Bangladesh’s Tryst with Bretton Woods Institution: A Chequered Experience?

While lauded as the promoter of development and progress in Bangladesh, World Bank and IMF—the unholy duo of   the global financial order—had also received sharp scrutiny for intrusive policy prescriptions and retraction of funds swayed by vested interests.

The discourse of global financial institutions had featured prominently in Bangladesh’s growth dynamics. In the wake of Bangladesh’s independence, the spurt of growth and poverty mitigation was underwritten by efforts of IDA—a subsidiary of the World Bank that caters to the demand for concessionary loans to developing countries. World Bank remained integral to poverty alleviation efforts of the Government of Bangladesh and the programs of the Bank focused on elevating groups especially women. World Bank laid the groundwork for the women’s empowerment and development programs in Bangladesh.

World Bank aids developing countries in attaining sustainable growth. The sustainable growth of developing countries is promoted through myriad mechanisms—financial investment, capital mobilization, and counseling services. The Bank provides concessionary loans on low-interest and zero to low-interest credits. This supports the inflow of investments in developing countries in critical areas such as development, private sector and financial development, health, and public administration. Owned by the governments of member countries, the World Bank Group formulates decisions on issues relating to financial, membership, and policy development.

International Monetary Fund coordinates the international monetary system, the system tasked with coordinating international payments. IMF has a systematic mechanism that fuels investment and protects global fiscal and economic health. IMF focuses on the maintenance of financial and macroeconomic stability and the World Bank drives long-term economic development and mitigates systemic poverty issues. IMF is tasked with adopting short-term fixes, and the world bank spur long-term growth and development.

IMF disbursed loans to Bangladesh occasionally responding to the requests of Bangladesh to steer the country through a crisis period. The first loan was granted in 1990-91. This was followed by three occasions that Bangladesh received loans from IMF—in 2003-04, 2011-12, and 2020-21. The loans were below the US $100 million threshold on each occasion.  Rampant food prices and ballooning energy costs driven by the twin shocks of the Ukraine-Russia war and Covid-19 had battered Bangladesh and shrunk the once-robust forex reserves of Bangladesh. IMF had provisionally reached an agreement with Bangladesh to bestow a $4.5 billion support program to Bangladesh—as the finance minister in Bangladesh pins hopes on stabilizing the role of the loans. The loan with is set to be provided in seven tranches within a four-year period. However, the disbursal of the loan is conditional upon the fulfillment of conditions set by the IMF. The conditions often ascribed by IMF— such as slashing subsidies in sectors such as power, gas, and fertilizer—can be particularly agonizing for Bangladesh. IMF delegation dispatched to Bangladesh last year identified forex volatility  as a hurdle to Bangladesh’s macroeconomic stability. While injecting IMF loans into the economy will restore stability of dwindling forex reserves, however, it can also cause political and policy dislocation for the country.

Besides, foreign assistance inflow to Bangladesh will further consolidated—as the country is poised to receive $18 billion under the framework of International Development Association (IDA) soft loan window in the following five years, as stated in the draft of Country Partnership Framework (CPF) programme for FY 23-FY 27. Bangladesh will be provided with fresh of $10 billion during the next five years—which will be supplemented by the release of $8.24 billion that is already in the pipeline. The loan granted to Bangladesh for FY 23-FY 27 is relatively higher than previous fiscal years—as $11.83 billion was infused in the economy in FY16-FY22, while $6.1 billion was bestowed in the FY11-FY15. To supplement the soft loans granted by IDA, International Finance Cooperation (IFC) will finance $4.5 billion for spurring private sector development while Multilateral Investment Guarantee Agency (MIGA) guaranteed $695 million a year in external loans in the manufacturing and energy sector.

Cooperation between the World Bank and the Government of Bangladesh (GoB) was mediated through International Development Association, lauded as World Bank’s fund for the poorest countries. IDA initiated a partnership with Bangladesh in 1972 and had turned into the country’s reliable development partner. IDA had committed a staggering $38 billion in generous grants and offered low-interest loans that buttressed 271 projects in Bangladesh. This made Bangladesh the recipient of the most extensive support from IDA.

Currently, 55 projects world-bank financed projects are in operation in Bangladesh amounting to 15.7 billion—making Bangladesh the largest IDA program globally. World Bank has also been the largest external funder for Bangladesh—accounting for a quarter of foreign aid inflow to Bangladesh.

The World Bank bolstered Reaching Out of School Children (ROSC II) project that ensured the access of education to 735000 disadvantaged children from impoverished backgrounds. Bangladesh’s ambitious goal of universal primary enrolment is riddled with persistent inequity in access, disrupted learning outcomes, and dismal completion rates. Through targeting the children of deprived communities in supporting the completion of Grade 5 and secondary education—ROSC II established innovative learning centers (LCs) to offer non-formal education.

The relationship between Bangladesh and World Bank soured when the Padma Bridge graft scandal was unearthed and World Bank withdrew the US $1.2 billion credit citing corruption concerns. On the ground of credible evidence—which highlighted alleged collusion between high-level government officials with SNC Lavalin executives—World Bank terminated its financing for Padma Multipurpose Bridge Project. However, the allegation of the World Bank proved unfounded as Anti-Corruption Commission (ACC) found nobody to be linked with the allegation of graft. Subsequently, the acquittal of SNC-Lavalin executives from a Canadian court proved that WB had blown the corruption out of proportion. The plotting of graft cases and subsequent cancellation of credit lines is unprecedented in the history of the World Bank and it severely hurt Bangladesh’s economy and smeared Bangladesh’s reputation. The realization of Padma Bridge stands as a testament to the resolve of Bangladesh’s government—despite tremendous odds arising from both external and internal sources.

After prime minister Sheikh Hasina had inaugurated Padma Bridge with great fanfare, World Bank Country Director for Bangladesh Mercy Tembon congratulated Bangladesh on the inauguration of the bridge. Terming the inauguration of the Padma Bridge as a “happy occasion”, World Bank Country Director Mercy Tembon promised that the time is ripe for the progression of Bangladesh-World Bank relations forward.

Moreover, the tryst between Bangladesh and Bretton Woods institution is chequered. The future complexion of relations between Bangladesh and the IMF-World Bank complex requires country-specific policy design for Bangladesh rather than promoting blanket policies. Besides, the agency of the government needs to be respected rather than pushing intrusive policy designs. Moreover, World Bank and IMF need to toe a measured stance to design plans and policies that reflect the unique demands of Bangladesh.

Written by Kazi Asszad Hossan

Kazi Asszad Hossan is an international affairs researcher currently pursuing his graduate studies at the University of Dhaka.

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