Ensure prudent use of IMF loan

As was committed, the International Monetary Fund (IMF) released its first installment of $476.2 million out of its total $4.7 billion loan package in February this year. A five-member team of the IMF is now in Bangladesh to discuss the recent economic developments and implementations of its policies before granting of the second installment of $4.7 dollar. The team of the IMF staff consultation led by Rahul Anand, Division Chief in the IMF’s Asia and Pacific Department, is expected to stay until May 02. It already had a separate meeting with the Bangladesh Bank.

As far as the IMF loan is concerned there are always two aspects of the loan grant- one is the implementa-tion of the conditions set by the international money lender and the impact of the loan granted by the re-cipient country. If the conditions given by the IMF are not fulfilled then loan disbursement there is the dan-ger of the loans being withheld midway through. This has happened in other countries. So it is incumbent upon the loan recipient country to meet the conditions. The question is whether or not Bangladesh would be able to make good on the conditions of the IMF.

The question arises for some obvious reasons. Expressing apprehension after a meeting with the IMF re-view team some officials of the Bangladesh Bank (BB) and National Board of Revenue (NBR) recently told The Business Post that the IMF would consider releasing the next installment of the loan if the country could reach a net international reserve (NIR) of $24.6 billion by June 30.

According to the central bank data published before Ei-ul-Fitr, Bangladesh’s net foreign exchange reserve on April 17 was slightly above $20 billion. Though the officials said if the Bangladesh Bank failed to meet the condition set for June it would meet the conditions set for September, the time when the third install-ment would be released. But the finance ministry officials reportedly informed the staff mission that it would be difficult to meet the target by the deadline of June 30.

If the target of June can’t be met how will the central bank fulfill the condition in next September? There are lots of ifs. Based upon ifs, we don’t think, the government can reach the target before the deadline. The September target will go up to $25 billion which now seems to be an uphill task for the government to achieve.

The second aspect of the loan is its impact on our economy. We are apprehensive of more drastic measures by the government to meet the target. The IMF mission advised the Finance Ministry officials to hike the price of electricity so that the government could further cut down on the subsidy given to this sec-tor. This year the government has already hiked the electricity tariff three times. Each time it was in-creased by five percent.

Krishna Srinivasan, Director of the IMF’s Asia-Pacific Department, in an interaction with Bangladeshi jour-nalists in New Delhi earlier in February suggested targeted subsidy rather than blanket subsidy as blanket subsidy helped the rich instead of the poor. He, however, didn’t detail it out how targeted subsidy could be implemented. The government can also devise a plan to do it so that poor people are not adversely affect-ed.

If the government can make sure a balance like that then it can kill two birds with one stone. It can ensure repayment of loan without affecting the vast majority of people who are grappling with frequent rises in electricity prices.