Budgetary assistance assurances
Zarif Mahmud: A large amount of budget support from development partners werepromised but so far, a minor amount of $726.27 million is gained. In 2022, $7.5 billion or about Tk 75 thousand crore have been requested to deal with the ongoing crisis. But so far, only the Asian Infrastructure Investment Bank (AIIB) has disbursed $250 million and IMF released $ 476.27 million. Of the remaining $7.25 billion, $1.2 billion may be waived at the beginning of 2023. Besides, the issue of obtaining a large portion is still uncertain.
One of the hot topics was the decline in foreign exchange reserves due to the Russia-Ukraine war. The government approached various development partners to deal with this situation quickly. They are asked for budgetary support (a loan that the government can spend on any sector it wants). The race begins. Efforts to raise aid continued throughout the year. As a result of this, some money may be exempted in the first quarter of the new year (January-March).
However, the officials of the Economic Relations Department (ERD) are yet to confirm the matter. ERD Secretary Sharifa Khan spoke about this on the last day of Bangladesh Institute of Development Research (BIDS) research conference recently. At that time, he said, “Budgetary assistance has been requested from various countries to meet the dollar crisis and increase the foreign exchange reserves. Budget support is available from AIIB first. Apart from this, it is expected that relief money from other development partners will start by next March.
Former lead economist of the World Bank Dhaka office Zahid Hossain told that the budget support of development partners will play some role in dealing with the dollar crisis. The current account deficit could be $12-14 billion by June. Expectations from development partners are not high. If it doesn’t come on time, then it’s a problem. So urgent action is needed in this regard.
He also said that remittance is another important sector to solve the dollar crisis. The hurdles there are multiple dollar rates and caps.
If it can be removed and the price of the dollar can be left on the market, there is a possibility of earning about $500 million per month and $600 million annually. The government should also pay attention to that. Because this is a big opportunity.
According to ERD sources, AIIB has given $250 million budget support in response to the government’s call. In local currency (100 taka per dollar) which is about Tk 25,000 crore. An agreement was signed in this regard on December 7. An ERD official confirmed that the amount was released soon after. He said that since the budget support, the entire concession was made immediately after the agreement. The loan of the company has to be repaid in 26 and a half years with a grace period of 3 years.
This amount will be spent on budgetary support under the ‘Strengthening Social Resilience Program (Sub-Programme-II)’. The objective of the program is to take steps to make the social development of Bangladesh more sensitive and inclusive. Besides, the coverage of social protection system and capacity building and financial inclusion of disadvantaged people will be improved and more opportunities will be created. In addition, the response system to the social and health needs of the life cycle will be strengthened.
For the first time this budget support from AIIB has been received at ‘Secured Overnight Financing’ Rate (SOFR). The London Interbank Offered Rate (Libor) expires in December. Its alternative interest rate SOFR will be applicable on AIIB loans. Currently the SOFR is over 3 percent.
According to sources, the government first approached the International Monetary Fund (IMF) for budget support of $450 million in aid is sought. Then a mission of the organization visited Bangladesh. There was a big uproar about this. The IMF initially agreed to pay. However, it has given conditions on various issues, including some reforms in the financial and revenue sectors.
If the loan is approved by the company’s board meeting, the first installment of $476.24 million come to the country in early February. Among the IMF’s conditions are improvement in reducing defaulted loans, leaving the value of the dollar to the market, increasing revenue, reducing subsidies in various sectors and increasing the cost of foreign exchange pipelines.
Besides, the World Bank has been asked for a budget support of $100 million. ERD has negotiated several times about this. This issue was even brought up to the vice president of the South Asian region of the organization who was visiting Dhaka recently. However, there was no response. However, the World Bank may approve the second tranche of the old budget support of $250 million in March. After that comes the issue of contracts and discounts.
Besides, another $250 million budget support from a new fund called ‘Green’ is being discussed. ERD is not sure when it will be available. However, one of the conditions of the World Bank’s budget support is reforms in the financial, institutional and social security sectors. Along with this, the bank loan interest rate limit of 9 percent has been removed.
However, a source in charge of ERD said that the organization has not yet responded to the $1 billion budget assistance requested by the government. However, the conditions of the World Bank’s previous budget support have not yet been fully met. As a result, the organization is somewhat dissatisfied. Besides, the Asian Development Bank (ADB) has been asked for a budget support of 100 million dollars. From there, the agency can approve $250 million in March.
Then there are talks about increasing it further. A source in charge of ERD said interest rates on ADB loans have gone up. As a result, they are willing to lend even if the conditions are relaxed. After releasing this amount, budgetary support can come jointly with AIIB and some other organizations. The Japan International Cooperation Agency (JICA) may provide $350 million in budget support by June.
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