Is $1.4b WB-ADB budget support uncertain as IMF delays loan?

Infographic: TBS

Summary:

• IMF loan delay stalls $1.4B budget support from WB and ADB
• Additional $800M in doubt from AIIB, OPEC Fund, and JICA
• IMF's concerns over revenue, exchange rates, and reserves caused ripple effects
• Experts warn IMF stall halts macroeconomic stability, discouraging other lenders
• Without support, Bangladesh risks rising debt, slower growth, and investment drops

Bangladesh's hopes of securing $1.4 billion in budget support from the World Bank and the Asian Development Bank (ADB) by June are now uncertain due to the International Monetary Fund's delayed loan tranche of $4.7 billion, originally due in February.

A chain reaction of delays

In addition to the WB and ADB, another $800 million from the Asian Infrastructure Investment Bank (AIIB), OPEC Fund, and Japan International Cooperation Agency (JICA) is now in doubt, as per a high-level Economic Relations Division (ERD) meeting.

The IMF's decision to withhold disbursement – due to unmet conditions on revenue, exchange rates, and forex reserves – has created a ripple effect. Both the WB and the ADB align their budget support with IMF assessments of macroeconomic stability. If the IMF signals concerns, other lenders hesitate.

Economist Masrur Reaz warned that lower government spending would affect growth-supporting investments, further tightening credit availability for businesses

Similar patterns were seen in Pakistan (2022-23) and Sri Lanka (2022), where IMF loan delays led to WB and ADB freezing budget support.

Expert concerns

Zahid Hussain, former lead economist at WB's Dhaka office, stressed that without an active IMF programme, WB "cannot proceed" with budget support, and ADB is unlikely to move forward either.

"The IMF ensures macroeconomic stability. If its programme is stalled, how can ADB justify lending?" he questioned.

Even bilateral lenders like Japan and Gulf nations might hesitate due to political pressure. "If the IMF isn't lending, why should we?" becomes a crucial question.

IMF Delegation in April, But Uncertainty Remains

An IMF team will visit in April, but even if it clears the June tranche, securing budget support before the fiscal year ends remains difficult due to the lengthy approval process.

Finance Adviser Salehuddin Ahmed remains hopeful but acknowledged IMF's tough conditions, including a single VAT rate and a market-driven exchange rate. While the VAT reform may come in the upcoming budget, he warned against a free-floating currency, fearing a Sri Lanka-like crisis.

"We cannot predict where the exchange rate will settle if left to the market — it could push the country toward a Sri Lanka-like crisis," he warned.

He also noted that without IMF and other budget support, a sharp rise in FDI and export earnings would be needed — something difficult to achieve quickly.

Economic risks

Without external budget support, Bangladesh may struggle to fund subsidies and development projects, forcing reliance on domestic borrowing. This could crowd out private lending, raise interest rates, and slow investment, job creation, and money circulation.

Economist Masrur Reaz warned that lower government spending would affect growth-supporting investments, further tightening credit availability for businesses.

Ongoing loan negotiations

Despite the uncertainty, Bangladesh is negotiating:

• $1 billion from the World Bank (Resilience & Governance programmes)
• $900 million from ADB (Banking & Climate programmes)
• $418 million from Japan (Economic & Climate policy loans)
• $300 million from AIIB (Climate programme)

For FY24, Bangladesh secured $10.2 billion in total commitments, including $2.03 billion in budget support, but further disbursements depend on IMF approval.

Without it, the government faces tough fiscal choices in the months ahead.