Asian Development Bank has approved a $400 million loan for Bangladesh to help fight climate change challenges.

The loan was approved yesterday at an ADB board meeting, the Manila-based multilateral lender said in a press release.

This may bring some relief to the country's dwindling foreign currency reserves.

According to ADB, adverse impacts of climate change cause an annual average loss of about $3 billion to Bangladesh.

"Climate shocks have been severely disrupting Bangladesh's growth and poverty alleviation. Financing needs for climate actions are astronomical," said Aminur Rahman, ADB principal public management economist.

"Bangladesh has strongly committed to tackling this challenge, and ADB, as the region's climate bank, is ready to support Bangladesh in its efforts," he said.

Bangladesh's foreign currency reserves have been declining for the last one and a half years owing to higher import bills compared to moderate export and remittance earnings.

On December 6, the country's reserves, as per IMF calculations, stood at $19.13 billion, against $40.7 billion in August 2021.

Meanwhile, the IMF is likely to approve Bangladesh's proposal to get the second tranche of the $4.7 billion loan, amounting to around $681 million, during its board meeting on December 12.

Both the ADB and the IMF's budget support loans will add $1.08 billion to the country's forex reserves.

The ADB in its release said it approved the $400 million policy-based loan to support the Bangladesh government in implementing its National Adaptation Plan-2023-2050 and Nationally Determined Contributions 2021 Update to the Paris Agreement to achieve a climate-focused inclusive development.

This loan is the first subprogram of the indicative $700 million Climate-Resilient Inclusive Development Programme, which will help Bangladesh strengthen its climate resilience, transition to a low-carbon economy, mitigate its greenhouse gas emissions, and mainstream gender equality and social inclusion in the government's climate actions, it added.

The proposal for ADB's loan was placed after Bangladesh met all conditions.

One of the conditions pertained to arresting pollution of water bodies. An enforcement guideline must be drafted for polluters, complete with an environment court and penalty for pollution.

Similarly, a multi-sectoral action plan to control air pollution was drafted. The government also has had to design a green energy policy.

Wishing anonymity, a finance ministry official yesterday said a deal between the Bangladesh government and the ADB on the $400 million loan may be signed on Monday, and the loan is likely to be disbursed soon.