In a significant development, the World Bank (WB) and the Asian Development Bank (ADB) have extended their support to Bangladesh, emphasizing the need for reforms in the financial sector and hoping for stabilization in the country’s foreign exchange reserves. The country heads of these multilateral lenders separately met with the newly appointed Finance Minister, Abul Hassan Mahmood Ali, on January 18, to discuss crucial economic matters.
Following a courtesy meeting with Abdoulaye Seck, World Bank country director for Bangladesh and Bhutan, Finance Minister Mahmood Ali disclosed that the WB has offered assistance for comprehensive reforms in the financial sector. The Washington-based lender, having already provided approximately $52 billion in financial assistance to Bangladesh, expressed its commitment to cooperating in addressing the current economic challenges, including a slowdown in growth and rising inflation.
“We discussed how the economic reform agenda is very urgent to move on several fronts, whether it is on exchange rate policy, fiscal policy, safety net policy to protect the most vulnerable from shocks. It is also about banking sector reforms, and it’s a huge agenda,”Abdoulaye Seck.
World Bank’s Commitment to Economic Reforms
In this regard, Abdoulaye Seck highlighted essential areas for reform, including exchange rates, monetary policy, interest rates, and the pressing need to address inflation, which has exceeded 9.0 per cent in recent months.
The finance minister emphasized the World Bank’s commitment to extending cooperation and support for implementing broad economic reforms across various sectors. Seck acknowledged the World Bank’s substantial support, exceeding $52 billion since Bangladesh’s independence, with over $16 billion in commitments covering health, education, and energy sectors.
Health, Education, and Energy
Bangladesh is strategically focusing on energy efficiency and renewable energy to achieve a low-carbon development trajectory. The nation has successfully implemented solar power plants, adding 708.17 MW to its capacity, along with an additional 1625.79 MW. In off-grid areas, over 6 million solar home systems and 4.5 million improved cook stoves have been installed in rural regions. The ongoing construction of a 149 MW wind power plant reflects the country’s commitment to sustainable energy sources.
In terms of education, Bangladesh has become a leader in progressing towards the Sustainable Development Goal of quality education, surpassing the regional average. Notable achievements include significant milestones in primary school enrollment, with a specific emphasis on enhancing educational opportunities for females from primary to tertiary education. The government is dedicated to various educational initiatives, such as compulsory primary education, free education for girls up to the 10th grade, financial support for female students, and establishing a comprehensive nationwide educational system.
Bangladesh has made notable progress in infrastructure in healthcare, with 12,527 community clinics operating as of 2012 and 494 Upazila hospitals in operation by 2015, providing a collective bed capacity of 17,686 across 15,000 health facilities. However, the healthcare sector faces a crucial challenge related to insufficient human resources, particularly a shortage of about 140,000 nurses despite having approximately 60,000 doctors. The government is actively working to address this shortage and strengthen the healthcare workforce.
ADB’s Perspective on Forex Reserves and Private Sector Participation
ADB Country Director Edimon Ginting commended the government’s successful management of the foreign currency reserve shortage. He suggested fine-tuning and acceleration to strengthen the reserves further. Ginting highlighted the ADB’s role in providing budget support, injecting $800 million into reserves last year. He stressed the importance of the private sector and expatriates in replenishing reserves, encouraging them to contribute more foreign currency. Ginting expressed confidence in Bangladesh’s economic strength, citing the nation’s 6.0 per cent growth rate.
“The ADB is proud of Bangladesh’s 15-year progress and we are committed to helping regain the past high growth. Despite current challenges, we are confident that the next five years will be better for Bangladesh,”–ADB Country Director Edimon Ginting.
Ginting expressed the ADB’s pride in working with Bangladesh, emphasizing the nation’s remarkable 15-year progress. While acknowledging challenges, he expressed confidence that the next five years would be better for Bangladesh. Ginting urged continuous improvement in the investment climate and suggested refining the investment regulatory framework to attract more foreign direct investment.
Bangladesh’s foreign exchange reserve
Following the BPM-6 manual of the International Monetary Fund, Bangladesh’s foreign exchange reserve reached $20.4 billion. On December 15, 2023, $689 million from the International Monetary Fund (IMF) and $400 million from the Asian Development Bank (ADB) were added to the forex reserves, bringing the gross reserves to $25.82 billion.
Originally set at $26.81 billion for December 2023, the target was revised to $17.78 billion. This adjustment in net reserves was outlined in the first review report as part of the $4.7 billion loan package. The first tranche of the loan, approved on January 30, amounted to $447.8 million, received on February 2. The total sum will be disbursed in seven installments by 2026.
The fourth installment, scheduled for December 2024, necessitates an increase in net reserves to $20.20 billion by the end of June.
The Country Director of the World Bank for Bangladesh and Bhutan underscored Bangladesh’s ambitious development objectives. He noted that Bangladesh is actively working towards achieving middle-income status by 2026 and has set its sights on becoming a developed nation by 2041. Importantly, as Bangladesh’s import and export activities continue to grow, the World Bank is actively engaged in providing support and implementing various projects crucial to the country’s progress.
Recently, the World Bank spearheaded talks on regional integration in South Asia, underscoring the pivotal role of a well-connected South Asia in amplifying trade and investment prospects within the region. Emphasizing the significance of effective border trade management, especially at crucial land ports like Benapole-Petrapole, where cross-border goods transport encounters significant delays, the World Bank emphasized viewing the movement of cargo trucks between Bangladesh and India as an asset rather than a threat. Participants stressed the potential for substantial time and cost savings by minimizing unnecessary loading and unloading
The collaborative efforts of the World Bank and the Asian Development Bank, along with the commitment of the Bangladeshi government, signal a concerted push towards economic stability and growth. The proposed financial sector reforms and the aspiration for reserve stabilization, coupled with a focus on private sector confidence and long-term investment, underscore a collective determination to address the challenges and strengthen Bangladesh’s economic foundation.