Govt turns to repurposing project loans as budget support shortfall looms
As an alternative, authorities have begun repurposing the remaining funds through loans from ongoing development projects that are not immediately required
Highlights:
- Government secured only half of targeted foreign budget support
- Authorities repurposing unused project loans for urgent national spending
- Repurposed funds aimed at energy, food, and social protection
- ADB confirmed $1 billion budget support for current fiscal year
- World Bank prioritising reallocating unused loans over fresh budget support
- Bangladesh received record $3.44 billion budget support in FY25
Amid economic stress triggered by the Middle East war, the government had set a target of securing at least $3.2 billion in budget support from development partners, but the response has so far reached only about half of expectations.
As an alternative, authorities have begun repurposing the remaining funds through loans from ongoing development projects that are not immediately required.
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Officials at the Economic Relations Division (ERD) said repurposing could unlock more funds than traditional budget support, allowing flexibility for critical spending for energy and food.
A letter sent by the Finance Division on 12 April asked the ERD to take steps to secure the $3.2 billion. However, the government has so far received assurances of $1.665 billion, ERD officials said.
This includes $1 billion from Asian Development Bank (ADB), $315 million from Japan, $250 million from the Asian Infrastructure Investment Bank (AIIB), and $100 million from Opec.
The government is also working on repurposing around $1.6 billion from development projects, officials said, adding the process is ongoing and the figure is likely to get higher.
An ERD senior official told The Business Standard that low-impact and slow-moving projects are being reviewed for repurposing, in consultation with development partners.
The reallocated funds will be channelled into short-term, one-year interventions in energy, food security and social protection. This, officials said, will help address immediate pressures while improving disbursement efficiency and ensuring more effective use of external loans.
ADB providing $1 billion support
ERD officials said the government had sought the full $1 billion in budget support from the ADB for the current fiscal year, which is now being received. Officials added that two budget support agreements are set to be signed on Monday in the presence of the ADB president.
Under the Second Strengthening Social Resilience Program, the ADB will provide $250 million as budget support. Under the Strengthening Economic Management and Governance, the ADB will extend a further $750 million.
ERD officials also said that $250 million will be reallocated from projects that have long remained stalled in implementation and disbursement.
WB prioritising repurposing
Amid shifting priorities in external financing, the World Bank is leaning more towards loan reallocation rather than fresh budget support for Bangladesh in the current fiscal year.
According to ERD sources, the government had formally sought at least $500 million from the lender under the Green and Climate Resilience Development Policy Credit. However, no final decision on budget support has been received so far.
A senior ERD official said Bangladesh is unlikely to receive budget support this fiscal year. Instead, the focus has shifted to repurposing unused pipeline loans.
A review of ongoing World Bank-financed projects shows that around $1.835 billion could potentially be mobilised through faster disbursement and reallocation for urgent needs.
Of this, a $785 million contingency fund has already been created under the Rapid Response Option (RRO) and Contingent Emergency Response Project (CERP) framework by reallocating funds from eight projects.
These include $239 million from the Gas Sector Efficiency Improvement and Carbon Abatement Project, $30 million from the Jamuna River Sustainable Management Project-1, $60 million from the Learning Acceleration in Secondary Education Operation, $15 million from the Road Safety Project, $95 million from the Resilient Urban and Territorial Development Project, $140 million from the Chattogram Water Supply Improvement Project, $74.4 million from the Regional Waterway Transport Project-1, and $134.6 million from the Environmental Sustainability and Transformation Project.
Officials said the government has decided to use this money under the CERP mechanism, which allows rapid deployment of funds for emergency imports of food, fuel and medicines.
The facility remains valid for up to six years, with individual activities limited to one year. Necessary omnibus amendments will be made to existing financing agreements, while the Finance Division will prepare the implementation framework.
The CERP mechanism allows unused funds from ongoing projects to be quickly redirected during sudden crises, without requiring lengthy new project approvals.
Separately, the government is set to introduce for the first time a $250 million emergency Investment Project Financing (IPF) facility, designed for rapid use similar to the RRO-CERP.
ERD sources said the $250 million IPF is not new borrowing, but a consolidation of cancelled or unused allocations from World Bank projects scheduled to close in FY26.
AIIB to provide $250m against $750m request
The government had sought $750 million in budget support from the AIIB. However, the lender has agreed to provide $250 million under the "Strengthening Economic Management and Governance" programme.
An additional $350 million is set to be reallocated from an ongoing AIIB-financed project. The funds will be diverted from the "Sylhet–Tamabil Road to a 4-Lane Highway" project.
ERD officials said disbursement under the road project has remained stalled for a long time due to complications in land acquisition. As a result, the government has decided to restructure the loan and repurpose the unused funds.
Japan trims support to $315m from $500m
The Japan International Cooperation Agency (Jica) initially agreed to provide $500 million in budget support in the current fiscal. The amount has since been reduced to $315 million.
Finance officials said the loan will be used in line with IMF recommendations. The support is expected to help increase social protection spending, strengthen revenue management.
Meanwhile, the government is set to receive $100 million in budget support from the Opec Fund (OFID) to help meet urgent financial pressures. However, requests for $200 million from France and $150 million from Germany remain uncertain, according to ERD sources.
ERD data show Bangladesh received a record $3.44 billion in budget support in FY25 from development partners. This compares with $2.03 billion in FY24, $1.767 billion in FY23, $2.597 billion in FY22 and $1.09 billion in FY21.
