ERD starts negotiations over $75m WB budgetary support next week

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A Z M Anas
The caretaker government opens talks with the World Bank (WB) next week for a US$75 million loan package needed to cushion the impact of devastating flood.
"We'll be negotiating with bank officials Sunday for the credit to be channelled as supplementary budget support," a senior official of the Economic Relations Division (ERD) said.
"The proposed $75 million loan will come as emergency flood assistance. Although the credit is being unlocked as the supplementary financing for the development support credit (DSC), the bank has attached no reform agenda," the official insisted.
The interim administration has stepped up its aid diplomacy since unveiling a hefty budget in June, as it needed to bridge the budgetary deficit. Later, the need for foreign assistance became more pressing when the floods struck in 39 districts, mostly located in the country's north and north-eastern parts, destroying crops and infrastructure.
The bank's loan is said to be supplementary to the DSC, which was provided in the last couple of years, forcing the immediate past BNP government to swallow a stream of reform recipes, including the fuel price hike.
The ERD officials expressed the hope that if successfully wrapped up, the negotiations would lead to the placement of loan proposal to the bank's board in late September.
"Although the bank has scaled down the loan amount from $100 million to $75 million, it is likely to be disbursed sometime in October," an ERD official noted.
Officials pointed out that the bank had a number of factors, notably floods, political instability and soaring inflation, for the faster processing of aid.
Finance ministry officials say it is relatively easier to get emergency aid like flood assistance, as this type of loan comes with no strings attached.
By contrast, they point out, programme loans like development support credit are linked to reforms in the bank's preferred areas.
Officials said the emergency flood aid will be released in the form of budgetary support, not as balance of payment (BoP) support.
"In 1998, the country was forced to take BoP support to stave off the impact of the devastating floods. But this time, we need no BoP support against the backdrop of reasonably higher foreign exchange reserves. So, budgetary support will be critical for the present administration to narrow down financing gap," a finance ministry official said.
In June, the present interim administration unveiled a Tk 871.37 billion budget for fiscal 2007-08, with the budgetary deficit running at 4.8 per cent of GDP (gross domestic product) as against 3.3 per cent in the just-out fiscal.
The supplemental loan is also needed to meet the government's foreign aid requirement worth Tk 63.05 billion as set for the current fiscal, a target considered to be ambitious. The target was Tk 51.83 billion in the revised budget of the fiscal.
In 2004, the bank provided more $154 million as post-flood recovery assistance. At that time, the bank channelled funds from the Private Sector Infrastructure Development Project (PSIDP).
The International Development Association (IDA), the bank's soft-lending window, had also responded channelling $200 million in emergency aid to recover from the devastating flood in 1998.
The assistance package was intended to aid Bangladesh in maintaining macroeconomic stability, while helping the country contain pressure on balance of payments.