September 20, 2023
DHAKA – Bangladesh is expecting another $250 million in budget support from the World Bank after the government fulfilled the conditions laid out for the funding.
The budget support will come under the Bangladesh First Recovery and Resilience Development Policy Credit (DPC), the first in a series of two credits that the Washington-based multilateral lender has planned to help the country “build a stronger fiscal and financial sector to sustain growth”.
The funds were supposed to arrive last fiscal year but due to the government’s inability to fulfil the 12 conditions the WB has tagged it was held up.
Finally, the government has implemented those and sent the progress report to the WB for releasing the funds, The Daily Star has learnt from finance ministry officials informed with the proceedings.
If the WB is satisfied with the progress, the funds would be released by November, they said.
The Recovery and Resilience Development Policy Credit series supports a wide programme of fiscal and financial sector policies set out by the government to enhance macroeconomic stability and sustain growth, Abdoulaye Seck, the WB country director for Bangladesh and Bhutan, told The Daily Star.
The programme began in 2021, setting “an ambitious target” for the adoption of the Bank Company Act as part of a broader financial sector reform plan.
“The publication of the 2022 Financial Stability Report and amendment of the Bank Company Act are substantial steps in this process. We are reviewing the legislation to assess how it can contribute to reducing vulnerabilities, as well as steps required to support its implementation as part of a broader reform plan.”
The appraisal and subsequent board consideration of the Recovery and Resilience DPC is predicated upon positive assessment of all agreed reforms and evidence of adequate macroeconomic framework, Seck added.
One of the development objectives of the DPC is tariff modernisation as it is critical to reach the growth and poverty reduction objectives of the 8th five-year plan and to ensure continued market access in the context of graduation from the least-developed country bracket.
Accordingly, one of the conditions was to get the National Tariff Policy with reduced tariffs and a simplified tariff structure approved by the cabinet. That was done on July 16, and the commerce ministry has published the gazette on it.
The National Tariff Policy would bring down the average nominal protection rate on imports from 29.6 percent at the end of fiscal 2020-21 to 25 percent this fiscal year.
Another condition is the roll-out of the A-Challan system for at-source income tax withholding in all tax zones across the country. So far, it has been done on a limited scale.
Once fully implemented, it is expected to boost the National Board of Revenue’s income tax and domestic value-added tax collections to Tk 244,200 crore in fiscal 2023-24.
The DPC supports public procurement efficiency by expanding the use of electronic government procurement (e-GP), a system which has already contributed to estimated annual government savings of $1.1 billion, according to the project document.
“Expanding the use of e-GP in emergencies such as pandemics and natural disasters will enable time-critical delivery of services, with greater transparency,” the WB said.
Subsequently, the government was asked to enact the Bangladesh Public Procurement Authority (BPPA) Act to consolidate the responsibilities and authorities of the BPPA.
Planning Minister MA Mannan placed the bill in the parliament on July 5 and it was sent to the respective scrutiny committee for further examination. The committee was asked to submit their report within 60 days.
If this condition is implemented faithfully, then the average procurement lead time using a GP system would come down to 50 days this fiscal year, the WB said.
Another major task from the WB for this budget support was amendments to the Bank Company Act to strengthen the supervisory framework in line with good international practice. The parliament approved the amendment on June 21.
The Department of National Savings has already adopted an automated system to link the issuance of the general provident fund and the contributory provident fund instruments to national identity cards.
If implemented properly, the net sales of savings instruments will come down to Tk 200,000 crore this fiscal year.
The WB has also asked the central bank to issue corrective action plans for undercapitalised banks and the finance ministry to issue a circular with strengthened corporate governance for state banks in line with international good practice.
Another condition is the enactment of the Secured Transactions Act to pave the way for granting bank loans by mortgaging movable assets as collateral and establishing a notice-based security interest registry for movable assets.
Finance Minister AHM Mustafa Kamal placed the bill in the parliament on June 20.
The WB has called for the adoption of the Mujib Climate Prosperity Plan, which includes retrofitting the built environment to adapt to the impacts of climate change.
It has also called for increasing renewable energy generation capacity to 1,000 megawatts by the end of this fiscal year. This has been achieved, according to finance ministry officials.