Budget support: ADB okays $250 million in first phase

Responding to the government's request to provide a $500 million loan as budget support, the Asian Development Bank (ADB) has approved $250 million in the first phase.

The policy-based loan was approved by the ADB head office with the condition of strengthening institutional capacity for the social safety net system, increasing the coverage and efficiency of social protection, and improving financial inclusion for disadvantaged people.

The ADB's Bangladesh office revealed the loan approval in a press release on Friday.

The release said the Strengthening Social Resilience Programme would expand its outreach to vulnerable women by increasing the coverage of both the old age allowance for women over 62 as well as the allowance for widowed, deserted, and destitute women in 150 upazilas.

The government earlier sought the loan as emergency budget support to meet the financial crisis caused by the adverse impacts of Covid-19. The ADB prepared a concept note to release the proposed support in two phases.

The concept note found some major limitations and irregularities and the lack of transparency in Bangladesh's social security programmes. It revealed that the allocation for social protection has been relatively small, 1-1.5% of GDP in the last 10 years, even though there are many social safety net programmes.

Many programmes have not been able to cover all the targeted people – such as the old age allowance programme and that for widowed, deserted, and destitute women – due to resource limitations.

Social protection in Bangladesh focuses on poverty relief in rural areas and there is no scheme to help mitigate the impacts of employment loss or sickness on informal sector workers, who account for more than 70% of the workforce.

Overall, about 70% of the eligible poor remained outside the social safety net programmes while 46% of the beneficiaries are not from the poor group.

The social safety net scheme in Bangladesh is stacked with more than 100 programmes, with multiple ministries tasked with implementation, which has caused inefficiencies in providing social protection.

Further, the gap between social needs and available protection is becoming significant, since the social protection system does not effectively meet the diversified social needs of Bangladesh's population, such as those of the urban poor.

Despite progress in poverty reduction, a substantial number of people continue to sustain their lives by daily work and remain highly vulnerable to covariate shocks, such as major illnesses and external events, said the ADB.

Moreover, the Covid-19 pandemic has significantly affected the socioeconomic situation of Bangladesh and the growth rate of the gross domestic product (GDP) in 2020 decreased by 3 percentage points from the pre-pandemic estimate of 8.2%.

The economy experienced a particularly sharp decline during April-May 2020, with substantial reductions in international trade. The unemployment rate surged to 22.4% during April-July from 2.1% in March.

Among those hit the hardest by the pandemic are poor people who have faced further impoverishment and many vulnerable people who have fallen back into poverty.

The ADB expressed concern over the rising trend in budget deficit in Bangladesh and said the country is facing a resource gap amounting to $23.4 billion in the current fiscal year, which will increase to $26.5 billion in the fiscal year 2021-22.

The loan size reflects the government's total financial needs, and the programme is estimated to cost $500 million from the ADB's ordinary capital resources.

To receive the proposed amount, the government has to expand the coverage and efficiency of social protection and also increase financial inclusion for disadvantaged people.

The health ministry will adopt the policy guideline on public health research to strengthen the national health system preparedness, which will include epidemic and pandemic issues with corresponding budget allocation.

It will also approve the national urban health strategy, which provides a national strategic framework to strengthen urban healthcare services, considering the growing health needs of the urban population.

"Enhancing social protection support is critical to cushioning the effects of the pandemic," said ADB Senior Social Sector Specialist for South Asia Hiroko Uchimura-Shiroishi.

"The ADB supports the government's intention to leverage the Covid-19 pandemic as an opportunity to strengthen its social protection programmes as an essential means of building resilience among the poor and support an inclusive recovery."

The programme will include institutional and policy reforms to address cross-sector issues of social development in Bangladesh.

The ADB will also provide a technical assistance grant to support programme implementation, policy analyses, and capacity development for social development-related ministries.

The technical assistance is estimated to cost $1.2 million, which will be financed on a grant basis by the Japan Fund for Poverty Reduction.