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1/ Here's how the WB loan works:
WB lends MOF ~$204mn (part of the $246mn for basic income support)
MOF deposits the $ at its account at BDL
BDL "purchases" the $ at 1.6x3900
MOF transfers the LBP to the World Food Program's account at a local bank (then to the recipients)
WB lends MOF ~$204mn (part of the $246mn for basic income support)
MOF deposits the $ at its account at BDL
BDL "purchases" the $ at 1.6x3900
MOF transfers the LBP to the World Food Program's account at a local bank (then to the recipients)
2/ The disbursements are not lump sum but over four years, and the 1.6x3900 rate is routinely re-evaluated. There are many conditions that the Govt has to meet before disbursements can be made. The loan needs to be approved by parliament, so terms can still change.
3/ Assuming the $204mn have a theoretical value of $204mnx8800, then ~70% of the value goes to the intended recipients.
The other 30% isn't "profit" for BDL. If BDL uses the $ as normal reserves to fund imports, then the "value" goes to all beneficiary of the fixed exch rate.
The other 30% isn't "profit" for BDL. If BDL uses the $ as normal reserves to fund imports, then the "value" goes to all beneficiary of the fixed exch rate.
4/ What does "value" mean in this context? It means the recipients of the WB aid benefit from *less* purchasing power than otherwise, while everyone else who benefits from the fixed exchange rate benefits a tiny tiny bit more (via the subsidies lasting a tiny bit longer).
5/ But this tiny tiny bit could be substantial to the segment of people who the program is designed to help. Or the loan could've been ~30% smaller to achieve the same value going to the poor.
6/ This 70/30 is based on today's black market rate versus the 1.6x3900 rate, both of which can change in the future.
7/ The bigger issue I think is that once the $204mn is at BDL, there's no oversight over how it's used. WB will monitor the LBP transfers to recipients, but not use of the $ at BDL (not sure how they could). We assume it'll be used to fund legit imports, but BDL is a black box.
8/ For ex, we suspect smuggling/illicit transfers via inflated invoicing/money laundering is happening. So if [50%] of the $ are used for these purposes, then actually 50% of the value of the aid is being lost to them. The real value of the aid is in the ultimate use of the $.
9/ The Govt can print LBP and disburse to the poor. It doesn't need the WB to do that. The value in my opinion of the WB aid is that it comes with real $ that, if used efficiently to fund imports of goods consumed by the poor, can help the people it's designed to help.
10/ If those BDL squanders those $, then the program will not have provided the same value that it is intended to provide. It wld be as though Govt just printed LBP to make cash disbursements to people, without enough $ entering the market to offset the impact on inflation/XR,etc
11/ Giving people $ directly also poses challenges. Those dollars will be exchanged for LBP at the sarraf. The sarraf can do whatever he wants with them, including hoarding them or selling them to someone who will stuff them under the mattress, rather than using them for imports.
12/ If that happens, then again, the program will not have provided the value it is designed to provide.
These are challenges that arise because we have multiple XR, no capital control, no trust in the banking sector or BDL, & real exchange operations aren't happening in banks.
These are challenges that arise because we have multiple XR, no capital control, no trust in the banking sector or BDL, & real exchange operations aren't happening in banks.
13/ I don't envy the WB staff trying to find solutions to these challenges. Does one accept the inefficiencies & risks outlined above to give some relief to people and to build the mechanics for a real social safety program? These are difficult moral questions.
14/ There's no way to do a program like this in an optimal way in this environment. That's the fault of Govt/BDL losing all credibility with the public, & BDL operating as a black box, and the massive current macro-fiscal problems. However you do it, you will face these problems.
15/ If a program like this is to be done before we fix the issues that are causing all of these challenges, it may be the better of the options to give ppl $ directly despite the risks described above. Honestly there are no easy answers. I'm glad I'm not the one deciding.
16/ @OmarTamo19 brought up a good point. If BDL lifts the 1500/3900 subsidy, it is unclear how the $204mn will be used by BDL. In that case, the 30% "lost value" no longer goes to all beneficiaries of the fixed XR. It will depend on how BDL decides to use those reserves.
