The interim government, led by Professor Muhammad Yunus, is securing foreign aid for budget support with relative ease, despite the challenges faced by the ousted Awami League government in obtaining such assistance during its tenure.
Bangladesh has so far received commitments amounting to $6.4 billion in budgetary support, a move that is expected to alleviate the country's foreign reserve crisis.
For the first time, the Japan International Cooperation Agency (JICA) has pledged $1 billion in budgetary support to the interim government. Other commitments include $3 billion from the International Monetary Fund (IMF), $1 billion from the World Bank, $1 billion from the Asian Infrastructure Investment Bank (AIIB) and $400 million from the Asian Development Bank (ADB), according to sources from the Finance Division.
It has been learned that Japan, which typically finances project loans, has responded positively to the government’s request for budgetary support for the first time. The Ministry of Finance sent a formal letter to JICA on September 2, seeking the $1 billion budget aid.
The funds from JICA are expected to be used to address the damage caused in 12 districts due to recent floods triggered by water releases from India.
Following a meeting with Japanese Ambassador to Bangladesh IwamaKiminori on August 19, Finance and Commerce Adviser DrSalehuddin Ahmed said, "Japan has so far provided project support. We have now sought budgetary assistance and they have responded positively."
Moreover, the finance adviser held a virtual meeting on the evening of August 29 with IMF Mission Chief for Bangladesh Chris Papageorgiou and Resident Representative Jayendu De. The discussion focused on the possibility of securing an additional $3 billion loan from the IMF.
IMF, World Bank extend further budget support
The IMF, in addition to the previously agreed $4.7 billion, has committed to providing an extra $3 billion in budget support to the government. Following this commitment, the finance ministry formally sent a letter requesting the funds on September 2.
Officials are hopeful that a formal response will be received within this month.
Bangladesh signed a $4.7 billion loan agreement with the IMF in January 2023. Under this agreement, the IMF has already disbursed $2.3 billion in three instalments.
The World Bank also approved $1 billion in budget support, following which the finance ministry formally sent a letter on September 1. Additionally, the Asian Infrastructure Investment Bank (AIIB) has responded positively to a similar request for $1 billion in support.
Finance Division officials said the budgetary aid from these two global lenders will be used to settle outstanding bills for electricity and fuel imports.
It is worth noting that the current outstanding balance for electricity and fuel imports stands at $2.2 billion.
After a meeting with AbdoulayeSeck, the World Bank’s country director for Bangladesh, on August 21, Power, Energy and Mineral Resources Adviser Muhammad FouzulKabir Khan said, "There is still $2.2 billion outstanding for electricity and fuel imports. We have requested $1 billion in support from the World Bank to address this."
"The current interim government has come with a firm mandate. The implementation of the Quick Enhancement of Electricity and Energy Supply (Special Provisions) Act has been suspended and the government’s power to set electricity and gas prices under the Bangladesh Energy Regulatory Commission Act, 2003, has been paused," he added.
AIIB loan on way, ADB fund to be used for key reforms
Meanwhile, Bangladesh is also seeking a $1 billion loan from the Asian Infrastructure Investment Bank (AIIB), with the process being handled by the Economic Relations Division (ERD).
Additionally, the ADB has pledged $400 million in budget support. A delegation led by ADB director Cigdem Akin arrived in Bangladesh in September to conduct formal discussions on the matter.
The ADB fund will be utilised for graduating from least developed country (LDC) status, National Board of Revenue (NBR) reform and major domestic reforms.
Salehuddinsought urgent aid since taking office
Since his appointment on August 8 and assuming office on August 9, Finance Adviser Salehuddin Ahmed and other advisers of the interim government have held meetings with representatives from various bilateral and multilateral development partners to address the country’s urgent financing needs.
These representatives have shown a positive response and finance ministry officials are optimistic about securing additional foreign aid to settle outstanding foreign liabilities and bolster reserves.
Finance Adviser Salehuddin Ahmed also held a meeting with AbdoulayeSeck on August 13, where budget support was discussed.
Following the meeting, Salehuddin Ahmed told reporters, "I have requested substantial support from the World Bank to revitalise the economy. They have assured their continued support for the people of Bangladesh."
Foreign lenders ramp up support under interim govt
Several finance ministry officials, speaking to The Business Post on condition of anonymity, noted that while securing foreign loans was a matter of fortune during the ousted Awami League government’s tenure, foreign lenders have shown much greater willingness to offer aid since the interim government took office.
Even countries like Japan, which had previously been reluctant, have now agreed to provide budget support — something that would have been unimaginable before, they said.
They added that there is a growing belief within the ministry that the fragile economic policies left by the previous government will be strengthened under this administration. The financial sector will stabilise and the ongoing dollar crisis will ease.
