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Country takes on more reserve fattening World Bank loans

Bank provided $22b during the past decade that required little forex expenditures

08 August 2022
Country takes on more reserve fattening World Bank loans


Editorial Desk :
In the latest round of financing, the government of Bangladesh and the World Bank on Sunday signed a $300 million agreement to help the country strengthen its local urban institutions to respond to and recover from the Covid-19 pandemic and improve preparedness to future shocks.
The local government Covid-19 Response and Recovery Project will benefit 39.9 million urban residents in all eight divisions. It will help its cities and towns to build back better as they recovers from the pandemic and prepare for future shocks, including climate change, disasters, and disease outbreaks.
In addition, some 329 municipalities and 10 city corporations will receive funds bi-annually from the project to improve critical urban services and infrastructures to mitigate and respond to climate change impacts, disasters, and future disease outbreaks.
Just few weeks back the World Bank approved a $500 million credit to help Bangladesh improve disaster preparedness against inland flooding in 14 flood-prone districts benefiting over 1.25 million people.
The Resilient Infrastructure for Adaptation and Vulnerability Reduction (RIVER) project will help Bangladesh reduce vulnerability to riverine and flash floods by constructing over 500 multipurpose flood shelters, access roads, and climate-resilient community infrastructure. In normal times, the flood shelters will operate as primary schools and they will be equipped with solar energy systems, water, sanitation, and hygiene facilities, that cater to the needs of women and vulnerable populations.
According to a post on Facebook, during the past ten years, World Bank has provided US$22 billion in loans of different maturities mostly on capacity building and training projects that require small percentage of actual foreign exchange expenditures.
Thus, these foreign currency loans contribute to nation's forex reserves helping the government with its discretionary spending budget. Most of which have been used up in meeting Bangladesh's current account deficit over the past decade.
The details of such loans are not made public. But more importantly, from where Bangladesh will come up with the foreign exchange to meet its debt obligations in the future is not clear.
Since 2015, Bangladesh's forex debt obligations have spiraled from around US$4 billion to US$97 billion today.
The trade deficit is largely to blame for this. In fiscal year 2021-2022, export revenues reached a record high of $52.08 billion, but the trade deficit also reached a record high of $33 billion. The Russia-Ukraine war, which has had an impact on the supply of food and fuel around the world, is partially to blame for the significant trade deficit. Bangladesh's reserves have also been affected by global inflation.
Bangladesh relies on remittances from outside to survive. Bangladesh is the seventh-highest beneficiary of remittances in the world, according to the World Bank. In the fiscal year 2020-21, its remittance inflows reached a record high of US$24.77 billion, but the following year they decreased to US$21.03 billion.
One of the top 30 countries in the world for money laundering is Bangladesh. Some observers refer to this issue as the nation's economy's cancer. Global Financial Integrity (GFI), a U.S.-based research tank, claims that Bangladesh is one of the most severely impacted countries by the plague of trade-based money laundering. According to GFI statistics, Bangladesh launders an average of US$7.53 billion annually through foreign trade.
The Swiss National Bank (SNB) has published a study stating that as of the end of 2021, "the amount of money deposited by Bangladeshis in various banks in Switzerland stood at 871.1 million Swiss francs" (about US$916.92 million). According to the study, the sum rose by US$310 million in just one year.
While such loans help government take on capacity building projects which in turn contributes to positive social changes; taking on such foreign currency loans is putting the country's future at risk with a debt load that the country may not be able to sustain.

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