Budget support merits stern reforms: WB
The World Bank wants the country to run various reform programmes in energy and transport sectors, including the introduction of an energy pricing formula to reduce subsidy burden, if it wants to receive budget support from the multilateral lender.
The disclosure came on Friday in a meeting between Finance Minister AMA Muhith and WB Managing Director Mulyani Indrawati on the sidelines of the WB-IMF spring meetings in Washington DC.
“The World Bank and Bangladesh on Friday agreed to do more to develop the country's transport and energy infrastructure and continue the dialogue on necessary reforms that would merit a development policy credit,” the Washington-based lender said in a statement yesterday.
If both the sides agree on the conditions, Bangladesh may get $500 million as budget support, which will be placed at the WB board in November.
Budget support is a form of aid that is channelled directly into a country's budget on the condition that its government implements a number of reforms.
Bangladesh agreed on all reform issues save for one: the contentious matter of power subsidy, Muhith told reporters after the meeting.
He said the subsidy given to the power sector is “very much rational” and withdrawing subsidy entirely could be difficult.
“We had an in-depth and intensive discussion with the World Bank about the challenges Bangladesh faces and the huge potential of the country if these are overcome,” the statement quoted Muhith as saying.
“We intend to work with the World Bank to improve the country's infrastructure and to further discuss the possibility of a development policy credit so that we can provide more opportunity for our people.”
In addition to giving high priorities to energy and transportation in recent years, the government is also giving equal importance and attention to education, health, sanitation and housing sectors, Muhith further said.
Indrawati, as quoted in the statement, said the country's success in overcoming poverty is critical for eliminating extreme global poverty and boosting shared prosperity.
Limited energy and poor-quality transport infrastructure are key constraints to growth, he said.
“We will work with the government of Bangladesh in removing these bottlenecks that slow economic growth and trap many of the country's people in poverty.”
Meanwhile, a finance ministry official said the government has submitted a three-year reform plan, scheduled to start next fiscal year, to the WB to get the budget support.
The meeting in Washington was a continuation of the series of meetings the two parties have had over the issue of budget support, he said.
At present, owing to the slump in global oil prices no subsidy is required for fuel though. However, in the current fiscal year around Tk 10,000 crore will be required by the power sector. The official said the WB wants a pricing formula in place that would link both the petroleum and electricity prices with production costs.
The multilateral lender has also sought for specific and time-bound programmes in energy and transport sectors under the budget support. The government will also set up an apex body to help complete large projects, according to the reform plan it presented to WB.
In the transport sector, the apex body will coordinate activities of various government agencies in Dhaka to successfully complete the large ongoing projects in the first year of the three-year reform period. It will also prepare an urban transport policy.
The government has already passed the metro rail law in parliament and the cabinet has approved the draft law on the public private partnership (PPP) framework. These will be included in the reform conditions for getting budget support.
The government will also prepare an action plan to operationalise Dhaka Transport Coordination Authority to effectively implement the strategic transport plan.
The proposed reforms in the transport sector will help successful completion of various mega projects and ensure transport discipline and reduce traffic congestion, according to the government's reform proposals. To make the energy sector efficient, costly power will not be bought during the off-peak hours.
On top of that, the WB has also been pressing for making the interest rate on savings instrument market based, the official said. The lender has also recommended formation of a high-powered body to ensure hassle-free international business like export and import.