A delegation from the International Monetary Fund (IMF) will begin a series of meetings with various government ministries and agencies from Tuesday to assess the progress Bangladesh has made in meeting the conditions tied to its IMF loan.
Chris Papageorgiou, chief of the Development Macroeconomics Division in the Research Department, will lead the IMF delegation, while relevant officials from both sides will attend the meetings, scheduled to continue until September 30.
The delegation will hold meetings with various agencies, including the Finance Division of the Ministry of Finance, the Financial Institutions Division, Bangladesh Bank, the National Board of Revenue (NBR) and the Ministry of Power, Energy, and Mineral Resources.
According to IMF sources, after the staff-level evaluation by this delegation, another IMF team will visit Bangladesh to continue discussions on loan-related matters. They will assess whether Bangladesh will receive the next instalment of the loan and determine the future of an additional $3 billion requested by the country.
Focus on revenue collection, subsidy reduction
Relevant sources indicate that this round of discussions will prioritise issues related to revenue collection and subsidy reduction. The IMF has already collected data on these matters from the relevant Bangladeshi authorities and has conducted an analysis.
During the meetings, the IMF is expected to raise questions that arose from their data analysis, seeking responses from Bangladeshi officials.
NBR sources stated that the government has informed the IMF that NBR has collected Tk 4 lakh crore in revenue for the current fiscal year 2024-25 so far, with a target of Tk 5.41 lakh crore for the entire year.
According to estimates submitted to the IMF, the government has spent Tk 6 lakh crore so far, requiring it to borrow Tk 2 lakh crore. The deficit for the current fiscal year has been projected at 4.6 per cent of GDP; however, actual calculations suggest it may decline to 4 per cent, as presented to the IMF.
Pressure to reduce subsidies
The IMF continues to exert pressure on the government to reduce subsidies, and this issue will again be a focal point in the upcoming meetings, according to sources within the Power Division.
During the last fiscal year 2023-24, the government had an outstanding subsidy amount of Tk 35,000 crore in the power sector. Of this, Tk 21,000 crore was paid via bonds, while Tk 13,000 crore was paid in cash, reducing the subsidy deficit to Tk 1,000 crore.
However, by June of the current fiscal year 2024-25, the outstanding subsidy amount in the power sector has again reached Tk 35,000 crore.
Power Division sources indicated that the government is required to provide an average subsidy of Tk 3,000 crore per month to independent power producers (IPPs) in the electricity sector.
Conversely, Finance Division sources confirmed that the government will continue subsidies in the agricultural sector, as there is no room for reduction. However, subsidies in the power sector will be gradually reduced.
Despite this, a gradual decrease in electricity prices has not been feasible according to IMF conditions.
Improving net reserves
Discussions are expected to cover various strategies for improving Bangladesh's net reserves. Simultaneously, the delegation has emphasised meeting revenue collection targets in the current budget in accordance with IMF conditions.
Relevant sources further stated that the government is actively working on ways to increase revenue collection, with positive outcomes already beginning to show in the current budget. Efforts are underway to improve the reserve situation further.
Ongoing loan programme
Bangladesh is currently engaged in a loan programme with the IMF amounting to $4.7 billion. To date, Bangladesh has received three instalments, and a review of the progress in implementing conditions for the third instalment is ongoing. The IMF team will meet with officials from the Ministry of Finance, including economic advisers, to review the fulfilment of 38 conditions tied to the loan.
Sources indicate that efforts to meet revenue collection targets are ongoing, alongside reforms in the banking sector. The price of the dollar has been allowed to change according to market conditions, as requested by the IMF.
IMF conditions
In January 2023, the IMF imposed numerous conditions on Bangladesh in relation to the $4.7 billion loan programme, which spans three and a half years. Bangladesh has met almost all conditions, except for those related to reserves, and has received three instalments of the loan.
Following the first instalment received from the IMF in February 2023, Bangladesh received the second instalment last December and the third in June 2024.
To secure the third instalment, the government could not achieve the target for foreign currency reserve preservation by the end of June. However, Bangladesh formally requested a reduction of this target from the IMF, which approved the request.
Accordingly, a new reserve preservation target was set for the end of December. The net reserve was initially expected to be $26.8 billion but was revised down to $17.78 billion. However, the actual net reserve stood at $16.75 billion by the end of December.
