The government is giving more focus on budget support from the multilateral lenders to tackle the ongoing shortage of dollar affecting the economic activities across the board.
Finance division officials, while referring to the series of recent meetings with multilateral lenders, said that the new strategy is in addition to the government efforts to obtain more foreign funds by increasing implementation of the lender driven projects in the annual development programme.
The budget support is more flexible than the project loans as those help the government not only to meet the budget deficit but also to tackle the shortage of dollars exposed since February 2022.
Besides, the government is more cautious about the project loans which are likely to come with high interest rates because of introduction of the Secured Overnight Financing Rate for lending instead of the London Interbank Offered Rate amid an interest rate hike by the US Federal Reserve.
SOFR, which is hovering around 5.3 per cent, has taken the overall rate to around 9 per cent, according to the finance ministry officials.
The government is taking $4.7 billion loan from the International Monetary Fund to ease the balance of payment pressure pulling down the forex reserves to $20 billion from $ 48.0 billion in August 2021
The officials said that the government’s new strategy was also highlighted during a meeting between finance minister Abul Hassan Mahmood Ali and Asian Infrastructure Investment Bank acting vice-president Rajat Misra at the secretariat on Monday.
Finance secretary Khairuzzaman Mozumder, who was present at the meeting, told reporters that they sought more budget support from the AIIB.
But he did not disclose the amount since it is under negotiation.
Since 2016, the country borrowed $3.4 billion from the China backed AIIB. The amount includes $650 million as budget support of which, some $400 million was disbursed in FY23 and rest $250 million in FY22.
In its annual meeting at Sharm El-Sheikh in Egypt in September 2023, the AIIB committed to provide Bangladesh $4.5 billion in the next five years.
The AIIB acting vice president hinted that the policy support would like to do climate financing.
Discussions in this regard are in an advanced stage, he added.
On January 19, World Bank and Asian Development Bank officials, while meeting with the finance minister, assured of more loans but stressed the need for economic reforms that are crucial for the country to become a developed nation.
The finance division is expected to receive about $3 billion in budget support from multilateral and bilateral lenders by June 2024.
More than one third of the projected budget assistance is expected to come from the IMF, while the rest from the WB, ADB, AIIB and the Japan International Cooperation Agency.
In January, the IMF released $690 million and is expected to release around the same mount in May.
Around 48 per cent of the current budget deficit would be made up with budget support and project loans from multilateral and bilateral lenders.
Economists said that growing dependency on foreign loan to meet the budget deficit is not a good strategy in the long run.
Export earnings, remittance and foreign direct investment should be focused, said former World Bank Dhaka office chief economist Zahid Hussain.
Besides, focus should be given on local revenue mobilisation, said Policy Research Institute executive director Ahsan H Mansur.
Revenue mobilisation in the first six months of FY24 stood at Tk 1.65 lakh crore, a 14 per cent growth compared to the same period of FY23.
The National Board of Revenue witnessed a shortfall of Tk 23,227 crore against its target for the period.
It suffered a shortfall of Tk 44,000 crore in FY23.
New Age
