World Bank to provide Bangladesh with $18 billion in IDA loans over next five years
Foreign aid inflows will continue to increase, with Bangladesh receiving $18 billion from the World Bank’s International Development Association (IDA) soft loan window alone over the next five years.
The Washington-based lender will provide the country with new loans amounting to $10 billion – $2 billion a year – during this period and will also release $8.24 billion into the pipeline, according to a draft framework program. Country Partnership (CPF) for FY23-FY27.
In addition, its sister organization International Finance Corporation (IFC) will finance $4.5 billion for private sector development, while the Multilateral Investment Guarantee Agency (MIGA) will provide guarantees of $695 million per year for external loans in the energy and manufacturing sectors.
The World Bank has already sought government and private sector input on the proposed Country Partnership Framework, which will replace the existing Country Assistance Strategy, to carry out its lending activities in Bangladesh until 2027 from the next budget exercise.
The development lender is expected to meet with representatives from government ministries and agencies on July 6 to finalize the framework.
Bangladesh received $11.83 billion in fiscal year 2016-22 – $1.67 billion per fiscal year on average – from IDA under the country assistance strategy, the document on larger at the country level designed to guide World Bank Group support to a member country based on need.
The loan term was initially up to FY20 and was later extended to FY22 due to Covid-19.
In fiscal years 2011-2015, IDA provided the country with $6.1 billion in concessional loans, or $1.22 billion per year.
Bangladesh is also securing additional loan commitments from the Asian Development Bank (AfDB), Asian Infrastructure Investment Bank (AIIB) and other multilateral lenders.
For example, the AfDB, which had previously committed $10-12 billion in line with its Country Partnership Strategy approved in September last year, has now committed to increase the loan amount by $2.37 billion. dollars at a recent meeting with the Economic Relations Division.
In addition, the AIIB has made a proposal for new loans of $1.51 billion for five projects.
Economists say that the use of foreign aid will appear in the future as a major catalyst to continue the implementation of development projects by tackling the budget deficit.
They also claim that there are still many opportunities to obtain foreign aid in the education, health and social infrastructure sectors.
They urged to accelerate the formulation and implementation of projects and to release all external loans as soon as possible.
The government estimated 7.5% growth in the proposed budget for the next fiscal year, but the World Bank projected it at 6.8% due to rising domestic consumption and weakening exports.
As an IDA GAP country, readiness will be launched under the new partnership framework with Bangladesh to take mandatory non-concessional loans from the World Bank’s International Bank for Reconstruction and Development, according to the draft framework. .
The proposed Country Partnership Framework has three high-level outcomes, such as increased private sector jobs, improved socio-economic inclusion, and enhanced climate resilience.
Zahid Hussain, a former senior economist at the World Bank office in Dhaka, told The Business Standard that the number of quality jobs in the private sector is very low. Most people are engaged in the informal sector where there is no job security and they do not receive severance or retirement pay.
The new framework suggests increasing jobs in the sector, but it did not set the target of bringing workers from the informal to the formal sector in the high-level outcome, he said.
In the CPF project, there should have been an idea of the number of new jobs that will be created for women, the economist said.
Commenting that the release of foreign aid will play a big role in keeping the economy afloat in the future, Zahid Hussain said it takes a long time at different stages before a project is approved. After project approval, appointment of a project director and project management team, and finalization of a project office also take a long time before the project reaches the preparation stage. of the implementation.
Without major public administration reform, disbursements of foreign funds cannot be increased on the basis of financing conventional investment projects, he also said, adding that program financing based on results should be scaled up alongside input-based lending instruments.
The share of foreign aid in the annual development program has decreased in recent years. The cuts in the revised ODA are part of external lending. Based on this information, it is easy to say that the ability to spend foreign aid is not increasing, the economist added.
Professor Mustafizur Rahman, Fellow Emeritus of the Center for Policy Dialogue, said: “We must work to increase the release of foreign aid to prepare for the challenges that will arise from LDC graduation. And we must do this by accelerating the implementation of the project.”
The economist believes that stronger measures in terms of political economy, good governance, implementation capacity and institutional effectiveness must be taken to this end.
Concessional and non-concessional loans are now available for Bangladesh, as a GAP country. But there will be no option for concessional loans in the future.
So he suggests that Bangladesh prepare for it.
Kamruzzaman Kamal, director of Pran Group, told TBS that it is good news that the IFC has set itself the goal of lending $900 million a year to the private sector in Bangladesh, because local banks cannot lend to them. large sums.
The IFC offers a big loan at far lower rates than banks and it has helped the agribusiness sector a lot with credit support, he noted, adding that the biggest advantage of IFC loans IFC is that they not only lend, but also work to ensure the overall development and compliance of borrowing organizations.
Risks related to the implementation of the CPF program
The global lender has identified a number of challenges, such as weak private sector expansion and the projected lack of pace of employment, in using foreign aid, but it believes the overall socio-economic risk in the country decreased.
According to the World Bank, Bangladesh would have been exposed to a high risk in the country assistance strategy for the financial years 2016-20. The country is downgraded to moderate risk with two steps down under the proposed framework.
For example, the country is currently exposed to moderate risk in terms of politics and governance, while it remains at the same moderate risks in terms of macroeconomics, strategies and sector policies.
Similarly, Bangladesh moved to moderate risks in the fiduciary environment and social categories.
But risks related to the technical design of projects and programs and stakeholder categories have increased to substantial levels, and its institutional capacity for implementation and sustainability still remains at high risk, the World Bank said.
Four challenges for the development of Bangladesh
Identifying four challenges for Bangladesh’s development, the World Bank said the private sector has remained narrow and uncompetitive to drive growth and job creation. The formal sector is dominated by a few large firms, which tend to be inward-looking, benefiting from market protections or RMG exports under special incentive schemes, and supported by strong ties to the sector banking. Technology adoption by Bangladeshi businesses is slow. Foreign direct investment flows remain weak.
As the country aspires to become an upper-middle-income country by 2031 and a high-income country by 2041, economic growth must be accompanied by income growth through increased job creation, especially in the form of formal wage jobs, the global lender noted.
Job creation, in turn, critically depends on the performance of the private sector to drive growth and economic transformation through investment and productivity growth; the public sector also plays an important role in facilitating private sector growth by providing an enabling policy environment and efficient service delivery, he pointed out.
The World Bank has identified an inefficient, unsustainable and less inclusive spatial transformation model as the second challenge for the economy.
Another major challenge for Bangladesh is job creation and service delivery, according to the project which recommended improving the quality of regulations and formal institutions to make markets contestable to support the development of a sector. broad-based private.
To maintain Bangladesh’s export competitiveness after LDC graduation, it needs to boost private sector productivity to accelerate growth and job creation, the development partner also said, adding that the World Bank will help develop a diversified and competitive private sector thanks to a more favorable environment. promote market entry of new firms, promote FDI, foster adoption of technologies, including green technologies.
The main areas of commitment are tariff modernization to promote export diversification, modernization of investment laws to promote FDI, simplification of regulations to promote the development of new businesses, the search for opportunities for IFC investment in high-value pharmaceuticals, white goods and economic zones.
For the country to move to the next level of development, it needs an effective and efficient public sector that delivers quality services to businesses and citizens and makes effective investments to drive growth and build resilience, the President added. CPP project.