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World Bank to give Bangladesh $18b IDA loans in next five years
27 June, 2022, 10:55 pm
Last modified: 27 June, 2022, 11:06 pm
www.tbsnews.net
Inflows of foreign assistance will continue to go up, with Bangladesh receiving $18 billion from the World Bank's soft loan window International Development Association (IDA) alone in the next five years.
The Washington-based lender will provide the country with fresh loans amounting to $10 billion – $2 billion a year – during the time and will also release $8.24 billion in the pipeline, according to a draft of the Country Partnership Framework (CPF) programme for FY23-FY27.
Moreover, its sister organisation International Finance Corporation (IFC) will finance $4.5 billion for the private sector development, while the Multilateral Investment Guarantee Agency (MIGA) will give guarantees of $695 million a year for external loans in energy and manufacturing sectors.
The World Bank has already sought opinions from government and private levels on the proposed Country Partnership Framework, which will replace the existing Country Assistance Strategy, to operate its lending activities in Bangladesh up to 2027 starting from the next fiscal year.
The development lender is expected to meet with representatives of government ministries and agencies on 6 July to finalise the framework.
Bangladesh got $11.83 billion during FY16-FY22 – $1.67 billion per fiscal year on average – from the IDA under the Country Assistance Strategy, the most important country-level document tailored to guide the World Bank Group's support to a member country as per the needs.
The loan tenure was initially up to FY20 and later was extended to FY22 because of Covid-19.
In FY11-FY15, the IDA provided the country with $6.1 billion in soft loans, $1.22 billion a year.
Bangladesh is also getting commitments for additional loan support from the Asian Development Bank (ADB), Asian Infrastructure Investment Bank (AIIB), and other multilateral lenders.
For example, the ADB, which earlier committed $10-$12 billion as per its Country Partnership Strategy approved in September last year, has now pledged to raise the loan amount by $2.37 billion in a recent meeting with the Economic Relations Division.
Besides, the AIIB has made a proposal of $1.51 billion fresh loans for five projects.
Economists say the use of foreign aid will appear as a major catalyst in the future to continue the implementation of development projects by tackling the budget deficit.
They also say there is still ample scope for getting foreign assistance in education, health and social infrastructure sectors.
They have urged expediting the formulation and implementation of projects, and having all external loans released as fast as possible.
The government has estimated 7.5% growth in the proposed budget for the next fiscal year, but the World Bank projected it at 6.8% because of rising domestic consumption and weakening exports.
As a IDA GAP country, preparation will be initiated under the new Country Partnership Framework for Bangladesh to compulsorily take 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 socioeconomic inclusion and enhanced climate resilience.
Zahid Hussain, former lead economist at the World Bank's Dhaka office, 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 get termination or retirement benefits.
The new framework suggests increasing jobs in the sector, but it has not set the goal of bringing informal sector workers to the formal sector in the high-level outcome, he said.
In the draft CPF, there should have been an idea about how many new jobs 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 in various stages before a project gets approved. After the project approval, appointment of a project director and project management team, and finalisation of a project office also take a lot of time before the project reaches the implementation readiness stage.
Without much reform in public administration, foreign fund disbursements cannot be increased based on conventional investment project financing, he also said, adding that target-based programme-for-results financing should be increased alongside input-based lending instruments.
The share of foreign aid in the Annual Development Programme has been declining over the past few years. The cuts in the revised ADP are parts of external loans. Based on this information, it is easy to say that the ability to spend foreign assistance is not going up, the economist added.
Professor Mustafizur Rahman, distinguished fellow at the Centre for Policy Dialogue, said, "We have to work on increasing the release of foreign aid to prepare for the challenges that will arise out of the LDC graduation. And we have to do it by speeding up project implementation."
The economist thinks that more powerful steps with respect to political economy, good governance, implementation capacity and institutional efficiency need to be taken for this purpose.
Both 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 that.
Kamruzzaman Kamal, director at Pran Group, told TBS that it was good news that the IFC had set a target of lending $900 million annually to the private sector in Bangladesh as local banks cannot give them large sums.
The IFC offers a big loan at much lower rates than those of banks and it helped the agro-processing sector a lot with credit support, he noted, adding that the biggest advantage of IFC loans is that they not only lend, but also work to ensure the overall development and compliance of the borrower organisations.
According to the World Bank, Bangladesh was claimed to have been at high risk in the Country Assistance Strategy for FY2016-FY20. The country has come down to a moderate risk with two steps down in the proposed framework.
For instance, the country now is at moderate risk when it comes to politics and governance, while it remains at the same moderate risks in terms of macroeconomics, sector strategies and policies.
Likewise, Bangladesh has dropped to moderate risks in the fiduciary environment and social categories.
But the risks in technical design of projects and programmes and stakeholder categories increased to substantial levels, and its institutional capacity for implementation and sustainability still remains at high risk, the World Bank said.
Four challenges to Bangladesh's development
Identifying four challenges to the development of Bangladesh, the World Bank said the private sector has remained narrow-based and not competitive to drive growth and job creation. The formal sector is dominated by a few large firms, which tend to be inward looking, benefitting from market protections, or RMG exports under special incentive programmes, and supported by close links with the banking sector. Technology adoption among Bangladeshi firms is slow. Foreign direct investment flows remain low.
As the country aspires to become an upper middle income country by 2031 and a high-income country by 2041, economic growth needs to be accompanied by income growth through enhanced job creation, particularly in the form of formal wage jobs, the global lender noted.
Job creation, in turn, critically hinges 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 a conducive policy environment and effective service delivery, it pointed out.
The World Bank found inefficient, unsustainable, and less inclusive pattern of spatial transformation as the second challenge in the economy.
Another main challenge for Bangladesh is job creation and service delivery, according to the draft that recommended enhancing regulatory quality and formal institutions to make markets contestable to support the development of a broad-based private sector.
To maintain Bangladesh's export competitiveness after the 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 to develop a diversified and competitive private sector through a more enabling environment to promote market entries of new firms, promote FDI, foster technology adoption including green technologies.
Key areas of engagement are tariff modernisation to promote export diversification, modernisation to investment related-laws to promote FDI, regulatory simplification to foster new enterprise development, seeking IFC investment opportunities in high-value pharmaceuticals, white goods and economic zones.
For the country to shift to the next level of development, it needs an effective and efficient public sector that provides quality services to businesses and citizens and makes effective investments to boost growth and build resilience, the draft CPF added.
ECONOMY
Abul Kashem & Jahidul Islam27 June, 2022, 10:55 pm
Last modified: 27 June, 2022, 11:06 pm
World Bank to give Bangladesh $18b IDA loans in next five years
Inflows of foreign assistance will continue to go up, with Bangladesh receiving $18 billion from the World Bank's soft loan window International Development Association (IDA) alone in the next five years. The Washington-based lender will provide the country with fresh loans amounting to $10...
Inflows of foreign assistance will continue to go up, with Bangladesh receiving $18 billion from the World Bank's soft loan window International Development Association (IDA) alone in the next five years.
The Washington-based lender will provide the country with fresh loans amounting to $10 billion – $2 billion a year – during the time and will also release $8.24 billion in the pipeline, according to a draft of the Country Partnership Framework (CPF) programme for FY23-FY27.
Moreover, its sister organisation International Finance Corporation (IFC) will finance $4.5 billion for the private sector development, while the Multilateral Investment Guarantee Agency (MIGA) will give guarantees of $695 million a year for external loans in energy and manufacturing sectors.
The World Bank has already sought opinions from government and private levels on the proposed Country Partnership Framework, which will replace the existing Country Assistance Strategy, to operate its lending activities in Bangladesh up to 2027 starting from the next fiscal year.
The development lender is expected to meet with representatives of government ministries and agencies on 6 July to finalise the framework.
Bangladesh got $11.83 billion during FY16-FY22 – $1.67 billion per fiscal year on average – from the IDA under the Country Assistance Strategy, the most important country-level document tailored to guide the World Bank Group's support to a member country as per the needs.
The loan tenure was initially up to FY20 and later was extended to FY22 because of Covid-19.
In FY11-FY15, the IDA provided the country with $6.1 billion in soft loans, $1.22 billion a year.
Bangladesh is also getting commitments for additional loan support from the Asian Development Bank (ADB), Asian Infrastructure Investment Bank (AIIB), and other multilateral lenders.
For example, the ADB, which earlier committed $10-$12 billion as per its Country Partnership Strategy approved in September last year, has now pledged to raise the loan amount by $2.37 billion in a recent meeting with the Economic Relations Division.
Besides, the AIIB has made a proposal of $1.51 billion fresh loans for five projects.
Economists say the use of foreign aid will appear as a major catalyst in the future to continue the implementation of development projects by tackling the budget deficit.
They also say there is still ample scope for getting foreign assistance in education, health and social infrastructure sectors.
They have urged expediting the formulation and implementation of projects, and having all external loans released as fast as possible.
The government has estimated 7.5% growth in the proposed budget for the next fiscal year, but the World Bank projected it at 6.8% because of rising domestic consumption and weakening exports.
As a IDA GAP country, preparation will be initiated under the new Country Partnership Framework for Bangladesh to compulsorily take 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 socioeconomic inclusion and enhanced climate resilience.
Zahid Hussain, former lead economist at the World Bank's Dhaka office, 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 get termination or retirement benefits.
The new framework suggests increasing jobs in the sector, but it has not set the goal of bringing informal sector workers to the formal sector in the high-level outcome, he said.
In the draft CPF, there should have been an idea about how many new jobs 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 in various stages before a project gets approved. After the project approval, appointment of a project director and project management team, and finalisation of a project office also take a lot of time before the project reaches the implementation readiness stage.
Without much reform in public administration, foreign fund disbursements cannot be increased based on conventional investment project financing, he also said, adding that target-based programme-for-results financing should be increased alongside input-based lending instruments.
The share of foreign aid in the Annual Development Programme has been declining over the past few years. The cuts in the revised ADP are parts of external loans. Based on this information, it is easy to say that the ability to spend foreign assistance is not going up, the economist added.
Professor Mustafizur Rahman, distinguished fellow at the Centre for Policy Dialogue, said, "We have to work on increasing the release of foreign aid to prepare for the challenges that will arise out of the LDC graduation. And we have to do it by speeding up project implementation."
The economist thinks that more powerful steps with respect to political economy, good governance, implementation capacity and institutional efficiency need to be taken for this purpose.
Both 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 that.
Kamruzzaman Kamal, director at Pran Group, told TBS that it was good news that the IFC had set a target of lending $900 million annually to the private sector in Bangladesh as local banks cannot give them large sums.
The IFC offers a big loan at much lower rates than those of banks and it helped the agro-processing sector a lot with credit support, he noted, adding that the biggest advantage of IFC loans is that they not only lend, but also work to ensure the overall development and compliance of the borrower organisations.
Risks to implementing CPF programme
The global lender has identified a number of challenges, such as not much expansion of the private sector and a lack of expected pace in employment, to utilising foreign aid, but it thinks that the overall socio-economic risk in the country has reduced.According to the World Bank, Bangladesh was claimed to have been at high risk in the Country Assistance Strategy for FY2016-FY20. The country has come down to a moderate risk with two steps down in the proposed framework.
For instance, the country now is at moderate risk when it comes to politics and governance, while it remains at the same moderate risks in terms of macroeconomics, sector strategies and policies.
Likewise, Bangladesh has dropped to moderate risks in the fiduciary environment and social categories.
But the risks in technical design of projects and programmes and stakeholder categories increased to substantial levels, and its institutional capacity for implementation and sustainability still remains at high risk, the World Bank said.
Four challenges to Bangladesh's development
Identifying four challenges to the development of Bangladesh, the World Bank said the private sector has remained narrow-based and not competitive to drive growth and job creation. The formal sector is dominated by a few large firms, which tend to be inward looking, benefitting from market protections, or RMG exports under special incentive programmes, and supported by close links with the banking sector. Technology adoption among Bangladeshi firms is slow. Foreign direct investment flows remain low.
As the country aspires to become an upper middle income country by 2031 and a high-income country by 2041, economic growth needs to be accompanied by income growth through enhanced job creation, particularly in the form of formal wage jobs, the global lender noted.
Job creation, in turn, critically hinges 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 a conducive policy environment and effective service delivery, it pointed out.
The World Bank found inefficient, unsustainable, and less inclusive pattern of spatial transformation as the second challenge in the economy.
Another main challenge for Bangladesh is job creation and service delivery, according to the draft that recommended enhancing regulatory quality and formal institutions to make markets contestable to support the development of a broad-based private sector.
To maintain Bangladesh's export competitiveness after the 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 to develop a diversified and competitive private sector through a more enabling environment to promote market entries of new firms, promote FDI, foster technology adoption including green technologies.
Key areas of engagement are tariff modernisation to promote export diversification, modernisation to investment related-laws to promote FDI, regulatory simplification to foster new enterprise development, seeking IFC investment opportunities in high-value pharmaceuticals, white goods and economic zones.
For the country to shift to the next level of development, it needs an effective and efficient public sector that provides quality services to businesses and citizens and makes effective investments to boost growth and build resilience, the draft CPF added.
