Home ›› 10 Nov 2022 ›› Front
The International Monetary Fund (IMF) has agreed to lend Bangladesh $4.5 billion in seven instalments, Finance Minister AHM Mustafa Kamal said on Wednesday.
“We are getting the loan the way we wanted. Many assumed that we will not get the loan or the IMF will set difficult conditions for it. Nothing of that sort happened,” he told journalists after a meeting with the IMF team in Dhaka.
The loan will be disbursed in seven instalments till December 2026, the minister said adding, “The first instalment of $352.35 million will be cleared in February next year.”
All formalities regarding the loan will be completed within three months and the interest rate for it will depend on the market rate during the loan’s maturity, which the finance ministry estimates to be around 2.2 per cent.
The IMF team arrived in Dhaka on October 26 to discuss conditions and requirements for the loan. Since then, the delegation led by Rahul Anand – the Mission Chief for Bangladesh, Asia and Pacific Department – has held nearly 30 meetings with several government agencies concerned, including the Bangladesh Bank and Finance Division.
Mustafa Kamal said the Bangladesh government sought the massive loan from the Washington-based multilateral lender in a bid to subdue the economic volatility caused by the inflation rate hikes across the globe.
He said the meeting with the IMF team went well and the lender has said Bangladesh’s macroeconomic management is better than many other countries. The visiting delegation also supported the ongoing economic reforms in the country.
The minister said the whole world follows the IMF. If they, after looking at the overall situation, say that everything is good in Bangladesh, then no country will be able to refute it.
“The IMF said Bangladesh is on its way to LDC graduation in 2026 and will become a middle-income country by 2041.”
IMF conditions
As part of the loan programme, the IMF has set a number of conditions that needs to be met, including reducing the non-performing loans and increasing revenue collection of the National Board of Revenue (NBR).
“The IMF also asked us to do two things. We have already taken the initiative to set up an asset management company to reduce defaulted loans,” Mustafa Kamal said.
He then said, “The IMF talked about stopping tax exemptions measures. But we explained to them that the poor segments of the country will not survive if we stop giving tax exemptions to daily necessities.”
The IMF asked to see Bangladesh’s net reserves, as opposed to the country’s gross reserves.
Currently, the gross reserves are calculated by including spending for the Export Development Fund (EDF) and loans to Sri Lanka, which the IMF has asked to exclude.
Speaking on the issue, Bangladesh Bank Governor Abdur Rouf Talukder said, “Currently our reserves stands at $34.3 billion, of which $8 billion has been spent on the EDF and as loans to Sri Lanka. If the amount is excluded, our net reserves will stand at $26 billion.”
He also said the EDF can be liquidated within 120 days.
The central bank governor also said the IMF has asked to keep the rate of defaulted loans to 10 per cent, which is the case for Bangladesh right now.
He continued, “IMF had recommended withdrawing subsidy on fertilisers. But Bangladesh has convinced the IMF that the country needs to pay the subsidy as we need fertilisers in order to ensure food security.”
The IMF recommended adjusting fuel oil prices periodically, as per the international market price, so that if the oil price falls in the international market in the future, it can be reduced in the same way in Bangladesh.
Finance Minister Mustafa Kamal said fuel oil prices will be adjusted from time to time with the international market price and the task of determining the exchange rate will be gradually left to the market.
The loan programme
The end-of-mission press release from the IMF includes a statement from Rahul Anand, who led the IMF delegation here. It outlines a programme put together by Bangladeshi authorities supported by the IMF as part of the loan agreement.
Key elements of the programme include creating additional fiscal space, containing inflation and modernising the monetary policy framework, strengthening the financial sector, boosting growth potential, and building climate resilience.
As part of creating additional fiscal space, higher revenue mobilisation and rationalisation of expenditures will allow increasing growth-enhancing spending. The impact on the vulnerable will be mitigated by higher social spending and better-targeted social safety net programmes.
As part of containing inflation and modernising the monetary policy framework, the monetary stance will be guided by the inflation outlook. Monetary policy modernization will promote macroeconomic stability and improve policy transmission. Increased exchange rate flexibility will help buffer external shocks.
As part of strengthening the financial sector, reducing financial sector vulnerabilities, strengthening oversight, enhancing governance and the regulatory framework, and developing capital markets will help mobilise financing to support growth objectives.
As part of boosting growth potential, creating a conducive environment to expand trade and foreign direct investment, deepening the financial sector, developing human capital, and improving governance to enhance the business climate will lift growth potential.
As part of building climate resilience, strengthening institutions and creating an enabling environment will help meet climate objectives, support large-scale climate investments, and help mobilise additional climate financing.
Finance Minister Mustafa Kamal said the IMF lending programme is aimed at stabilising the external sector of the economy, providing a solid foundation for the economy ahead of its transition from LDCs in 2026, strengthening the financial sector and addressing global climate change risks to achieve high growth and high-medium-income country within the time frame set by the government.
Steps to be taken by Bangladesh
BB Governor Abdur Rouf said the IMF loan is being taken keeping four objectives in mind – stabilising the external sector, stabilising the financial sector, LDC graduation and achieving the goal of becoming a developed country by 2041.
The minister said, “Government revenue collection will be increased by strengthening the reform of the revenue system and enhancing the efficiency of tax administration.
“We have taken the initiative to set up electronic fiscal devices for VAT collection. So far 6,732 machines have been installed. Another 60,000 machines will be installed in the next year and 2,40,000 machines will be installed in the next 4 years.”
On withdrawing the interest rate cap in bank loans, the minister said if the cap is removed, interest rate will get back at 18-20 per cent and nobody wants that.
On the state of the country’s foreign reserve, he said, “Our reserve is not at a good level right now, just like the others. The neighbouring countries are also facing the same situation. Our reserve has dwindled, that is the reality. But it will go up again.”
On calculating the reserve, he said, “We will continue to calculate our reserves as we have been doing. But we will mention our spending in different sectors from reserve and the amount of net reserve. We will disclose it all, hiding nothing.”
Meanwhile, BB Governor Abdur Rouf, regarding the initiative to increase remittances, said the exchange houses promised to not charge any fee from expatriates on remittance services, which will save expatriates 2%-2.5%. Exchange houses will also be open on holidays in various countries so that workers can send remittances on their holidays.
The governor said expatriates are getting Tk 108 for a dollar. Also getting 2.5% incentive from Govt. Previously, workers used to get Tk 84 for 1 dollar, now they are getting much more than that. Therefore, it will not be possible to increase the remittance collection by increasing the money against the dollar, the expatriates have to be satisfied with the service.
