Govt relocates WB loans from slow-moving projects to speed up utilisation
Additional projects will get funding if loan relocation rises
Highlights:
- $810m already marked for relocation, ERD sources say
- Total amount of relocated loans expected to increase
- Reviews ongoing to identify further opportunities for loan relocation
- Additional projects will get funding if loan relocation rises
- WB has $16 billion commitment for Bangladesh projects
- Over $9 billion remains undisbursed due to slow implementation
The government is set to shift World Bank loans from slow-progressing or non-urgent projects to finance new ones, with $810 million already taken out of various development projects, according to sources at the Economic Relations Division (ERD).
The strategy has been adopted to expedite the utilisation of World Bank funds. The global lender is being notified of these relocations regularly, the ERD sources said.
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They also noted that the total amount of relocated loans is expected to increase, as reviews of additional ongoing projects are underway to identify further opportunities to support new projects.
Of the relocated funds, $500 million will be used to finance a budget support initiative, titled Resilience and Recovery Development Policy Credit-II, and $300 million for the Bangladesh Clean Air project, ERD sources added.
According to the sources, these projects will be implemented on an urgent basis with flexible loan terms. Additionally, if the amount of relocated loans increases, several other urgent projects in the pipeline will also be financed.
According to sources at the ERD and the World Bank's Dhaka office, the global lender currently has a $16 billion commitment for various projects in Bangladesh. However, over half of this amount – around $9 billion – remains undisbursed due to slow implementation.
Additionally, with the exhaustion of the ongoing IDA-20 ceiling, the World Bank is unable to provide flexible loans for urgent budget support or critical projects.
As a result, the government has decided to cancel segments of committed loans from projects where the funds cannot be immediately utilised.
IDA-20 refers to the 20th replenishment of the International Development Association (IDA), which is part of the World Bank Group that provides concessional loans and grants to different countries.
Sources said decisions on the amount of loans to be cancelled for each project were taken in consultation with the implementing agencies. It has also been reported that officials of both the ERD and the World Bank participated in these reviews.
According to ERD sources, the World Bank provides loans based on a three-year financing plan, and Bangladesh is currently receiving loans under the IDA-20 framework, which will conclude in June. Under this three-year plan, Bangladesh was expected to receive $3.5 billion in concessional loans from the core IDA (flexible loans).
Bangladesh has already met its loan disbursement target for the first two years of IDA-20, leaving the World Bank unable to provide further flexible loans at this stage. To facilitate access to flexible financing, the decision to repurpose loans has been made, the sources say.
However, not all projects are losing funding permanently. If needed, additional financing or new loans can be secured for these projects later. According to sources from the World Bank and ERD, additional financing for these projects is expected to come from the upcoming IDA-21 framework, starting in July.
Projects from which WB loans are being relocated
According to ERD data, although $810 million in loans have been cancelled so far from ongoing projects, TBS has obtained a list of 10 projects, showing a total of $564.138 million in cancelled loans.
Sources at the ERD have confirmed that the Bangladesh Road Safety Project under the Roads and Highways Department has had a decision on the cancellation of $75 million in loans. A letter was sent from the ERD to the World Bank's Dhaka office on 1 December regarding this move. Discussions are currently underway to cancel an additional $75 million from this project, bringing the total loan cancellation for this project to $150 million.
A loan agreement of $358 million was signed with the World Bank for this project in June 2023.
Project Director Md Amanullah told TBS that the contractor selection process is currently underway for the project. As a result, foreign loan disbursement has not yet been initiated; and there is no immediate need for the foreign loan to be used.
He mentioned that the Road Safety Project will be completed by 2028. When the need arises, the World Bank loan for this project will be available again.
Meanwhile, $100.378 million will be cancelled from the Accelerating and Strengthening Skills for Economic Transformation project, which aims to enhance youth and workers' skills.
In October 2021, Bangladesh signed a $500 million loan agreement with the World Bank for this project.
Md Abdur Rahim, additional director of the project, told TBS that the dollar rate has increased significantly compared to when the agreement was signed. As a result, there is no need to fully utilize the $300 million loan. Based on the government's proposal, $100 million has been returned.
On 27 December, a proposal was submitted to the World Bank to cancel $115 million in loans from the Enhancing Digital Government and Economy (EDGE) project. The project, which aims to enhance the efficiency of digital government, improve cybersecurity, and create employment opportunities, had signed a $295 million loan agreement with the World Bank in January 2018.
Additionally, proposals for loan cancellations have been sent to the World Bank for several other projects.
Notably, $100 million is being canceled from the Livestock and Dairy Development Project under the Department of Livestock and Dairy, $65 million from the Bangladesh Environmental Sustainability and Transformation (BEST) project led by the Department of Environment, and $60 million from the Resilient Infrastructure for Adaptation & Vulnerability Reduction (RIVER) project under the Local Government Engineering Department.
