Bangladesh gets USD 400m from AIIB as budget support


The government has signed a USD 400 million budget support loan agreement with the Asian Infrastructure Investment Bank (AIIB) to implement the second subprogramme of the Sustainable Economic Recovery Programme.

The Sustainable Economic Recovery Programme (subprogramme-2) launched in October 2021 to support economic recovery after the COVID-19 pandemic, also aims at advancing reforms in Bangladesh's domestic resource mobilization, improve efficiency and productivity of public spending, and help small businesses, especially women-led businesses to access low-cost innovative bank financing.

Economic Relations Division (ERD) Secretary Sharifa Khan and AIIB vice president, investment operations, (region 1), Urjit R Patel signed the agreement on Wednesday on behalf of their respective sides.

The Finance Division along with the Financial Institutions Division, National Board of Revenue (NBR), Bangladesh Bank, Programming Division and the Central Procurement Technical Unit (CPTU) has formulated the Sustainable Economic Recovery Programme.

It focuses on the policy reform to mitigate the adverse economic effects caused by the COVID-19 pandemic and geo political crisis. The programe scope includes strengthening public financial management systems and improving access to finance for underserved market segments. AIIB, like other development partners, came forward with a USD 400 million budget support loan for this mentioned programme.

The loan will be received in standard terms and conditions of the AIIB lending. The repayment period of the loan is 26 years including 3 years grace period. The interest rate of the loan will be SOFR+ Variable Spread (1.14 per cent). Front end fee is 0.25 percent and the commitment fee on the undisbursed loan amount is 0.25 per cent.

This subprogramme enables Bangladesh to enhance revenues, promote efficiency and transparency in public spending and public procurement, deepen the reforms of state-owned enterprises, and help small businesses and micro entrepreneurs to access low-interest affordable credits from the banking sector.

The programme will enhance income tax collection through the adoption of the new Income Tax Act, reduce tax loopholes, strengthen compliance and enforcement measures, and broaden the country's tax net.

Transparency and efficiency in public procurement will be enhanced through strengthening electronic procurement and electronic payment systems, while approval of public projects will be facilitated through the newly launched digital system of public project appraisal and approval process.

The new package supports the launch by Bangladesh Bank of innovative financing services through commercial banks to provide low-cost microcredit using digital channels and e-wallet.

It facilitates bank lending to marginalized and landless farmers, small traders, and low-income earners. Micro and small businesses and women entrepreneurs who do not possess land or property will also be able to access finance based on their trade receipts and other forms of nonfixed collaterals, such as small equipment and machinery.

Promoting gender equality and social inclusion and addressing the climate change agenda in public investment and national budgeting are some of the key activities of this new programme.

AIIB started investing in Bangladesh from 2016. Till date, AIIB committed USD 3,037.79 million in investment projects in Bangladesh. Besides, in the last 3 years, AIIB provided USD 1050 million as budget support loan to Bangladesh to strengthen its COVID affected economy. After today's signing, the total budget support loan from the AIIB stands at USD 1,450 million.