The International Monetary Fund (IMF) has requested a re-evaluation of Bangladesh's liability as the local currency, the taka, depreciates against Special Drawing Rights (SDR).
The country’s liability to this multilateral lender in local currency has increased to Tk 647 crore, necessitating the issuance of new promissory notes by the Bangladesh government.
Currently, Bangladesh’s liability to the IMF stands at Tk 23,352 crore, as revealed by a May 8 Society for Worldwide Interbank Financial Telecommunication (SWIFT) message regarding the revaluation of IMF accounts maintained with the Bangladesh Bank.
Former finance secretary Mohammad Muslim Chowdhury told The Business Post, “Due to taka devaluation against the USD, Bangladesh’s liability to the IMF has increased. As a result, the government must issue a new promissory note; however, this will not affect government cash reserves.”
Through the SWIFT message, the IMF informed the central bank that for the revaluation of Bangladesh's liabilities, the new exchange rate of SDR against the Bangladeshi taka on April 30, 2024, will be Tk 1 equal to 0.00689787 SDR, down from Tk 1 equal to 0.00709281 SDR.
Consequently, despite Bangladesh's deposit in SDR currency with the IMF remaining unchanged, Bangladesh’s total liability to the IMF in local currency now stands at Tk 647.30 crore. This includes Tk 641.81 crore as IMF Securities, Tk 5.48 crore in IMF Account No-1, and Tk 1.23 lakh in IMF Account No-2. The IMF has requested adjustments to this increased liability via the SWIFT message.
Central bank sources confirmed that the revaluation liability has been adjusted by debiting Bangladesh Bank's Foreign Currency Transaction Adjusting Account (FCTA) on the advice of the IMF.
After this adjustment, the total balance of the securities account against promissory notes issued by the government in favour of the IMF as of April 30 will stand at approximately Tk 23,352 crore.
Currently, Tk 22,710.04 crore worth of government promissory notes are deposited in Bangladesh Bank, necessitating the issuance of new promissory notes worth Tk 641.81 crore by the government.
Sources indicated that Bangladesh Bank has written to the Finance Division to issue fresh promissory notes and take necessary action.
A new promissory note is a written, unconditional promise by one party (the "maker" or "issuer") to pay a specified amount to another party (the "payee") at a specified time. It is a legally binding document outlining the terms of the loan, including the amount owed, repayment terms, interest rate, and maturity date. Promissory notes are used in various financial transactions, such as loans, mortgages and business contracts.
An official from the Finance Division told The Business Post that the Bangladesh government is interested in taking a loan from the World Bank International Development Association's Scale-Up Facility (ISF) because it does not require any collateral or security, only a promissory note needs to be issued, which is kept with the central bank. Bangladesh Bank then informs the IMF through a letter or email that the government has issued the promissory note.
Bangladesh joined the IMF on August 17, 1972. On July 24, 2022, the Bangladesh government sent a letter to the IMF requesting a loan of about $400 crore. Although Bangladesh has taken loans from the IMF several times before, they were limited to around or less than one billion dollars.
The IMF Board approved the Resilience and Sustainability Fund (RSF) for low- and middle-income countries vulnerable to climate change on April 13, 2022, effective from May 1, 2022.
Bangladesh is the first country in Asia to receive a loan from the IMF's RSF. Barbados was the first country in the world to receive this loan, followed by Costa Rica and Rwanda. Currently, Bangladesh is at the top of the list of borrowers from the RSF.
In January 2023, the IMF approved a $4.7 billion loan for Bangladesh, being disbursed in seven instalments. The average interest on the loan is 2.2 per cent. Previously, in 2012, Bangladesh took a loan of about $1 billion from the IMF.
