The IMF gives a first green signal to 4.5 billion dollars for Bangladesh

After a two-week long visit to Bangladesh, the multinational lender International Monetary Fund (IMF) and the government of Bangladesh reached a staff-level agreement on Wednesday to support Bangladesh’s economic policies.

The IMF is pleased with Bangladesh’s reform proposals and stands ready to provide $4.5 billion in loans to help the country cope with the current global economic crisis and the crisis in internal foreign exchange (forex), said said Finance Minister AHM Mustafa Kamal during a press briefing.

“We’re getting the loan exactly how we wanted it,” he beamed.

Economists estimate that the $4.5 billion loan will allow the nation to provide a buffer for its economy in the face of dwindling foreign exchange reserves, but also stressed the need to implement the economic reforms desired by the IMF. .

Ahsan H Mansur, executive director of the Bangladesh Policy Research Institute, told the Dhaka Tribune: “If the money comes, it will be spent again. In fact, economic reforms are more necessary for us.

The former IMF economist also explained, “The IMF loan will actually bring a little relief to the current crisis on the one hand. If overall positive economic reform occurs, it will be more sustainable for our economy. In this case, this IMF loan will be even better for our macroeconomics.

In an official statement, the IMF said that under the 42-month arrangement, Bangladesh will receive about $3.2 billion under the Extended Credit Facility (ECF) and Extended Financing Facility (EFF). ), as well as approximately $1.3 billion under the Resilience and Sustainability Facility. (RSF).

These company agreements are based on five reform policies.

It is about creating additional fiscal space, containing inflation and modernizing the monetary policy framework, strengthening the financial sector, boosting growth potential and building climate resilience.

Rahul Anand, head of the IMF delegation, said: “Bangladesh’s strong economic recovery from the pandemic was interrupted by Russia’s war in Ukraine, leading to a sharp increase in the current account deficit, a rapid decline in reserves exchange rate, higher inflation and slower growth.

“The authorities of Bangladesh and the IMF team have reached a staff-level agreement to support the authorities’ reform policies under a new 42-month ECF/EFF arrangement of about 3.2 billion dollars and a concurrent deal from RSF of approximately $1.3 billion,” he explained. .

When will Bangladesh receive the loan disbursement?

Although the personnel agreement has been reached, the whole process is far from over.

At the end of the visit to the candidate country, the Head of Mission submits a statement expressing his preliminary conclusions.

The staff-level agreement is subject to IMF management approval and Board approval, which are expected in the coming weeks.

The official IMF statement also indicates that the views expressed in this statement are those of visiting IMF staff members and do not necessarily represent the views of the IMF’s Executive Board.

However, Finance Minister Kamal and his ministry officials are very optimistic about getting final approval and subsequent loan.

They even expect to receive the first tranche of the loan by February next year after approval at the next IMF board meeting.

The amount will be disbursed in seven installments until December 2026. The first installment of $447.78 million will be settled in February next year. The other installments will be $659.18 million each, the finance minister said at the press briefing.

Implementation of IMF reform policies 5

Rahul Anand also said in his statement, “Even as Bangladesh addresses these immediate challenges, addressing long-standing structural issues remains critical, including threats to macroeconomic stability from climate change.

“To successfully graduate from least developed country status and reach middle-income country status by 2031, it is important to build on past successes and address structural issues to accelerate growth, attract investment private sector, improve productivity and build climate resilience.

He also said that the government’s program to maintain macroeconomic stability – already supported by the IMF – should strengthen its external position, reduce vulnerabilities and set the stage for a robust and inclusive growth recovery by significantly increasing social spending. , development and climate change needed.

The program aims to create additional fiscal space, contain inflation, as well as modernize the monetary policy framework, strengthen the financial sector, boost growth potential and strengthen climate resilience.

Main conclusions and recommendations

The IMF mission led by Rahul Anand visited Dhaka from October 26 to November 9 to discuss IMF support to Bangladesh and the authorities’ overall economic reform program.

During this visit, they held talks with several government authorities, including several ministries, the Bangladesh Bank, representatives of the private sector, bilateral donors, think tanks and development partners.

During their meetings, they discussed some relevant issues that Bangladesh needed to clarify.

During its meeting with the central bank, the IMF team asked the Bangladesh Bank (BB) to publish the correct information on foreign exchange reserves and delinquent loans.

The global lender said its published reserves data on the delinquent loan ratio was much higher than central bank data.

The IMF team also recommended that the definition of non-performing loans (NPLs) be brought up to international standards.

At another meeting, the IMF suggested that the Bangladesh Bureau of Statistics (BBS) publish quarterly gross domestic product (GDP) data instead of the existing annual reporting practices.

The visiting IMF mission also recommended changing the base year for calculating the consumer price index (CPI) and inflation.

The visiting delegation then held talks with the Power Division and the Bangladesh Power Development Board (BPDB).

She asked about subsidies in the electricity sector, the procedure for purchasing electricity from oil-fired power plants and future plans for the development of the electricity sector.

The visiting team also asked the BPDB if it could take loans from commercial banks instead of receiving government grants.

The IMF also questioned the Bangladesh Energy Regulatory Commission (BERC) on how it determines its wholesale and retail tariffs for gas and electricity in the country.

The four-member team, while meeting with the regulatory commission, also wanted to know how often it reviews or adjusts tariffs in a certain year and whether the commission has the freedom to set prices independently, said a BERC official.

The multilateral funding agency has also recommended the National Board of Revenue (NBR) to reduce tax exemptions and streamline import duties to tackle the ongoing global economic downturn and tackle the country’s current budget deficit.

The team also recommended that the country’s tax authority reduce tax exemptions and streamline import duties.

In addition, the IMF mission discussed audits of large taxpayers and the status of tax collection by the Large Taxpayer Unit (LTU), which is the brainchild of the development partner.

On customs issues, the IMF mission wanted to know the details of customs trade data and the changes in the effective collection rate during the fiscal year.

During a meeting with the Ministry of Commerce, the IMF team inquired about the country’s preparation for the post-LDC graduation regime and market access for export products to the European Union and the United States when the country loses various trade preferences.

He also reportedly suggested reducing reliance on the garment sector and diversifying the product basket to boost exports.