The Asian Development Bank (ADB) Friday approved a $250 million policy-based loan to support Bangladesh's economic recovery following the Covid-19 pandemic.

This is the first subprogramme of the programmatic $500 million Sustainable Economic Recovery Programme.

The objective of the Sustainable Economic Recovery Programme is to facilitate rapid and sustainable recovery from the pandemic, generate employment, and expand economic activities for micro-entrepreneurs and small businesses.

This will be pursued through policy reforms that will create fiscal space to enhance public expenditure and support the recovery and growth of cottage, micro, small, and medium-sized enterprises (CMSMEs).

The loan will support the government's planned public investment in education, health, social protection, and infrastructure and help to stimulate economic activities and economic recovery. It is also aligned with the core objectives of the country's Eighth Five-Year Plan and supports the aspiration of Bangladesh to become an upper-middle-income country by 2031.

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"The fiscal space created under the programme will allow the government to prioritise expenditures and upscale investment in social and economic infrastructure," said ADB Principal Financial Management Specialist Srinivasan Janardanam. "The programme is expected to increase the efficiency in public investment management and create a favourable environment for access to credit, particularly for the poor and vulnerable."

To promote fiscal sustainability, the programme will help the government address two key constraints to public investments in critically needed physical and social infrastructure. These are low domestic resource mobilisation and inefficient use of public resources.

The programme aims to expand the tax base, improve compliance and strengthen enforcement, rationalise tax exemptions, and modernise tax administration.

The pandemic has also severely impacted micro-entrepreneurs and small businesses in the country. Limited access to affordable finance is one of the most critical constraints faced by CMSMEs.

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Only 28% of the larger CMSMEs, or small and medium-sized enterprises, have access to formal bank credit. Enhancing access to credit for CMSMEs will lower borrowing costs, protect this important segment of the economy, support inclusive growth, and absorb the demographic dividend.

The programme will widen access to finance for women entrepreneurs, particularly those running CMSMEs, by introducing or modifying refinancing programmes and credit guarantee schemes with an earmarked portion for women entrepreneurs. Also, it will also encourage more women-led start-ups by earmarking 10% of new start-up financing for them.