Wednesday, 10 August, 2022
E-paper

Govt expects $7bn budget support in 3 years

The government is in talks with the multilateral lenders to get more budget support in three years to ease economic pressure stemming from the lingering corona crisis and the Ukraine war.

The receipt of budget support increased in the last three years to procure corona vaccines and provide stimulus loans on the back of a slump in domestic resources during the peak of the pandemic.

Alongside this prolonged crisis, the government has to spend more on social safety net and subsidies to offset imported inflation and fight the devaluation of local currency.

By the 2024-25 fiscal year, the government hopes to get $7 billion in budget support from different lenders, including $1.86 billion for the current 2022-23 fiscal year.

The total budget support stood at $5.874 billion in the last three fiscal years when the country had to cope with a large budget deficit due to slowing revenues amid the pandemic.

Usually, the government takes project loans which are tagged with conditions of spending those in projects only, but budget support has no such bindings, but sets conditions of some financial sector reforms.

“The government takes budget support when it is unable to collect enough revenues. Budget support is on the rise in the country as the revenues are not growing,” said Dr Ahsan H Mansur, executive director at Policy Research Institute (PRI).

Receiving budget support will continue to rise if strict reform measures are not taken, he observed.

The former lead economist at the World Bank’s Dhaka office thinks that there is no scope for raising questions about the usefulness of the budget supports taken during the pandemic.

“Had the budget support not been taken then, the corona vaccination programme would have fallen into deep trouble,” he observed.

About the current loans under negotiation, he suggested examining the conditions tagged with those and where those will be invested.

He informed that IMF and other lending agencies give some conditions for reforms in their loans. He also believes that the government’s loan repayment capacity will increase if the reforms are done properly.

Bangladesh took $1.732 billion budget support in 2019-20 fiscal year, $1.098 billion in FY2020-21 and $3.044 billion in the just concluded FY2021-22.

The country is trying to get at least $7 billion in the next three years, including $4.5 billion from the IMF, $1 billion from Asian Development Bank (ADB), $700 million from the World Bank.

Negotiations with these organizations have already started, official sources said.

Besides, efforts are on to get budget support from the bilateral agency Japan International Cooperation Agency (JICA) and the newly established multi-lateral lender Asian Infrastructure Investment Bank (AIIB).

Finance ministry officials said the government had to go for budget support in the last three fiscal years because of buying corona vaccine, supporting businesses and widening of the social safety net during the pandemic.

Now, the government has to fight with global food, fuel, gas and fertilizer price hikes triggered by the Russia-Ukraine war, they said, adding that the government’s spending on imports and subsidies has risen while the foreign reserves is declining.

Development partners came forward generously with budget support for Bangladesh, especially ADB and the World Bank.

Even though Japan doesn’t provide such loans to Bangladesh, it extended $620 million budget support to it in two terms, all of which has already been disbursed. Even AIIB provided $1.15 billion loans under a co-financing arrangement with ADB.   

ADB had come forward with $2.53 billion budget support during the pandemic. All the committed funds have been disbursed.

In last three fiscal years, the WB committed $1.50 billion budget support of which $500 million has been disbursed, another $500 million is under the process of getting released and the rest is expected to be released this fiscal.

In addition, OPEC Fund, Korea’s EDCF, EU, Germany, European Investment Bank, AFD and IMF have also extended budget support on different occasions.