Bangladesh may receive $1.1b ADB, WB aid in December

Bangladesh may receive US$1.1 billion in December from two major financiers in much-awaited budget-funding credits as negotiations are capped with consent, officials said Friday, while search is on for boosting forex reserves.

The Asian Development Bank (ADB) is expected to lend an enhanced amount of $600 million while the World Bank is set to hand out $500 million.

They hope the upcoming budget supports will give a must-have boost to the country's emaciated foreign-exchange reserves that hamstrung government ability to foot the bills for clearing numerous dues.

"We are hopeful about getting the big chunk of foreign assistance next month (December). This fund will be injected into the budget which will boost the country's foreign-exchange reserves," says a senior Ministry of Finance (MoF) official.

Bangladesh's government has reeled from foreign-exchange crisis over the last couple of years with the reserves having dropped to nearly $20 billion from a high of $46 billion two and a half years back.

The government search goes on to this day for foreign funding in the form of budget support from different bilateral and multilateral lenders, including the ADB, the World Bank, the International Monetary Fund (IMF), AIIB, and Japan, to prop up the forex stock.

"We completed negotiations with the ADB last week. The loan deal is expected to be signed in the middle next month," a senior Economic Relations Division (ERD) official told the FE.

The Manila-based lender will provide the budget support to help the country weather the possible challenges in the post-LDC period in 2026 and onwards.

Bangladesh is likely to graduate to a developing nation by the calendar year 2026 from its current least-developed country (LDC) status.

Meanwhile, the terms and conditions for the budget support will be comparatively harder than on other ADB loans, MoF officials said.

The government has to repay at interest rate based on the Tokyo Overnight Average Rate (TONA) for the ADB's $600 million budget-support loan. The rate comes TONA-plus 0.50 per cent. The debt service also packs 0.10-percent maturity premium and 0.15-percent commitment fee.

A senior ERD official has said as per the current TONA rate, the annual interest rate on the ADB loan could stand at some 1.4 per cent per annum.

The TONA is a Japanese currency Yen (JPY)-based lending modality. The JPY is a very fluctuating currency on the global market.

According to the ERD, the maturity period of this loan is 15 years with a grace period of three years.

Meanwhile, the ADB has extended the amount of the budget support for Bangladesh from its earlier-assured $400 million to $600 million.

In a meeting with the ADB's Country Portfolio Mission (CPM) last month in Dhaka, the Bangladesh government requested the lender to increase the amount of the budget support and the Asian bank responded positively. The ERD-CPM meet was held to confirm the pipeline loans and grants for Bangladesh up to the year 2026.

A senior MoF official says the ADB assured the government of enlarging its support by $200 million to $600 million in tackling LDC-graduation fallouts on the economy and improving the business climate, especially the position in the global logistics index.

The enlargement was requested as Bangladesh needs more money to face the future challenges after LDC graduation.

"The proposed $600-million loan from the ADB will help Bangladesh in cushioning the possible shocks in some industrial and services sectors during and after the graduation," the official said.

A MoF official says Bangladesh is on track to get out of the world's poor-country club into a developing nation by 2026, after which it won't be eligible for privileges like preferential market access and concessional credits from development partners.

So, after the graduation, the country's foreign trade, aid and other international dealings will be costlier as it will have to rub shoulders freely with peers, he said.

The borrowed money is also meant for helping Bangladesh improve its business climate, including the upgrading of the position in global logistics index.

Analysts say the bad performance in respect of logistics stands as one of obstacles to investment flow into Bangladesh from foreign investors.

In 2023, Bangladesh secured 88th position in the World Bank's Logistics Performance Index (LPI) among 139 countries.

Meanwhile, the ADB in June 2023 approved another budget support worth $400 million to Bangladesh to advance reforms in domestic resource mobilization, improve efficiency and productivity of public spending, and help small businesses, especially women-led businesses, to access low-cost innovative bank financing

Meanwhile, the government is also expecting some other budget supports to reform financial and energy sectors.

The government has recently also completed negotiations with the WB for getting $500 million in budget support which is also likely to be disbursed next month, December.

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