In a bid to get the second tranche of the $4.7 billion loan from the International Monetary Fund (IMF), the government of Bangladesh has introduced some policy actions till July this year in line with the global lender’s recommendations.
However, the country still lags behind in bringing the benefits of such measures to home, receiving the second installment from the IMF as well as stabilising the overall macroeconomic situation for mitigating financial strains.
As part of the ongoing Extended Credit Facility (ECF), Extended Fund Facility (EFF) and Resilience and Sustainability Facility (RSF) programmes provided by IMF, the meeting of the committee on implementation of policy actions under the programme to June 30 this year will be held on August 10 at the Finance Division office in the capital.
The officials from government’s inter-departments and ministries, including Bangladesh Bank (BB), National Board of Revenue (NBR), Internal Resources Division (IRD), Economic Relations Division (ERD), Ministry of Commerce, and Power Division will discuss the issues of progress, set by the IMF, at the meeting and review them aiming to get the remaining installments.
Though the government has taken some policy actions to obtain the second installment of the loan package, the country still lags behind in getting the loan as forex volatility, fuel shortage and macroeconomic instability pose a threat to economic stability which is the main focus of the lending agency, experts opined.
The targets and the current situation
By June 30 this year, the central bank was bound to calculate the official reserves assets and net foreign exchange reserves as per the IMF calculation system--Balance of Payments and International Investment Position (BPM6).
The country's gross reserves fell by $6.44 billion to $23.56 billion in the new calculation method, published by the central bank on July 13.
The gross reserves were $29.92 billion as per the previous calculation, according to the central bank data released on its website.
The IMF set the floor on net reserves at $24.46 billion for June when the lender will conduct the first review of the performance criteria of the central bank, but net reserves stood at $20.22 billion as per the new calculation.
Besides, another target was that BB uses the market determined exchange rate for official FX transactions on behalf of the government by this time.
In accordance with the recommendation, the central bank partially introduces the market-based exchange rate.
According to the BB, exchange rates of taka for inter-bank and customer transactions are set by dealer banks, based on demand-supply interaction as well as indicative rates suggested by Bangladesh Foreign Exchange Dealers' Association (BAFEDA).
Prior to that, the central bank set the exchange rates, but still it is not fixed at the market determined rates.
Moreover, BB has to complete the pilot risk-based supervision action plan and publish banks' distressed assets in the annual financial stability report as per the IMF recommendation.
BB is supposed to adopt an interest rate corridor system as part of its target and it had already introduced a new interest rate regime with partially market-driven lending rates.
Central bank governor Abdur Rouf Talukder unveiled an interest rate focused Monetary Policy Statement for the first half of FY24 on June 18, removing the previously imposed 9 per cent lending rate cap.
As part of this move, the central bank fixed 3 per cent interest margin on six months moving average rate of the yields of 182- day treasury bills for lending from banks. The margin will be 5 per cent on six months moving average rate of treasury bills yields for lending from non-bank financial institutions (NBFIs).
The lending activities for cottage, micro, small and medium enterprises (CMSMEs) and consumer loans may be subject to an additional fee of up to 1 per cent to cover supervision costs. There will be no change in the interest rates applicable to credit card loans.
The six months average yield rate of 180 days treasury bills currently stands at 7.11 per cent, and if 3 per cent interest margin is added, the maximum interest rate would be 10.11 per cent for lending from banks. The lending rate from NBFIs will be 12.11 per cent.
The target set for the NBR was to adopt tax revenue measures yielding an additional 0.5 per cent of tax-to-GDP in the budget for FY24.
In accordance with the target, the revenue board has taken some measures in the budget for FY24, stating that it will help collect additional taxes.
Restructuring cigarette taxation, withdrawal of exemption and partial exemption on mobile phone, polypropylene staple fiber, ball point pen, software, LPG cylinder and imposing taxes on cigarettes, zarda and gul, plastic products, aluminum products, sunglasses are in these policies taken to boost revenue collection and widen VAT net.
Apart from them, changes of rate of duties at import stage and recovering duties from Petrobangla are key measures from the customs end.
Income tax wing takes measures with introducing tax increases in land registration, travel tax, tobacco tax, environmental surcharge on multiple cars and bringing a provision on tax return preparers to widen tax net as part of the programmes.
However, experts and NBR officials opined that there is uncertainty that may hit revenue collection due to macroeconomic headwinds in the country as imports are in downward trend, on which the production sector mostly dependent.
Stability in the import of raw materials and consumable items, lessening of existing dollar crisis, adequate supply of fuel to continue production etc. are the perquisite for achieving projected revenue, NBR officials said.
