Budget support from WB, IMF, ADB: Bangladesh could get $5.65 billion this fiscal year

The government expects at least $5.65 billion in budget support this fiscal year from the World Bank, the International Monetary Fund (IMF) and the Asian Development Bank (ADB) to accelerate reforms.

Of the expected funds, the IMF is likely to provide $3 billion, the World Bank $1.5 billion and the ADB $1.15 billion.

About $3 billion of the funds could arrive in December for stronger support to ensure good governance in banking and other sectors, according to officials from the finance ministry, Bangladesh Bank and the three development partners.

Global and regional lenders can impose various conditions on loans, including some on income, public spending and data dissemination, finance ministry officials said.

A high-powered government delegation led by Financial Adviser Salehuddin Ahmed will visit the United States from October 21 to 29 to attend the annual meetings of the World Bank and the IMF.

They will meet with officials from the World Bank and the IMF on the sidelines of the main event to discuss the new financing, its modalities and the conditions of the reform.

Senior World Bank and IMF officials have assured the government that it will provide the funds needed to top up the depletion of foreign exchange reserves after the interim government took over in August.

The IMF is likely to approve $3 billion in new loans under a separate program, on top of the $4.7 billion in funds approved in January last year. Bangladesh has $2.3 billion in three tranches so far.

The IMF can also disburse the new funds in several tranches. However, the modalities of the loans will be finalized during talks in Washington this month.

A finance ministry official said they expect to secure more than $1 billion from the two IMF programs this year, subject to IMF board approval in December.

An IMF team is likely to visit Dhaka in November to set reform conditions for the new funds and also review the existing loan program.

The World Bank is expected to disburse $1.5 billion in new funds in the current fiscal year, including $1 billion in two programs in December.

A finance ministry official said the World Bank will provide $750 million to strengthen economic governance and reform programs.

Another $250 million will be provided for capacity building of the finance ministry, Bangladesh Bank, National Board of Revenue (NBR) and Bangladesh Bureau of Statistics (BBS), the official said.

From the ADB, the government expects $1.15 billion by the end of this fiscal year. The funds will include $650 million slated for December for a program to strengthen economic management and governance.

The caretaker government also requested $1 billion from the ADB for the banking sector and another $1 billion for the energy sector.

Of these, there has been significant progress towards achieving $1 billion for the banking sector. The ADB could provide $500 million of the funds by June next year.

The Bangladesh delegation will also hold talks with officials from the Multilateral Investment Guarantee Agency (MIGA) of the World Bank Group and the International Finance Corporation (IFC) and the US Treasury Department during the WB’s annual meetings -IMF.

The IFC proposed in 2022 to issue $4 billion worth of Taka-denominated bonds between local investors, either through public issues or private placements, to lend the proceeds to projects in Bangladesh.

Not much progress has been made on the proposal, but the World Bank Group member has recently shown renewed interest in the matter.

MIGA has offered Bangladesh Bank $1 billion in guarantee facilities for international trade to reduce import costs.

The MIGA and IFC proposals will be discussed further during the Bangladesh delegation’s visit to Washington, a central bank official said.

CONDITIONS

Officials said the World Bank and IMF may put some conditions on the loans, such as separating the administration’s fiscal policy from revenue collection. Lenders have been raising the issue for a long time but it could not be realized due to lack of interest from NBR officials.

Other conditions may include replacing the existing multiple VAT rates with a single rate and introducing a modern electronic VAT system to increase revenue and improve compliance.

The World Bank recommended these reforms in its latest development update for Bangladesh last week.

He suggested improving the efficiency of spending by aligning interest payments on national savings certificates with market rates and controlling subsidy spending.

The report recommended implementing market-based tariffs in the electricity sector and transitioning fertilizer subsidies to a voucher-based program. He suggested replacing emergency procurement with competitive bidding to reduce generation costs.

A finance ministry official said lenders can impose a condition under which the BBS has autonomy and publishes data independently.

BBS currently sends data to senior government officials for approval before publication.