Govt negotiates with lenders over $1.2b budget support 

A new government has taken power, but the old economic challenges persist. The country continues to grapple with different setbacks, including the dollar crisis, dwindling reserves, and budgetary pressures. Therefore, the authorities have to keep depending on budget support to deal with these pervasive setbacks in the current fiscal year.

The economic relations division (ERD) has nearly finalised negotiations with the World Bank, Asian Development Bank (ADB), Asian Infrastructure Investment Bank (AIIB), and South Korea, to secure $1.2 billion in budget support in the current fiscal. 

However, the authorities are yet to take any decision on budget support from China, which was initiated by the ousted Sheikh Hasina government. According to ERD sources, the government will maintain a go-slow policy here for the time being.  

Salim Raihan, executive director of the South Asian Network on Economic Modeling (SANEM), said multiple issues, including the reserve crisis, rising exchange rate of dollars, slowdown in exports and remittances, and low revenue collection, created significant pressure on the economy as well as the government. 

Against such a backdrop, budget support is crucial to meet fiscal needs, and seeking such aid is a good government policy, he said, adding that the government should also revise the budget and rationalise it as per prevailing economic situation. 

The ERD has so far initiated discussions with the World Bank, ADB, AIIB, and South Korea for budget support. Earlier, the country received $250 million under the development policy credit (DPC) at the end of the last fiscal year. 

The government requested the World Bank for an additional budget support of $500 million in November last year. Both sides are now negotiating in this regard. 

A three-year budget support programme is underway with the ADB, for creating employment opportunities in vulnerable population areas. Bangladesh is likely to receive $400 million under the programme in the current fiscal year. The programme, now in its third year, is extended annually.

If the ADB provides the budget support, the AIIB and South Korea will follow suit. Hence, the government is likely to receive $200 million from AIIB, and $100 million from South Korea in the current fiscal year.  

Additionally, the ERD has started discussions with the ADB on another programme for logistic support in combating challenges following the country’s graduation from the group of least-developed countries (LDC). While the exact amount is yet to be finalised, an ERD source indicated it could be around $400 million.

The lenders usually impose different conditions while approving budget support, and the disbursal depends on their fulfillment. The common conditions include financial sector reforms, legal reforms to establish good governance, reduction of subsidies and tax breaks, and major reforms in various sectors.

A senior ERD official told Prothom Alo that they are certain about receiving $1.2 billion in the current fiscal year, and are also exploring other options for more funds.