The Asian Development Bank (ADB) and the Bangladesh government inked a $400 million loan agreement to increase domestic resource mobilization, public spending efficiency, and affordable financing for small firms, with a focus on women-led enterprises.
The Asian Development Bank (ADB) and the Bangladesh government have entered into a significant agreement, signing a loan worth $400 million to support the country’s economic recovery on Wednesday. The loan, which is part of the ADB’s Sustainable Economic Recovery Program, aims to promote domestic resource mobilization reforms, increase the efficiency and productivity of public spending, and provide small businesses, especially those led by women, with access to low-cost innovative bank financing.
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The agreement was signed on behalf of Bangladesh by Sharifa Khan, secretary of the Economic Relations Division, and Edimon Ginting, ADB country director for Bangladesh, according to a press release.
This loan is the second sub-program of ADB’s Sustainable Economic Recovery Program, which was introduced in October 2021 to assist in the economic recovery following the Covid-19 pandemic.
How the program will help Bangladesh?
“ADB remains committed to helping boost the economic recovery of Bangladesh to transform it into a middle-income country by 2030,” said its country director Edimon Ginting.
“We support the government’s efforts for enhancing revenues, improving efficiency and transparency in public spending and public procurement, deepening the reforms of state-owned enterprises, and helping small businesses and micro-entrepreneurs access low-interest affordable credits from the banking sector,” he also said.
The assistance strongly focuses on gender, climate change, and digitization to promote income generation for the poor and vulnerable,” the ADB country director added.
The program will enhance support in the following key areas, which includes-
Enhancing revenues and tax collection:
To strengthen the nation’s revenue generation, the loan program concentrates on implementing the new Income Tax Act, closing tax loopholes, and enhancing compliance and enforcement. These initiatives seek to expand the tax base and boost income tax collection. In addition, the program encourages the adoption of electronic procurement and payment systems to increase the transparency and effectiveness of public procurement.
Promoting financial inclusion and access to credit:
A primary objective of the loan program is to facilitate small business and micro-entrepreneurs’ access to affordable credit. The Bangladesh Bank will provide low-cost microcredit through digital channels and e-wallets. These services will be made available through commercial institutions. It facilitates bank lending to marginalized and landless farmers, small traders, and low-income individuals. In addition to trade receipts and other forms of non-fixed collateral, such as small equipment and machinery, micro and small enterprises and women entrepreneurs who do not own land or property will be able to gain access to financing.
Gender equality and climate change:
Significant emphasis is placed on promoting gender equality and social inclusion. By incorporating gender and climate change considerations into public investment and budgeting, the loan seeks to assist the poor and vulnerable in generating income. These initiatives are consistent with Bangladesh’s dedication to achieving sustainable development objectives and constructing a resilient and inclusive society.
More supports to come from development partners
In the coming days, three development partners will provide approximately $1 billion altogether in budget support. The ADB loan is part of a larger effort by multiple development partners to support the economic recovery of Bangladesh.
The Asian Infrastructure Investment Bank (AIIB) and the Japan International Cooperation Agency (JICA) are contributing $400 million and $216 million, respectively, in addition to the ADB’s $400 million loan. These funds will help the government fulfill its fiscal year deficit financing obligations.
However, the inflow would not be sufficient to bolster the country’s net international reserves to the level of $24.46 billion required by the International Monetary Fund to receive the second installment of the $4.7 billion loan.
ADB places conditions which are included in all three loans by ADB, AIIB and JICA
The conditions for the three loans from ADB, AIIB, and JICA are synchronized and drawn upon by ADB, which is the primary financier.
Obtaining parliamentary approval to amend the Income Tax Ordinance, 1984, is one of the main conditions. On June 8, Finance Minister AHM Mustafa Kamal introduced the Income Tax Bill 2023, which incorporated the lenders’ recommendations.
Another condition is the consolidation and revision of income tax law to address new and emergent issues such as base erosion and profit shifting by global internet entities, transfer pricing, derivative transactions on the capital market, and thin capitalization. In addition, the government must obtain parliamentary approval to amend the Income Tax Ordinance, 1984, or issue an SRO (as applicable) for the revocation of certain income tax exemptions.
The National Board of Revenue will be required to issue orders for information exchange between large taxpayer units of value-added tax (VAT) and income tax, implement risk-based VAT audits, and enact a risk-based audit manual.
Additionally, the revenue authority must issue an order expanding the electronic deduction of income tax at the source system to at least six additional tax zones. In accordance with ADB recommendations, the revenue authority has also mandated online payment of VAT amounts exceeding Tk 1 crore.
Two additional conditions are the online payment of income tax for quantities exceeding Tk 20 lakh and the pilot online filing of personal income tax returns by taxpayers with incomes exceeding Tk 70 lakh.
Obtaining cabinet consent for the Bangladesh Public Procurement Authority bill to establish an autonomous public procurement authority is another condition.
If the policy actions are implemented in good faith, Bangladesh’s tax-to-GDP ratio will increase to 8.8 percent by December of next year, up from 7.9 percent currently.
Lastly, the agreement signed between the Asian Development Bank (ADB) and the government of Bangladesh for a $400 million loan represents a significant milestone in the country’s economic recovery. Bangladesh is on its way to achieving sustainable development objectives and building a resilient and inclusive society through the implementation of the suggested measures and collaboration with other development partners.