12 policy reforms for $1.5b WB loan
The World Bank has set forth 12 conditions for extending budget support of about $1.5 billion to Bangladesh over the next three years.
The conditions were put forward during the Washington-based multilateral lender's quarterly tripartite meeting on September 11 and 12, according to finance ministry officials familiar with the discussions.
Earlier in June, the government sought budget support to offset the fallout of the Ukraine war on the Bangladesh economy.
Of the $1.5 billion, $250 million would come from the 'Bangladesh Green, Resilient and Inclusive Development Policy Credit (GRID DPC)' programme and another $250 million from the 'Bangladesh Second Recovery and Resilience DPC' scheme.
The project under which $1 billion would be extended would be decided during the forthcoming visit of Martin Raiser, the WB's vice-president for South Asia, next week, the officials said.
Save for two Bangladesh has met the conditions for the GRID DPC, which would be approved by the WB board in April next year.
The country can expect $250 million each year under GRID DPC from 2023 to 2025. And should the country commit to more ambitious policies, the WB would increase the credit amount.
"The funds will help in meeting the government's budget deficit, prop up foreign exchange reserves and give impetus to the reform plans."
The ambitious policies include energy efficiency and renewable energy policies, foundational steps for establishing carbon pricing, particularly the creation of an emissions registry and monitoring, verification and reporting (MRV) system.
For the other DPC, which would be approved by the WB board in March next year, the government is yet to meet any of the 12 conditions, which encompass reforms in fiscal policy and financial sector and setting guardrails to future shocks. The conditions for the $1 billion loan would be tangential to this DPC's.
One of the conditions is getting the cabinet to approve the National Tariff Policy, which would bring down the tariffs and simplify the tariff structure.
The commerce ministry has approved the framework for the policy, including institutional responsibilities and implementation arrangements.
Should the government implement the policy by the next fiscal year, Bangladesh's average nominal tariffs on imports would come down to 25 percent from the existing 29.6 percent.
Rolling out the automated challan system for deducting income tax at-source in all tax zones across the country by fiscal 2023-24 is another condition put forth by the WB.
The move would bolster the National Board of Revenue's collections from income tax and value-added tax by as much as 64 percent to Tk 244,200 crore.
The WB also called for full implementation of the e-Government Procurement system, which would bring down the average procurement lead time (from invitation to contract award) to 50 days from 70 days at present.
For that to happen, the Bangladesh Public Procurement Authority Act must be enacted.
The Department of National Savings must adopt an automated system to link the issuance of the General Provident Fund and the Contributory Provident Fund instruments to national identity cards.
This would bring down the net sales of costly savings instruments by as much as 52 percent by fiscal 2023-24 from Tk 41,960 crore in June last year.
The WB has given special emphasis to improving the banking sector's health.
It has called for an amendment to the Bank Company Act to strengthen the supervisory framework in line with good international practice, recovery plans for weak banks and Prompt Corrective Action (PCA) for all undercapitalised banks, including the state ones.
The finance ministry has to issue a notice with strengthened corporate governance requirements for state banks in line with international best practices.
"All the reforms for the financial sector would be extremely beneficial for the industry and the economy," said Zahid Hussain, a former lead economist of the WB's Dhaka office.
The WB's conditions are also aimed at strengthening the country's resilience to future shocks.
One of the conditions for budget support is expanding cash transfer programmes this fiscal year by more than five times to cushion the poor from the brunt of the elevated price levels at home and abroad.
Cash transfers of Tk 24,040 crore must be made to the mobile financial service accounts of the reclassified list of beneficiaries by the ministry of social welfare.
Another condition is the use of the National Household Database for beneficiary identification by major social protection programmes.
"This would bring clarity in the government's expenditure on social protection," Hussain said.
The WB has also called for allowing private sector players in power transmission projects.
"We have underinvestment in transmission. Our generation capacity is a lot but without fixing the transmission line, we will not achieve energy security," Hussain said.
However, competitive bidding must be ensured in the private sector's participation in power transmission projects. "Otherwise, we will just convert a public monopoly into a private monopoly."
Regardless, all the reforms are welcome and much-needed, Hussain said. Whether the government implements those remains to be seen.
"The funds will help in meeting the government's budget deficit, prop up foreign exchange reserves and give impetus to the reform plans."
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