Govt secures $1.02bn budget support to bolster foreign reserves

In a bid to stave off a worsening foreign currency crisis, Bangladesh is set to receive a much-needed boost in the form of $1.02 billion in budget support from development partners, according to the Economic Relations Division (ERD).

This comes amid an acute dollar shortage and a precipitous decline in reserve money which has seen the nation’s foreign reserves dip below $30 billion after losing nearly $12 billion in the span of a year. 

A staggering $800 million portion of the budget support has already been secured through agreements with the Asian Development Bank (ADB) and Asian Infrastructure Investment Bank (AIIB).

Each lender will contribute $400 million. The Japan International Cooperation Agency (JICA) will also chip in, providing an additional $216 million.

A high-ranking official from ERD, in regard to the JICA deal, stated, “All preparation for the deal signing with JICA is at the final stage. Work on it has been going on for a quite some time between the officials of the two countries.” The agreement is anticipated to be inked on June 27.

The cash injection comes at a critical time for Bangladesh. The economy has been battered, not only by the depletion of foreign reserves but also by the global crisis ignited by the Russia-Ukraine war.

The latter has resulted in skyrocketing energy, food, and industrial input prices, exerting even more pressure on developing countries like Bangladesh, which has faced rising import bills, rampant inflation, and declining foreign exchange reserves.

Government officials have indicated that the funds, which have no restrictions on allocation to specific projects, will be used to reinforce the waning reserves and channel investments into high-priority areas.

Ahsan H Mansur, Executive Director of the Policy Research Institute (PRI), praised the move saying, “Loan from the development partners amid a deepening crisis in foreign reserve is very appreciable.”

Mansur believes that even though the funds might be utilized over time, their initial addition to the reserves will provide a buffer and help in alleviating the immediate financial strain. As Bangladesh nears its graduation from the Least Developed Countries (LDC) category post-2026, the government is making strides in securing foreign loans.

ERD officials explained that loans garnered now are more favorable, often bearing an average interest rate of 1 percent and accompanied by extended repayment and grace periods. Post-graduation, development partners are expected to levy higher interest rates.

The officials further elaborated that the funds will be deployed to tackle the burgeoning trade deficit, depreciation of the taka, rising import costs, and commodity price inflation, fueled by the Russia-Ukraine conflict and the pandemic.

Specifically, the ADB’s loan will be employed in enhancing the financial management of several entities, including the finance division, Bangladesh Bank, National Board of Revenue, and central procurement technical unit. The funds will also be crucial in streamlining financial services for the economically marginalized population.