T he Asian Development Bank (ADB) on Saturday approved a $250 million policy-based loan to support Bangladesh’s economic recovery following the coronavirus disease (COVID-19) pandemic.
This is the first subprogram of the programmatic $500 million Sustainable Economic Recovery Program.
The objective of the Sustainable Economic Recovery Program is to facilitate a rapid and sustainable recovery from the COVID-19 pandemic, generate employment, and expand economic activities for micro-entrepreneurs and small businesses.
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This will be pursued through policy reforms that will create fiscal space to enhance public expenditure and support the recovery and growth of cottage, micro, small, and medium-sized enterprises (CMSMEs).
The loan will support the government’s planned public investment in education, health, social protection, and infrastructure and help to stimulate economic activities and economic recovery. It is also aligned with the core objectives of the country’s Eighth Five-Year Plan and supports the aspiration of Bangladesh to become an upper middle-income country by 2031.
“The fiscal space created under the program will allow the government to prioritize expenditures and upscale investment in social and economic infrastructure,” said ADB Principal Financial Management Specialist Srinivasan Janardanam. “The program is expected to increase the efficiency in public investment management and create a favorable environment for access to credit, particularly for the poor and vulnerable.”
To promote fiscal sustainability, the program will help the government address two key constraints to public investments in critically needed physical and social infrastructure. These are low domestic resource mobilization and inefficient use of public resources. The program aims to expand the tax base, improve compliance and strengthen enforcement, rationalize tax exemptions, and modernize tax administration.
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The COVID-19 pandemic has also severely impacted micro-entrepreneurs and small businesses in the country.
Limited access to affordable finance is one of the most critical constraints faced by CMSMEs. Only 28% of the larger CMSMEs, or small and medium-sized enterprises, have access to formal bank credit. Enhancing access to credit for CMSMEs will lower borrowing costs, protect this important segment of the economy, support inclusive growth, and absorb the demographic dividend.
ADB’s support coincides with the finalization of Bangladesh’s Eighth Five-Year Plan and the launch of the new ADB country partnership strategy for Bangladesh, 2021–2025.
ADB provided a $500 million countercyclical support facility (pandemic response option) in 2020, towards immediate budgetary support to the economy in the wake of the COVID-19 pandemic to part-finance incremental health, social and economic expenditures by the government.
