds in smaller tranches

In addition, the state government is now negotiating another $100 million from the World Bank. Moreover, the government has ensured funding of $100 million from the German development bank KfW.
The World Bank building entrance (File | AFP)
The World Bank building entrance (File | AFP)

KOCHI: Kerala has salvaged a $250 million World Bank loan to the state after nearly losing the funding following the Centre's decision to use the entire disbursal by the bank for this year on national projects in the health and MSME sectors among others.

In addition, the state government is now negotiating another $100 million from the World Bank. Moreover, the government has ensured funding of $100 million from the German development bank KfW.

The Washington-headquartered World Bank has a ceiling of $2.5 billion for India in a year. Under the normal process, this amount will be allocated to various programmes/projects of different state governments. However, due to COVID-19, the central government wanted to use almost $2 billion worth of funds on national projects.

This meant that they will not give any programme loan this year and set apart all the allocation from the World Bank for national projects. Therefore, the loans for states such as Kerala, Tamil Nadu and Punjab will not be approved this year.

"After this, we renegotiated the entire thing. Initially, we thought the World Bank funding may not come at all this year. We have renegotiated this in such a way that the KfW component ($100 million) will come as a one-shot programme loan, and the World Bank portion, which is at least $250 million, but we are asking for $350 million, will come as programme for reform (PFR) in smaller tranches," said Rajesh Kumar Singh, CEO, Rebuild Kerala Initiative (RKI).

Last year, Kerala received $250 million from the World Bank for the 'First Resilient Kerala Programme', which is aimed at "enhancing the state's resilience against the impact of natural disasters and climate change".

The $100 million KfW loan will come on a reimbursement basis i.e. when the PWD road projects get implemented, the KfW will reimburse the cost to the state. While the KfW loan is entirely for road projects, the World Bank funding also includes other sectors like agriculture, animal husbandry etc.

Under the new process, instead of coming in one shot, the money will now come in a quarterly tranche of $25 million or $30 million each. "The advantage of this is that the Centre has no objection because it will not impact the single-borrower limit and it will be in smaller tranches over the next two to four years. If it was retained as a programme loan, the entire $250 million would have come in one shot, taking it beyond the World Bank's India borrowing limit," Singh told The New Indian Express.

"Now, since it's coming in smaller tranches, it will not affect the single-borrower limit. We were on the brink of losing it, but now we are in the process of salvaging it by getting around the India ceiling," he said.

In the new scheme of things, Kerala will receive $50 million or $60 million this year. "We have other avenues like our borrowing limit from the Centre which has gone up. So, we will not have any liquidity issues as we also have the KfW loan, where there are no limits. This will even out the liquidity over a period of time," said the Rebuild Kerala Initiative CEO.

He said the state government has almost agreed to the new formulation. "We are trying to do a fresh round of negotiations. That's a technical process and there are various documents to be prepared."

In May, the Centre had raised the borrowing limit for states for the current fiscal to 5 per cent of gross state domestic product (GSDP) from 3 per cent till last year.

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The New Indian Express
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