Good news: WB offers quick access to 10% of undisbursed loans for crisis response

The World Bank has opened a new financing window that will enable Bangladesh to access 10% of the undisbursed amount of its loan portfolio with the global lender for emergency use during a crisis.

The amount would be $847 million if the volume of pledged loans in the pipeline for the last fiscal year is considered, officials of the Economic Relations Division (ERD) estimated.

They said the amount would be greater if the undisbursed amount of the current fiscal year is calculated.

The new feature, referred to as the Rapid Response Option (RRO), is part of the World Bank's recently approved Crisis Preparedness and Response Toolkit.

The toolkit aims at helping countries quickly repurpose existing balances in the World Bank portfolio for emergency response when crises such as a natural disaster, health shock, or conflict events occur. 

The World Bank in a letter to Finance Minister Abul Hassan Mahmood Ali on 29 April, informed Bangladesh about the feature and invited the country to "establish a new Rapid Response Option".

The World Bank's new initiative comes as another relief for the country's foreign exchange reserve after an IMF team last week agreed to release $1.15 billion, nearly double the amount previously scheduled, in the third tranche of its $4.7 billion loan package.

The World Bank letter said, "Countries can repurpose up to 10% of their undisbursed balances in their Investment Project Financing (IPF) and Program-for-Results (PforR) operations per year for quick disbursement."

The introduction of this new initiative, offering added flexibility, will complement existing mechanisms, empowering governments to deliver prompt responses in times of crisis, it said.

However, some initial steps need to be taken, including signing an agreement with the World Bank beforehand, to get the fund.

Besides, a new project for dealing with a crisis has to be initiated without allocating funds yet, specifying how the money will be used in case of a disaster.

Zahid Hussain, former lead economist at the World Bank Dhaka office, pointed out that currently accessing emergency financing from the World Bank during natural disasters is a lengthy process. It often leads to delays as projects need restructuring after the disaster strikes.

"However, if the government takes up the World Bank's new feature, preparations will be made in advance, expediting the response to emergencies," he added.

He further said for the fund to be accessed, a disaster must occur, be it natural, health-related, or man-made, such as economic recession, sudden rise in unemployment and poverty.

However, the World Bank will assess and decide on the severity of the disaster through a third party, he added.

ERD officials said the decision to accept the World Bank's invitation will be made after a thorough review, considering the opinions of relevant ministries and government officials at the highest level.

Amount, source of the fund

The money in the RRO fund would depend on the amount of money in the pipeline. For instance, Bangladesh had $8.477 billion in the pipeline by the end of FY23 as pledged by the World Bank, ERD officials said.

Therefore, Bangladesh will get about $847.7 million if it chooses to avail the fund, they added.

They further said the money for this urgent fund would come from re-allocating money from ongoing projects of the World Bank or from its budget support.

If the RRO fund is taken, they said they will carefully choose which part of the project to take money from, ensuring that existing commitments remain intact. For instance, funds will be taken from projects where work has not started yet.

Regardless of the amount taken from projects, there will be a legal agreement with the World Bank, specifying which projects the money will be deducted from, said officials.

Fear of project cuts

Implementing the World Bank's proposal will not be easy due to the risk of project funding cuts, officials said. The global lender provides two options to repurpose funds for the RRO: scaling down projects or seeking alternative financing through negotiations with the World Bank.

Ministries might object to reallocating funds from their projects, raising concerns about the future of those projects, said the officials.

Regarding the matter, economist Zahid Hussain said resistance from project authorities and related ministries is likely if project funds are cut.

"If the government does not intervene in this matter, then no ministry will want to scale down or restructure their projects," said the economist.