ADB to provide $800m in loans as budget support in FY25

The Asian Development Bank (ADB) is expected to provide $800 million in loans to Bangladesh in the next fiscal year 2024-2025 as budget support to ensure the country's smooth graduation from least developed country (LDC) status, according to finance ministry officials.

The ministry officials mentioned that the budget support financing would be provided under two sub-programmes, with $400 million each, on the condition of implementing a number of policy reforms, most of which are related to revenue policy. 

The government is also set to meet all conditions in line with those of the International Monetary Fund (IMF) and World Bank to secure the financial support needed to achieve these targets.

The government has sought this assistance to strengthen the economic structure of the country for a smooth graduation from LDC status, to reduce the pressure on reserves, and to increase revenue.

The government also agreed to most of the conditions of the Manila-based lender to secure this loan during an online Zoom meeting on Sunday (23 June), which was the first meeting of the government team. 

Ziaul Abedin, additional secretary of the Macroeconomics Division of the Finance Department, headed the government team at the meeting. He is the chair of a twelve-member committee to finalise the policy framework and expedite the implementation of ADB's proposals under this programme.

The meeting was attended by representatives from the ADB Head Office, the Finance Department, the Prime Minister's Office, the Economic Relations Department, Bangladesh Bank, the National Board of Revenue (NBR), the Ministry of Commerce, the Ministry of Industry, and other related departments.

Ministry of Finance officials said that the next ADB mission has been scheduled for 7 July , and that meeting might decide the timeline for receiving the budget support loan.

A senior official of the finance ministry, speaking anonymously, hinted that it could be approved at the ADB's board meeting after September.

They also mentioned that the government has requested a total of $800 million under the two sub-programmes, each amounting to $400 million. Under this programme, the NBR has to increase the tax-GDP ratio by 2 percentage points to 9.4 by 2027. The financing could be higher than requested, potentially reaching $1 billion to $1.2 billion.

Speaking anonymously, a senior official of the NBR said some of ADB's conditions include the government publishing a tax expenditure report regularly, ensuring voluntary compliance, and introducing a prospective tax regime. Other conditions include increasing the capacity to detect and address tax fraud and evasion, reducing illegal privileges for tax evaders, and lowering compliance risk.

The lender also asks for the initiation of action to merge the direct tax, VAT, and customs cadres into a revenue cadre and to restructure the NBR on a functional basis. This includes assessing the effectiveness of the current organogram, updating it as per the assessment, and developing a comprehensive human resource management policy for the NBR. 

In response, the government team disagreed with some conditions due to the limited time available, such as the merger of the tax, VAT, and customs cadres. ADB also asks the government to facilitate FDI and improve the business climate for multinational companies by reducing supplementary duty applied in a completely trade-neutral manner to 10%, publishing an English version of the Customs Act 2023, and issuing guidelines, manuals, and SROs to implement the new act.

In response, the customs officials mentioned that they will address these issues after the parliament passes the budget for the next fiscal year. ADB also asks to allow non-RMG exporters duty-free imports of raw materials under a special bonded warehouse system.

Earlier, under the $4.7 billion loan deal with the IMF, the Washington-based financial institution gave conditions to Bangladesh to increase a 0.5% in the tax-GDP ratio for 2023-24. In the next two fiscal years, it has to increase by 0.5% and 0.7%, respectively.

On 2 March, in the secretariat of the finance minister's office, the Finance Minister Abul Hassan Mahmood Ali told reporters that ADB has been asked for more budget support. He said that this money will help in the budget of the next fiscal year 2024-25.

According to ADB data, it has provided an average of $2 billion in aid annually since 2016. This includes budget support. So far, ADB has committed 726 public sector loans, grants, and technical assistance to Bangladesh, amounting to $31.8 billion. ADB's sovereign portfolio currently has 75 loans and four grants ongoing in Bangladesh. These loans and grants amount to $13 billion.