Budget support from dev partners to cross $2b for second time
ERD data show that the government is set to receive $1.25 billion from multiple development aid agencies as budget support in June, the final month of FY24
This fiscal year marks the second instance of the government receiving over $2 billion in budget support from development partners. Previously, the highest recorded budgetary assistance stood at $2.597 billion in the fiscal 2021-22, according to data from the Economic Relations Division (ERD).
ERD data show that the government is set to receive $1.25 billion from multiple development aid agencies as budget support in June, the final month of FY24.
Finance ministry officials said this aid will swiftly bolster foreign currency reserves upon the signing of the loan agreements.
Of the $1.25 billion in loan agreements expected to be signed this month, $250 million will come from the Asian Development Bank (ADB), $500 million from the World Bank, $400 million from the Asian Infrastructure Investment Bank (AIIB), and $100 million from South Korea.
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Earlier, in December last year, agreements were signed for $400 million with ADB and $100 million with Korea. Additionally, on 20 May, a €300 million loan deal with Agence Française de Développement (AFD) was finalised.
In total, lenders are providing budget support amounting to $2.06 billion in this fiscal year.
Typically, the government seeks budgetary assistance from development partners to address gaps in foreign exchange reserves and revenue collection, addressing budget deficits.
Although Bangladesh's forex reserves reached $48 billion during the Covid pandemic, current gross reserves have declined to $18.72 billion according to the IMF's reserve accounting system PPM-6, with the Bangladesh Bank holding usable reserves of $13 billion. In response to the reserve crisis, the government has imposed restrictions on imports.
According to ERD data, the government received a total of $11.09 billion in budgetary support until the end of the last fiscal year (June 30, 2023).
Particularly post-Covid-19, there has been an increase in government budgetary support aimed at vaccine procurement and economic recovery.
Additionally, the government has bolstered the budget support programme in response to the economic challenges stemming from the Ukraine-Russia war.
The government received $1.769 billion in the 2022-23 fiscal year, $2.597 billion in 2021-22, $1.09 billion in 2020-21, and $1 billion in 2019-20. In 2018-19, the budget support was even lower than $1 billion.
Dr Fahmida Khatun, executive director of the Centre for Policy Dialogue (CPD), said, "In the current economic situation, the government has no choice but to take budgetary support. There is no way for budgetary expenditure without support. But the concern is the payment."
"The budget support of the development partners is good. But the issue is how we will use it. This money has to be used very effectively and efficiently, which ensures good returns and value of money," she added.
Decision on ADB's $250m aid today
According to ERD sources, a proposal for a $250 million budget support loan under the Second Strengthening Social Resilience Programme (Subprogramme 1) is scheduled to be presented at the ADB's board meeting today (5 June).
ERD officials indicated that if approved at the board meeting, the loan agreement will be signed the following week.
Additionally, ERD officials said that Korea will provide $100 million in budget support as part of the same package with the ADB's assistance. Following the signing of the loan agreement with ADB, the agreement with Korea will follow shortly.
In the ongoing fiscal year, the ADB is set to offer another budget support of $400 million to Bangladesh, as per ERD sources. This budget support loan agreement, titled Promoting Climate Resilient Development Programme (Subprogram 1), was signed last December.
Furthermore, the $400 million budget support from the Asian Infrastructure Investment Bank (AIIB) has already been confirmed as part of the same package with the ADB's assistance.
Decision on WB's $500m on 21 June
The proposal for the Second Recovery and Resilience Development Policy (RR DPC-2) budget support will be presented at the World Bank's board meeting on 21 June, with the loan agreement for $500 million set to be signed in the final week of June. ***
