FHM Humayan Kabir

The World Bank would lend Bangladesh one billion dollar as budgetary support in the next three years provided it is satisfied with the progress of reforms pledged in the country's last two budgets, officials said Tuesday.

They said the development lender has asked the government to submit the status of the reforms by March this year and has assured Dhaka of disbursing the first tranche by June this year.

"We are preparing the progress report. It will be shared with the World Bank in March. We are confident it will satisfy the Bank," Arastoo Khan, additional secretary of Economic Relations Division (ERD), told the FE.

The government sought the budgetary support from the World Bank in October last year. The country needs the fund to finance its budget deficit, which is set to balloon this year due to spike in food and fuel import bills.

Unlike project aid, budgetary support can be used for any expenditure in the budget and normally a very few conditions are attached to such support.

"Usually, the World Bank attaches some terms and conditions on government reforms for availing its budgetary support," said ERD secretary M Musharraf Hossain Bhuiyan.

"But this time it has told us to show the progress of the reform programmes the finance minister pledged in his last two budget speeches," he told the FE.

In the last budget speech, the finance minister said that the budget deficit of the current fiscal year would be kept at five per cent of the country's Gross Domestic Product (GDP), up from 3.4 per cent in the last fiscal year.

But officials said the deficit could cross the projected limit as the government fuel bill is likely to rise by more than a billion dollars in order to fund costly electricity purchase from rental power plants.

In addition, the government was buying around 1.6 million tonnes of foodgrain at a very high price from the international market in an effort to build a buffer stock at home in view of a volatile domestic market.

In his last budget speech, the finance minister promised to raise the country's tax-GDP ratio to 11.9 per cent, boost development spending, frame a perspective plan for the next ten years, establish a budget and planning wing in all ministries.

He also pledged wide-ranging reforms in the financial sector, digitising land record system, strengthening local government and legal system and improving law and order situation.

The government has set a target to secure Tk35.00 billion ($500 million) million as budgetary support credit from foreign lenders this year to keep the budget deficit at Tk393.23 billion, which is five percent of the GDP.

Power Development Board (PDB) officials said the government would have to spend an extra Tk80 billion as subsidy to purchase power from the diesel and furnace oil fired rental power plants.

The government is setting up more than 1400mw capacity rental power plants under a first-track power generation programme to cut supply shortfall, which is hampering the country's GDP growth.

ERD officials said over the last few years the World Bank and the ADB provided Dhaka more than two billion dollars as budgetary support credit to bankroll national budget.

In the last fiscal year, the Asian Development Bank (ADB) lent a record $745 million as budgetary aid mainly to cushion the country from the impact of the global financial meltdown.

The country received $300 million as budgetary support from the multilateral donors-- the World Bank and the ADB, in FY2009.

News: The Financialexpress/ Bangladesh/ Feb-02-2011