Govt expects $1.5b in budget support from four global lenders

The government has turned to its development partners for over $1.5 billion in budget support for this fiscal year to ease pressure on the foreign exchange reserve with external loan repayment soaring on interest rate hikes.

Officials from the Finance Division and the Economic Relations Division (ERD) said in response to the government's request, three development agencies gave tentative commitments for the loan support.

Of the amount, $300 million has been sought from the Asian Development Bank (ADB), $400 million from the Asian Infrastructure Investment Bank (AIIB), and €300 million ($325.51 million) from the French development agency, Agence Française de Développement (AFD).

Moreover, the government has sought an additional $500 million from the World Bank for this year under the Second Recovery and Resilience Development Policy Credit, according to a letter sent by the ERD to the global lender on 27 November last year.

While the World Bank has not yet responded, progress on this front is expected by the fiscal year's end, said officials.

ERD data shows foreign debt servicing surged 43% to $2.03 billion in the first eight months of the current fiscal year till February, from $1.42 billion in the same period last year. Of the amount paid, interest payments accounted for $806 million – double the amount paid for the same period last year.

The government appears cautious about high-interest bearing external loans for projects and more inclined to get as much budget support, which is flexible and less conditional compared with project loans, as possible to give forex reserve some respite.

In the current fiscal year, the government has already secured $490 million in budget support from the ADB and South Korea, with both loan agreements signed on 11 December last year.

Usually, development partners impose particular requirements for providing loans. Within the budget support agreements with the ADB and Korea, the government will implement various climate reform programmes.

ERD data indicates a rise in government budgetary support over recent fiscal years, primarily for Covid-19 vaccine procurement and post-pandemic economic recovery. The government bolstered the budget support initiative amid the economic fallout from the Ukraine-Russia war.

According to ERD data, the government obtained $1.769 billion in the fiscal 2022-23, $2.597 billion in 2021-22, $1.09 billion in 2020-21, and $1 billion in 2019-20. Budgetary assistance was lower in the fiscal 2018-19, at $0.251 billion.

Negotiations underway

While aiming to secure the full amount of targeted budget support from development agencies this fiscal year, officials acknowledge it might not be achievable. However, they remain confident in securing a significant portion of the requested funds.

ERD officials said securing an additional $300 million from the ADB this year hinges on social security reforms. 

The government is negotiating a loan agreement, the Second Strengthening Social Resilience Programme (Subprogramme 1), with the ADB with specific conditions attached regarding the social security sector. A delegation of ADB visited Bangladesh on 5-14 September last year to formulate the modality in this regard.

Headquartered in Beijing, the AIIB so far lent Bangladesh $3.5 billion, mostly in infrastructures.

Though the government opted to avoid new loans from AIIB this year due to high market interest rates, it submitted a proposal for $400 million in climate-resilient development support in November last year. The issue was discussed during the visit of the lender's acting Vice-President Rajat Misra, who met the finance minister and finance secretary in the first week of March in Dhaka.

Finance officials expect a decision from AIIB's board on the proposal before June 2024.

The ERD is also in talks with the French agency about securing budget support specifically aimed at the government's climate change agenda. They initiated discussions on 26 November to finalise the policy framework, which AFD then returned for review on 29 November. Progress is being made on securing this climate-focused assistance, officials said.