Govt races to unlock as budget support falls short

Amid mounting economic pressure stemming from the ongoing conflict in the Middle East, the government is increasingly turning to the reallocation of unused foreign-funded project loans after falling short of its budget support target from development partners.

The government had aimed to secure at least $3.2 billion in budget support to cope with rising fiscal pressures.

In a letter issued on April 12, the Finance Division instructed the Economic Relations Division (ERD) to take necessary measures to secure $3.2 billion in budget support.

However, according to ERD sources, the government has so far received commitments amounting to $1.665 billion.

The pledged support includes $1 billion from the Asian Development Bank (ADB), $315 million from Japan, $250 million from the Asian Infrastructure Investment Bank (AIIB), and $100 million from the Opec Fund.

At the same time, officials said nearly $1.6 billion is under consideration for repurposing from ongoing development projects, with the amount likely to increase following further reviews.

An ERD official said authorities, in coordination with development partners, are reviewing low-performing and slow-moving projects to identify funds that can be redirected towards short-term priority interventions.

The reallocated funds will primarily finance one-year programmes aimed at addressing urgent challenges related to food supply, energy imports and social safety net programmes.

The ADB has emerged as the largest contributor to this year’s budget support initiative.

According to ERD sources, Bangladesh requested the entire $1 billion from the lender for the current fiscal year, and the process is now progressing.

Two agreements with the ADB are expected to be signed under programmes focused on social resilience and economic governance.

Under the Second Strengthening Social Resilience Programme, Bangladesh is set to receive $250 million, while another $750 million will come through the Strengthening Economic Management and Governance initiative.

In addition, around $250 million is expected to be reallocated from long-delayed projects suffering from weak implementation and slow disbursement.

Meanwhile, the World Bank appears to be more focused on loan restructuring and reallocation rather than providing fresh budget support during the current fiscal year.

Although Bangladesh sought at least $500 million under the Green and Climate Resilience Development Policy Credit, officials said no final approval has yet been received.

Instead, efforts are now centred on unlocking unused pipeline financing.

Reviews of World Bank-funded projects indicate that nearly $1.835 billion could potentially be mobilised through accelerated disbursement and loan restructuring measures.

Of that amount, a $785 million contingency facility has already been created under the Rapid Response Option (RRO) and Contingent Emergency Response Project (CERP) framework through reallocations from eight ongoing projects.

The government plans to utilise these resources under the CERP mechanism, which allows the rapid deployment of funds for emergency imports such as food, fuel and medicines without lengthy approval procedures.

Officials said the framework will remain effective for up to six years, while individual interventions may continue for up to one year.

Separately, Bangladesh is preparing to introduce a new $250 million emergency Investment Project Financing (IPF) facility.

According to ERD sources, the facility will be created by consolidating cancelled or unused allocations from World Bank projects scheduled to close in FY26, rather than through fresh borrowing.

The AIIB has also reduced its support. While Bangladesh had sought $750 million in budget financing, the lender approved only $250 million under an economic governance programme.

Another $350 million will instead be repurposed from the stalled Sylhet-Tamabil four-lane highway project, where land acquisition complications have delayed implementation.

Japan’s support package has also been revised downward. Although the Japan International Cooperation Agency (Jica) had initially planned to provide $500 million, the amount has now been reduced to $315 million.

Officials said the financing would align with International Monetary Fund (IMF) recommendations, including support for social protection measures and revenue reforms.

The government is also expecting $100 million from the Opec Fund, while proposed assistance from France and Germany remains uncertain.

According to ERD data, Bangladesh received a record $3.44 billion in budget support in FY25, compared with $2.03 billion in FY24.