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WB gives $536m no-interest loans

One for poverty reduction, the other for road building, telecoms and banking

STAFF CORRESPONDENT
The World Bank (WB) on Thursday approved US$536 million in nointerest credits for poverty reduction and support to rural infrastructure, telecoms and banking sectors in Bangladesh.
The credits will be provided on standard terms of the WB International Development Association (IDA), with no interest but a 0.75 per cent service charge and a maturity of 40 years, including a 10-year grace period, according to two WB press releases made available yesterday.
Of the total loans, $300 million will be given to gear up reforms in pro-poor growth, good governance, human resources development and women's advancement and $236 million to help improve rural roads,
increase access to telecommunications and move forward along the path to developing a sound and effective banking system.
The $300 million development support credit is the first of a number of such operations the WB anticipates to offer to Bangladesh, as outlined in its Country Assistance Strategy Progress Report, which was also discussed at a meeting of the WB board of directors on Thursday.
The report assesses the results of WB operations in Bangladesh to date and outlines its assistance scenario over the next two years.
"Our assistance to Bangladesh is gradually moving away from project-based operations, to those which support broader programmes under the government's poverty
reduction strategy," said WB Country Director Frederick T Temple.
"Our goal is to do all that we can to help ensure that strategy is successful, and if I were to single out one area where attention is needed above all others to make that happen, it would be improving governance, increasing the transparency of government activities and its accountability and responsiveness to citizens. We are hopeful that this focus will be strengthened and maintained across the board."
The development credit is meant for supporting the first phase of implementation of the government's comprehensive poverty reduction strategy. Bangladesh finalised an interim-poverty reduc
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tion strategy paper (I-PRSP) this year to substantially reduce chronic poverty and invigorate social development in the shortest possible time.
According to the WB, the credit is being provided in a single tranche following a number of actions taken by the government as part of its medium-term policy framework. The actions include the granting of autonomy to the central bank and bringing under its purview nationalised commercial and specialised development banks, and approval of a new privatisation policy.
The actions also include establishment of an independent energy regulatory commission, adoption of an energy sector reform plan and continued progress in the separation of the judiciary.
The WB commended the government particularly for its progress towards achieving macroeconomic stability, reform and privatisation of state-owned enterprises and increasing access to electricity in rural areas.
It also lauded the government for supporting community-driven development, achieving gender parity in school enrolment and tackling systemic governance problems in the areas of financial management, procurement and legal and judicial reform.
The WB anticipates increased assistance over the coming years, if such progress continues. Its assistance will all be designed to directly support the poverty reduction strategy, with assistance in the next two years in areas like export development and competitiveness, state-owned enterprise and banking reform, education, agriculture, tax/customs administration, roads, power and health.
However, the WB report said although progress had been made in the health sector, broad reforms have not gone ahead as envisaged, especially in the full unification of health and family welfare services.
The report also found that progress was not satisfactory in arsenic mitigation, dealing with a growing HIV/AIDS threat, increasing access to justice, particularly for women and the poor, improving port operations and empowerment of local governments through decentralisation and governance improvements.
Of the $236 million second credit, $190 million will be spent on rural transport improvement, $37 million on strengthening the central bank and $9.12 million on rendering technical assistance in telecoms sector.
"We have been encouraged by the government's progress so far in improving rural infrastructure, and by its commitment to increase the private sector's role in telecommunications and to make the Bangladesh Bank an effective regulator for the banking system," said Temple in one of the press releases.
"These are the kinds of reforms needed to improve the lives of people throughout the country. In fact, it is the poorer people in Bangladesh who are hurt most by problems such as unpaved, washed-out roads, lack of access to phone lines and high interest rates which prop up inefficient and insolvent banks. We are glad to be able to provide assistance in these key areas and look forward to seeing positive results," said Temple.
The US$190 million will support a rural transport improvement project that costs $255 million in total, with the government providing the rest and the Local Government Engineering Department as its implementing agency.
The project aims at improving or rehabilitating around 3,000 kilometres of rural roads, many in poor condition and rendered un-passable in monsoon and 1,500 metres of missing minor bridges and culverts. It will also work to improve around 150 rural markets and construct 45 river jetties, essential to rural transport and market facilities.
According to a 2002 public expenditure review, Bangladesh
had a shortfall of 28 per cent of the required funds for rural infrastructure maintenance, said the WB.
The $37 million approved for a central bank strengthening project is part of the total cost of $46.13 million, with the government providing the rest. The project will help the Bangladesh Bank more effectively play its essential role of regulator and supervisor for banks.
The Bangladesh Bank worked closely with the WB on design and will implement the project, which will focus on its functional reorganisation, automation and modernisation. It will also undertake human resources development, strengthening of the legal framework and capacity building for more effective regulation, supervision and research.
The WB support through $9.12 million for a telecommunications technical assistance project will increase people-to-people access across the country.
The WB said it will pave the way for the Bangladesh Telegraph and Telephone Board to operate on a commercial basis and improve the capacity of the Bangladesh Telecommunication Regulatory Commission.
Bangladesh currently stands at only around 0.83 lines for 100 people, compared to an international low-income group average of four lines for as many people.
Increased private sector participation in the sector is expected to meet significant unmet demand for basic telephone lines estimated at about 3.5 million immediately and expected to grow to 10 million in three years.
The total cost of the project to be implemented by the post and telecommunications ministry and the BTRC is $11.11 million, with the IDA providing $9.12 million and the government the rest.