World Bank signals $500m budget support for Bangladesh amid IMF uncertainty

• WB gives gives green signal after consulting IMF
• Multilateral lenders rely on IMF assessments
• Bangladesh never defaulted on foreign debt
• WB loan may unlock fresh support talks with ADB, AIIB
• Bangladesh already secured $1.2b this fiscal year

Despite uncertainty over the release of the fourth and fifth tranches of the International Monetary Fund's $4.7 billion loan programme, Bangladesh has received a positive signal from the World Bank for $500 million in budget support.

Officials at the Economic Relations Division (ERD) said the lender confirmed support after consulting with the IMF. The support is expected under the ongoing Resilience and Recovery Development Policy Credit-II programme.

A formal negotiation to finalise the loan conditions is expected on Wednesday, the officials said. If the discussion is successful, the proposal will be tabled at the upcoming World Bank board meeting for approval, with the loan agreement likely to be signed by June.

Uncertainty over IMF disbursements had earlier cast doubts on the status of other development partners' budget support. This is because multilateral lenders rely on IMF assessments, particularly the diagnostic reports that detail a country's macroeconomic conditions, external debt levels, and repayment capacity.

An ERD senior official told The Business Standard that while no tranche condition of the IMF loan programme has been met yet, this does not reflect any inability on Bangladesh's part to meet its external debt obligations.

He noted that Bangladesh has never defaulted on foreign debt, a point the government has reiterated to the World Bank, which helped secure the green signal.

According to sources, the IMF is dissatisfied with Bangladesh on two key issues. First, the Bangladesh Bank has not yet allowed a fully market-based exchange rate for the US dollar. Second, the government has shown reluctance to raise the tax-to-GDP ratio from the current 8.5% to at least 10%.

ERD officials expect that if Wednesday's negotiations with the World Bank are fruitful, it will also prompt renewed budget support talks with other development partners.

Among them, the Asian Development Bank is preparing to sign a $500 million loan by June under its Banking Sector Reforms Subprogram 1.

Discussions are also likely to resume on several other pending proposals, including ADB's $400 million Climate Responsive Inclusive Development (CRID) Subprogram 2, Japan's $418 million Development Policy Loan for Economic Reform and Strengthening Climate Change Resilience, and the Asian Infrastructure Investment Bank's $300 million support under the Climate Resilient Inclusive Development programme.

So far in the current fiscal year, Bangladesh has received $1.2 billion in budget support.

This includes a $500 million loan from the World Bank signed in December under its Green and Climate Resilient Development initiative, and a $600 million agreement with ADB under the Strengthening Economic Management and Governance programme. 

In April, Bangladesh also signed a $100 million deal with the OPEC Fund for budget support under the same economic management framework.