Economy
Bangladesh, Germany Seal 191mn Euro Deal for Development Cooperation
Germany has pledged 191 million euros to Bangladesh, signaling its commitment to support the country’s sustainable development. The two nations recently inked bilateral agreements on Development Cooperation, following up on commitments made during government negotiations in December 2022. These agreements encompass a total volume of 191 million euros, equivalent to approximately 2,215 crore Bangladeshi Taka, with 55 million euros allocated for Technical Cooperation (TC) and 136 million euros for Financial Cooperation (FC), as detailed in a press release.
The signing ceremony, which took place in Dhaka, saw Sharifa Khan, Secretary of the Economic Relations Division, and Jan Janowski, Chargé d’Affaires a.i. of the Federal Republic of Germany in Bangladesh, sign the agreements on behalf of their respective governments. The event was attended by high-ranking officials from the Government of Bangladesh, the German Embassy in Dhaka, and key representatives from the main implementing agencies within German Development Cooperation, namely GIZ for technical cooperation and KfW for financial cooperation.
The projects outlined in these agreements focus on critical areas such as Green and Just Energy Transition, Sustainable Urban Development, Sustainable Supply Chains, Biodiversity and Women Empowerment, as well as support for Host and Displaced Communities in Cox’s Bazar.
Under the Technical Cooperation agreement, the projects encompass various initiatives, including energy efficiency promotion, vocational training, climate-smart urban development, and support for climate adaptation targets, among others.
Meanwhile, the Financial Cooperation agreement includes substantial funding for Climate Change Adapted Urban Development Programs, contributing to the sustainable growth of urban areas in Bangladesh.
Germany has a longstanding history of providing both financial and technical assistance to Bangladesh, dating back to 1972, with a cumulative contribution exceeding 3 billion euros. Their cooperation has played a pivotal role in areas like climate change adaptation, infrastructure development, poverty alleviation, good governance, human rights, energy efficiency, renewable energy, and assistance to Rohingya and host communities in Cox’s Bazar district.
These newly signed agreements signify the continuation of successful bilateral cooperation, aimed at advancing the Sustainable Development Goals (SDGs) and aligning with the Climate Goals outlined in the Paris Agreement. Germany operates its technical and financial cooperation activities in Bangladesh through three institutions: GIZ, KfW Development Bank, and BGR, all of which are overseen by the Embassy of Germany in Bangladesh.
Currently, the German government is financing 23 projects in Bangladesh, totaling 452.5 million euros in loans and 161.054 million euros in grants. Additionally, a separate technical cooperation project, “Strengthening Access to Justice and Legal Reforms (SAJLeR),” was signed between Bangladesh and Germany. This initiative, with a fund of 12.422 million euros, aims to enhance access to justice services for the marginalized, particularly the poor, women, and children, by introducing new reform approaches in the justice sector.
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.
The International Monetary Fund has finally given Bangladesh the green signal for $681 million as the third instalment of the lender’s $4.7 billion loan package.
The visiting delegation of the lender has confirmed that the instalment will be released in June, several top finance ministry officials told the news reporter following a meeting with the IMF team yesterday.
They said various aspects of an agreement for securing the third instalment were finalised in a series of meetings with the IMF and different wings of the finance ministry yesterday.
The lender is likely to reduce the requirement for June’s net foreign exchange reserve from $20.10 billion to $17-$18 billion, they added.
The IMF had a condition for Bangladesh to have reserves of $19.26 billion by March-end and $20.10 billion by June’s end for the third instalment.
An official from the finance division told the news reporter that despite current reserves now around $15 billion, receiving the third instalment is assured even if this condition is not met.
Bangladesh and the IMF do not have much disagreement on most issues, said the official, adding that the government is working to implement the conditions imposed by the IMF including reducing subsidies, increasing revenue and reserves.
He said a new reserves requirement will be finalised in a meeting with the central bank on Tuesday. The IMF will also determine the net reserve target for October and December for the fourth instalment.
Bangladesh also failed to meet the net reserve requirement and revenue target before receiving the second instalment. Back then, the IMF signed the MoU by reducing the targets for next March and June.
Another official said the government also has doubts about achieving the lender’s condition for revenue target for June.
“Therefore, the finance ministry has also sought concessions from the IMF’s targets for June revenue collection. In the new MoU, the IMF is also likely to make concessions in this regard,” said the official.
The government has collected Tk1,62,164 crore against the revised target of Tk1,43,640 crore till last December, according to the finance ministry. However, revenue of Tk3,94,530 crore has to be collected at the end of the financial year.
Assessing revenue collection growth over the current fiscal year’s nine months, the revenue board predicts falling short of the target by at least Tk10,000 crore by June’s end.
Govt actively following IMF’s directives
Ahsan H Mansur, executive director of the Policy Research Institute, told the news reporter that the IMF’s current focus includes transitioning to a market-based exchange rate, leaving interest rates to the market, enhancing revenue collection, and reducing government subsidies.
He said the government is actively aligning policies with the IMF’s directives.
“The IMF may reduce the June net reserve requirement from $20.10 billion to $17-$18 billion. But it will be difficult to achieve before June,” said the economist.
Ramifications of not meeting conditions
Mahbub Ahmed, former senior secretary of the Finance Division, told the new reporter that the government is working to meet IMF conditions to secure the third loan instalment.
He said, “Despite not meeting conditions on foreign exchange reserves or revenue, we remain optimistic about receiving the third tranche.”
He said failing to meet the conditions satisfactorily may hinder receiving the two instalments scheduled for the next fiscal year.
“As the government has until the next fiscal year to fulfil the conditions, the IMF may get strict for the next instalments,” said the former secretary.
He further mentioned that Bangladesh has never received the last instalment of the IMF loan except once due to not being able to fulfil the conditions.
“In 2016, when I was finance secretary, I received the last instalment of the IMF’s $1 billion loan. Before this, Bangladesh could never take the final instalment of the loan,” he added.
Meeting with BB today
The IMF officials will meet with central bank officials on Tuesday morning to adjust banking sector conditions for securing the third and fourth loan instalments.
Later in the day, they will finalise the MoU with State Minister for Finance Waseqa Ayesha Khan and Finance Division Secretary Khairuzzaman Mozumder, attaching the revised terms for releasing the instalments.
The delegation, led by Chris Papageorgiou, head of IMF’s Development Macroeconomics Division, will leave Dhaka after a press briefing on 8 May. The team arrived on 24 April to review the loan programme.
In January last year, Bangladesh signed a $4.7 billion loan agreement with the IMF due to dwindling foreign exchange reserves. The loan is being distributed in seven instalments by 2026. The lender cleared $447.8 million of the first instalment in February last year, and $681 million of the second instalment in December
Bangladesh and Egypt have affirmed their commitment to enhancing bilateral cooperation through regular foreign office consultations.
During a meeting between Foreign Minister Hasan Mahmud and Egyptian Foreign Minister Sameh Hassan Shoukry on Saturday afternoon, held on the sidelines of the 15th Organisation of Islamic Cooperation (OIC) Summit in Gambia, discussions were held on various matters of mutual interest. These included boosting trade and investment between the two nations and addressing the Rohingya crisis.
Foreign Minister Hasan Mahmud proposed mutual visa exemption and expanding trade with Egypt during the meeting. The Egyptian foreign minister agreed in principle to sign an agreement on diplomatic and official visa exemption.
Additionally, the Egyptian foreign minister pledged full support for the construction of the Chancery building of the Bangladesh mission in Egypt.
Following this, Deemah Al Yahya, Secretary General of the Digital Cooperation Organization (DCO), paid a courtesy call to Foreign Minister Dr Hasan Mahmud.
During the meeting, Al Yahya informed the Foreign Minister about the drafting of an agreement titled ‘Multilateral AI Agreement’ on the International Use of Artificial Intelligence by the member states of DCO.
Expressing sincere interest, Al Yahya accepted the invitation from the Foreign Minister to visit Bangladesh and witness the country’s progress in the field of information and communication technology. He expressed hope for expanding DCO’s cooperation with Bangladesh in this sector through the visit.
