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ADB Grants $400 Million Loan to Boost Bangladesh’s Economic Recovery

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The Asian Development Bank (ADB) has granted a $400 million loan to Bangladesh, marking the second subprogram of the Sustainable Economic Recovery Program initiated in October 2021. The loan aims to drive reforms in domestic resource mobilization, enhance the efficiency and productivity of public spending, and provide accessible and affordable bank financing to small businesses, particularly those led by women.

ADB Principal Public Management Economist for South Asia, Aminur Rahman, emphasized that this subprogram will enable Bangladesh to bolster its revenues, promote transparency and efficiency in public spending and procurement, and implement vital reforms in state-owned enterprises. Additionally, it will facilitate access to low-interest credits from the banking sector for microentrepreneurs and small businesses. Rahman further highlighted the program’s commitment to gender equality, climate change, and digitization, supporting the government’s initiatives to generate income for the impoverished and vulnerable segments of society.

Under this program, income tax collection will be strengthened through the adoption of the new Income Tax Act, reducing tax loopholes and enhancing compliance and enforcement measures. The country’s tax net will also be expanded. Transparency and efficiency in public procurement will be promoted through the enhancement of electronic procurement and payment systems. Furthermore, the digital system for public project appraisal and approval processes will streamline the approval of public projects.

The loan package aligns with the innovative financing services recently introduced by the Bangladesh Bank, which enable commercial banks to offer low-cost microcredit through digital channels and e-wallets. This will facilitate access to finance for marginalized and landless farmers, small traders, and low-income earners. Micro and small businesses, as well as women entrepreneurs without substantial assets, will also be able to secure financing based on their trade receipts and other non-fixed collateral, such as small equipment and machinery.

The program places significant emphasis on promoting gender equality, social inclusion, and addressing climate change concerns in public investment and national budgeting. ADB remains committed to fostering a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while continuing its efforts to eradicate extreme poverty.

By approving this loan, ADB aims to support Bangladesh in its ongoing recovery efforts, enabling the country to implement critical reforms, foster economic growth, and empower small businesses, particularly those led by women, in the post-Covid-19 era.

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Cenbank Mandates Real-Time Reporting of Willful Defaulters

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The Bangladesh Bank (BB) has issued new instructions to banks to submit data on willful defaulters to the Credit Information Bureau (CIB) database. This directive was issued on Tuesday, requiring immediate compliance from commercial banks and non-banking financial institutions (NBFIs).

In a circular released by the CIB of the central bank, banks have been instructed to report their June data in real-time starting July 1. The circular has been sent to top executives of banks for prompt execution.

This move follows an earlier initiative by the BB, outlined in a circular on March 12, aimed at identifying willful defaulters within the banking sector. The central bank also detailed actions to be taken against such defaulters.

According to the circular, any client who takes a loan anonymously and misuses it will be classified as a willful defaulter. Banks were directed to establish a ‘willful defaulter identification unit’ by April 9 to facilitate this identification process.

The circular further stipulates penalties for non-compliance. Banks that violate these conditions will face fines ranging from Tk 50 lakhs to Tk 1 crore. Continued violations will incur additional fines of Tk 1 lakh per day.

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Cenbank Raises Dollar Price to Tk 117

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The Bangladesh Bank has adjusted the dollar price to Tk117 from Tk110 by introducing the crawling peg exchange rate mechanism.

Under this new approach, the bank will buy and sell dollars with Tk117 as the mid rate.

This decision was reached during a meeting of the monetary policy committee on Wednesday, May 8th.

Additionally, the committee has opted to discontinue the SMART lending rate mechanism, allowing banks to set their lending rates based on dollar demand and supply, according to a circular issued after the meeting.

The crawling peg system permits a currency with a fixed exchange rate to fluctuate within a specified band of rates, combining features of both fixed and floating exchange rate regimes.

On May 5th, Bangladesh Bank Governor Abdur Rouf Talukder announced the adoption of a market-based interest rate and the implementation of a crawling peg system to stabilize the foreign exchange rate.

He stated that the central bank is collaborating with prominent economists and bankers to devise a contractionary monetary policy aimed at curbing inflation and restoring macroeconomic stability.

Earlier, on April 2nd, the World Bank stressed the importance of a crawling peg mechanism aligned with market-clearing exchange rates to narrow the gap between formal and informal exchange rates, as outlined in the latest Bangladesh Development Update report.

Meanwhile, the International Monetary Fund (IMF) has advocated for a market-based dollar rate. In January 2023, the IMF attached several conditions to a $4.7 billion loan facility over a three-and-a-half-year period. Bangladesh has received two installments of the loan by fulfilling nearly all conditions, except for the reserve requirement.

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Cenbank Dissolves National Bank Board Again

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On Sunday (May 5), the Bangladesh Bank (BB) once again dissolved the board of directors of the National Bank.

In a letter addressed to the managing director of the National Bank, the central bank announced the cancellation of the existing board of directors.

Furthermore, the banking regulator established a new board of directors and appointed Khalilur Rahman, the bank’s sponsor director, as the new chairman, according to the BB’s communication.

Mezbaul Haque, spokesperson for the Bangladesh Bank, commented on the development, stating that the action was taken to bolster the bank’s board of directors.

This move comes after a similar action in 2023 when the central bank ordered the dissolution of the National Bank’s board and formed a new one.

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