Bangladesh’s foreign currency reserve has been shrinking for the past couple of months. More US dollars are being spent due to rising import costs, and on top of that, earnings from export and remittance have dropped.
In a bid to tackle the crisis, the government went to IMF, World Bank, ADB and big development partners like Japan for budget support. These agencies and countries are not sending Bangladesh back empty handed.
However, there will likely be terms and conditions regarding reforms of the financial and revenue sectors in addition to conditions to establish good governance in the expenditure of public funds.
According to the government sources, four donor agencies and countries are giving about $1.5 billion or approximately Tk 150 billion to Bangladesh in the current fiscal in addition to regular assistance.
ADB may give $500 million, IMF $360 million, Japan $350 million and the World Bank $250 million to Bangladesh by next June to tackle the on-going crisis though it is unlikely that the funds will be available before next February. Other than this, funds will be disbursed from the project-based regular assistance.
Foreign reserves fell by about $5 billion in the first four months of current fiscal. As of Wednesday, according to Bangladesh bank, foreign reserve was $33.40 billion.
Speaking to Prothom Alo, non-government research organisation South Asian Network on Economic Modeling (SANEM)'s executive director Selim Raihan said, “We need dollars at this moment. Recent successful talks with the IMF conveys a positive sign to other development partners. It will also influence the World Bank. But the problem is negotiations take a long time. We need dollars as soon as possible. Now, dollars are available to pay tuition fees aboard, maybe dollars will fall short to pay medical expenses after a few days. Initiative should be taken to disburse dollars quickly from ADB, JICA and other donors.”
According to sources at Economic Relations Department, ABD and the World Bank have committed to give about $1.8 billion as part of mid-term development assistant by 2025 in addition to the budget support.
Speaking to Prothom Alo about the talks on budget support with various development partners, planning minister MA Mannan said there would be relief for the country’s balance of payment once development partners including IMF and the World Bank release their loan funds. Quick disbursement of loan instalments will have a positive psychological impact.
The concerned authorities must not sit idle with this money. It must be spent properly, he said adding that the situation will worsen if the funds are misspent.
Foreign reserves have fallen significantly over the past couple of months and foreign assistance is necessary to tackle the situation so that reserves don't plummet further, he observed.
First instalment of IMF loan in February
An IMF delegation recently spent two weeks in Bangladesh and have primarily agreed on a $4.5 billion loan to Bangladesh. However, this loan may come with conditions on reforms in the finance and revenue sectors. Once the IMF board approves the agreement, $350 million of the loan may arrive in the country in the first instalment in next February. Overall, IMF will provide $4.5 billion in seven instalments in a gap of six months by December 2020.
The IMF delegation emphasised five issues mainly -- firstly, higher revenue mobilisation and increase of expenditure for the vulnerable; secondly, containing inflation along with modernising the monetary policy framework to promote macroeconomic stability; thirdly, enhancing governance and regulatory framework to reduce risks in the financial sector; fourthly, boosting growth potential by expanding trade and foreign direct investment, developing human capital, and improving governance; and fifthly, building climate resilience.
World Bank to give $250 million
Once the loan of IMF is approved, it will be easier to get loan from the World Bank. Bangladesh may receive the second instalment of $250 million under the development policy credit (DPC) of World Bank in next February.
There was a condition to reduce subsidies in exports to receive the first instalment of $250 million under the DPC in the last fiscal. That is why the government increased tax by 1 per cent in export sectors including garments while announcing the budget in June last year. There are also terms and conditions in the disbursement of the second instalment. According to the finance ministry, a new bank company law will have to be enacted and process is on to this end. Besides, emphasis has also given on enactment of a customs act an and income tax act.
Other than this, Bangladesh expects to get another $1 billion budget support. The ERD also sent a letter to the World Bank in June last. Assurance has been given to provide this fund under ‘green growth’ programme during the recent visit of World Bank vice president for the south Asia region Martin Raiser to Dhaka.
Poor and low-income countries receive soft and low interest loans from International Development Association (IDA) of the World Bank. The IDA announces a replenishment package for a three-year term for these countries in every three years. Duration of the most recent IDA20 replenishment is from July 2022 to June 2025. Bangladesh may avail $6.15 billion from IDA20 in four categories. $2.50 billion million will come from core IDA loan at lowest interest rate and easy condition, with a payment period of 40 years.
Bangladesh may receive another $2 billion in loan for mega projects, which will accelerate economic transformation, at LIBOR (London Interbank Offered Rate). More $1 billon may come from regional window (RW) for multilateral projects to develop trade and infrastructure at regional level. Interest free loan will also come from another new category, scale-up window short-term maturity (SUW-SML) with a 12-year tenure and Bangladesh may receive $600 million.
ABD to give $500 million by next June
The ERD sent a letter to the ADB in May last seeking $1 billion in budget support. Currently, negotiation is on between ERD and ADB. Sources said this loan might be approved in the board meeting of ABD within next March. The ABD will disburse $500 million in next June, and that include $250 million for climate resilience projects and $250 million for economic reform projects. The ADB will provide another $350 million for projects for the flood-affected people in Sylhet while the reaming fund will be for employment projects. However, reform to finance and revenue sectors is one the major terms for ABD loan.
ABD will give $12 billion to Bangladesh under five year (2021-25) country partnership strategy (CPS). The agency disbursed $2.36 billion in last fiscal and will release the remaining fund in next four years.
Besides, Bangladesh also expects another $700 million from its long-time development partner Japan. Prime minister Sheikh Hasina is visiting Japan from on 29 November. A final assurance is likely on the loan assistance on emergency basis during her visit.
According to ERD sources, Bangladesh may receive sector wise loan instead of project-based assistance under urgent consideration. Once the loan approved, $350 million may arrive within a couple of months.