ADB's 4yr loan scheme focuses on Bangladesh's LDC graduation

The Asian Development Bank (ADB) has drawn up a four-year financing plan for Bangladesh, focusing on addressing the challenges of the country's graduation from least developed country status.

As part of this plan, the regional lender will finance several projects aimed at the reform and efficiency improvement of various facilities, according to sources at the Economic Relations Division (ERD).

On 29 May, a meeting on the Country Programming Bangladesh Pipeline 2024-2027 was held, with representatives of the ADB, ERD, and various implementing agencies taking part.

The meeting discussed the financing of 88 projects, proposing a total loan of $18 billion over the next four years. In addition to infrastructure, the meeting emphasised funding for skill development to address the challenges associated with Bangladesh's LDC graduation.

The Manila-based bank will lend a total of $600 million – $300 million in the current year and another $300 million in 2006 – under the budget support programme, titled "Strengthening Economic Structure for LDC Graduation." 

However, for this budget support related to LDC graduation, Bangladesh is required to undertake various reform tasks, and the loan amount may be increased if necessary, according to sources at the Finance Division and the ERD.

ERD officials stated that after LDC graduation, the opportunity to secure flexible loans will gradually decrease. Therefore, the ADB should expedite the loan process for the projects listed in its pipeline for the coming years.

Additionally, it is not sufficient to merely receive commitments from the lender. The emphasis should also be placed on building the capacity of the implementing agencies to ensure timely project implementation, the officials added.

As ADB documents show, following LDC graduation, Bangladesh will lose preferential access to its export products to most developed countries unless bilateral free or preferential trade agreements are signed with the respective countries.

"Trade-related impacts will include the loss of LDC-specific market access provisions, LDC-specific special and differential treatment and flexibility under World Trade Organisation (WTO) rules and regional agreements, and certain training and capacity-building mechanisms," it read.

The lender noted that Bangladesh would also lose access to duty-free quota-free (DFQF) arrangements for LDCs and to the least restrictive rules of origin reserved for LDCs, with significant impacts on ready-made garment exports.

A recent analysis reveals that the share of exports that use LDC-specific preferences is 70% for Bangladesh, with a possible aggregate export decline of 14.3% for Bangladesh due to LDC graduation.

The ADB also said Bangladesh became a lower middle-income country in 2015 and is on track to graduate from LDC status in 2026. Bangladesh aspires to become an upper middle-income country by 2031 and a high-income country by 2041. To achieve these aspirations, Bangladesh needs to attract substantial foreign direct investment (FDI) and domestic investment.

"The government's 8th Five-Year Plan for FY21–FY25 targets an FDI inflow of 3% of GDP by FY2025. However, the recent FDI inflow has remained below 1% of GDP. Improving the investment climate is a prerequisite for Bangladesh to attract a higher level of investment," it also said.

"Streamlining business processes, regulations, and certifications is critically necessary for improving the investment climate. In addition, developing effective and efficient investment promotion mechanisms, and strengthening the institutional capacity of investment promotion agencies are urgently needed."

According to ERD sources, the ADB will provide Bangladesh with $400 million for the banking sector reform programme next year. Additionally, there has been a proposal for $450 million under the NextGen Secondary Education Programme over the next four years for skill development.

ERD sources also indicated that the development partner will finance several projects focused on logistics and infrastructure development in light of Bangladesh's LDC graduation. The ADB's pipeline includes 17 infrastructure projects worth $5.33 billion.

Next year, $250 million will be financed for the Dhirashram Inland Container Depot project. Additionally, the Chattogram Port Access Road Improvement Project and the Chattogram-Dohazari Railway are expected to secure loan agreements with the ADB this year, totalling $535.6 million in loan commitments.

In 2025, contracts will be signed for the Dhaka Mass Rapid Transit Development (Line 5, Southern Route) (Tranche 1), SASEC Dhaka-Sylhet Corridor Road Investment (Tranche 2), and SASEC Dhaka-Northwest Corridor Road Phase 2 (Tranche 4) projects, worth $1.1 billion.

In 2026, the ADB will finance four new projects: the South Corridor Improvement Project (Faridpur-Barishal), the Tongi-Akhaura Dual Gauge Rail Line, the Laksam-Chattogram Dual Gauge Rail Line, and the modernization of the Pahartali Railway Workshop. All these new projects will have loan agreements for the first instalment, totalling $1.35 billion in loans.

The ADB will finance the Dhaka-Chattogram Highway Improvement Project as a new project in 2027.

Those concerned said the Manila-based lender will finance several projects focusing on rivers and seas over the next four years. Notable among these are the Sustainable and Integrated Blue Economy and the Climate-Resilient Main River Corridors Stabilisation Programme.