Now $2b loan talks with WB begin
After the International Monetary Fund it is now its sister concern World Bank's turn to negotiate economic reforms with the government for the prospective $2 billion financial support package sought to help the country weather the global economic turmoil.
For that end, Martin Raiser, the WB's vice president for the South Asia Region, will be arriving in Dhaka today along with Abduoulaye Seck, the incoming country director for Bangladesh and Bhutan.
"I am glad to be back in Bangladesh and to continue discussing with the government the important reforms that can help the country stay on the resilient and inclusive growth path and create opportunities for the people," Raiser said in a press release.
During his three-day visit, Raiser, who was last in Bangladesh in September, will be meeting with Prime Minister Sheikh Hasina and Finance Minister AHM Mustafa Kamal along with other senior government officials.
At present, the government is in talks for a support package of up to $2 billion with the Washington-based multilateral lender, which has so has committed more than $37 billion in grants, interest-free and concessional credits to the country.
Of the sum, $250 million would come from the Development Policy Credit (DPC) and $750 million from the Green, Resilient Inclusive Development (GRID) fund.
So far, the WB and the government have agreed on the terms for the DPC, while the conditions for the GRID loan and $1 billion budget support, sought in June to mitigate the effects of the Ukraine war, are yet to be thrashed out.
That will be done with the WB staff mission expected later this month or at the beginning of December.
The government will be pushing for reasonable prior actions given that the country has agreed to enter into a long-term programme with the IMF, The Daily Star has learnt from people involved with the proceedings.
"There will be reforms for the IMF programme. Hopefully, that will sway the World Bank to make the triggers easier," said an official on the condition of anonymity.
The reforms agreed upon with the IMF pertain to creating additional fiscal space, containing inflation and modernising the monetary policy framework, strengthening the financial sector, boosting growth potential and building climate resilience.
For the DPC, the WB has set 12 conditions that encompass reforms in fiscal policy and the financial sector and setting guardrails to future shocks, according to documents seen by The Daily Star. The government is yet to meet any of the conditions.
"We are hoping to revise down the triggers," he added.
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 (BPPA) Act must be enacted to consolidate the responsibilities and authorities of the BPPA.
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 called for reforms in the banking sector that complement the policies agreed upon with the IMF.
Amendments to the Bank Company Act to strengthen the supervisory framework in line with good international practice, recovery plan for undercapitalised banks and strengthening corporate governance in state banks in line with global best practices are the demands of the WB.
Modernising the financial system infrastructure to global standards by adopting the Payment and Settlement Systems Act 2021 and the Secured Transactions Act are the other triggers for the loan.
The Payment and Settlement Systems Act 2021 will enable simplification and streamlining of the licensing framework for payment service providers and payment system operators, replacing the convoluted and, at times, inconsistent list of license types (mobile financial services, electronic money issuers, payment service providers, agent banking).
The enactment of the Secured Transactions Act will allow both tangible and intangible movable property to be used in secured transactions, which will improve access to financial services for Bangladeshi firms, including micro, small and medium enterprises.
The WB's programme is 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.
The WB has also called for allowing private sector players in power transmission projects.
Raising power generation from renewable energy sources to 1,000 megawatts by June 2024 is another condition placed by the WB.
Adoption of the Mujib Climate Prosperity Plan figures high in the WB's agenda, too.
This plan includes retrofitting the built environment, following the National Building Code 2020, to ensure sustainability and to make sure the buildings are safe against disasters and emergencies.
A retrofitted built environment and more resilient infrastructure will ensure that negative impacts on the poor from disasters can be reduced, particularly in Dhaka where construction practices will be particularly relevant.