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IMF team arrives on 15-day visit

$4.50b loan negotiation
Hasan Arif
26 Oct 2022 00:01:14 | Update: 26 Oct 2022 00:06:48
IMF team arrives on 15-day visit

A team of the International Monetary Fund (IMF), a major financial institution of the United Nations, is scheduled to arrive in the capital today (Wednesday) to discuss a $4.50 billion budget support requested by the Bangladesh government to ease the pressure on its foreign currency reserves.

The team of the Washington-based lending agency will visit Bangladesh from 26 October to 9 November, according to a press statement. They will hold discussions with authorities concerned on the conditions and necessary financial reforms for the loan, said sources.  

Officials in Dhaka are preparing for heavy discussions with the IMF delegation regarding the loan while it also looks for alternative ways to get the money if the negotiations fail.

First of many

The government is seeking the massive loan to support the economy bantered by global economic turmoil, energy crisis, and rising inflation. As economists forecast a more worrying future next year, the government is looking to get support money from as many sources as it can, alongside the IMF.

It is already in talks with the World Bank, the Asian Development Bank, the Islamic Development Bank, Japan International Cooperation Agency and other multilateral lenders for more loans.

Officials at the Finance Division under the Ministry of Finance say it will be a lot easier to get loans from other multilateral lenders if the government can ensure the budget support from the IMF first and that is why it is giving utmost priority to the negotiation.

However, if the IMF sets complex conditions and the negotiation fails, the government will try to get $1 billion from the international lender’s Extended Credit Facility/Extended Fund Facility programme and access under the newly created Resilience and Sustainability Facility (RSF).

FD officials said it will be easier to get the $1 billion which comes without many conditions.

Conditions and reforms to dominate negotiations

Financial and economic reforms recommended by the IMF earlier this year are expected to dominate the coming negotiation for the $4.50 billion budget support– the highest Bangladesh ever asked from the lender.

The recommendations include reforming Bangladesh’s revenue and taxation policy, withdrawing limits of deposits and loans in the financial system; modernisation of monetary policy and deregulation of the currency market; taking proper steps and precautions to secure the reserve; reducing the subsidies; reforming law to reduce default loans; publishing an audit of spending during the coronavirus for the public, etc. 

Finance Division officials say the IMF will give time to implement some of the conditions, while it may demand speedy implementation for others. 

History of conditions and IMF loans

According to data released by the IMF, Bangladesh asked for loans from the organisation five times, the highest so far, between 1980 to 1990. Each time the IMF asked for some reforms or set some conditions for the loan.

For instance, in 1990, the IMF set several conditions for a loan, which resulted in the introduction of the value added tax in Bangladesh.

After the ‘90s, the country again sought financial support from the IMF in 2003.

The main condition for the support was minimising losses from the state-owned enterprises, compliance with which led to the closure of the Adamji jute mill.

The last loan, nearly $1 billion, was taken in 2012. The IMF had recommended reforms in tax policies for the loan, following which a new VAT law was enacted. 

Why the loan

Bangladesh’s foreign exchange income and expenditure balance is in recent times following the dollar’s record-breaking surge against the taka. Bangladesh is seeking the huge IMF support to tackle the volatile forex market, which is draining the country’s reserve at an alarming rate.

IMF loans are usually sought by a country when it faces large deficits in its balance of payments. 

The foreign trade deficit of Bangladesh has surpassed all previous records due to a decline in remittance flows, rise in imports expenditure, a persistent energy crisis, etc. 

Currently, the Bangladesh Bank is injecting $1.2 billion into the market every month to stabilise foreign exchange transactions, which is rapidly declining the country’s forex reserve.

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