IMF loan inadequate, but good for building confidence: Experts

The International Monetary Fund’s (IMF) loan is not enough to resolve the on-going economic crisis plaguing Bangladesh, but it will certainly help reduce volatility to some extent in the financial sector, and boost the country’s image before other global lenders, experts say.

They added that if Bangladesh manages to implement the IMF-recommended reforms properly over the course of the coming years, the country will eventually manage to navigate away from the crisis.

The Washington based lender will provide $4.5 billion in seven instalments over 42 months. Of this figure, $3.2 billion will be released to cover current trade deficits, while the remaining $1.3 billion will go towards climate resilience.

In total, Bangladesh will get about $650 million in each instalment, read an IMF press release.

Speaking to The Business Post, former IMF official and executive director of Policy Research Institute (PRI) Ahsan H Mansur said, “IMF loans always help boost confidence of other global lenders towards the countries that receive it.

“If Bangladesh can implement the lender’s programme to the letter, then the on-going crisis will gradually end. This is tried and tested by many other countries.”

Prof Mustafizur Rahman, distinguished fellow of Centre for Policy Dialogue (CPD), said, “The amount to be received in each instalment is currently one tenth of the monthly import payment amount.

“This money will not resolve the on-going crisis, but it will help reduce volatility in the economy.”

He continued, “The biggest benefit for Bangladesh is that when the IMF loan is finalised, other lenders such as the World Bank, IDB, and ADB will have the confidence to issue loans as well. It means the country will become more trustworthy, which will help navigate the ongoing crisis.”

At the end of June this year, Bangladesh’s long and short term foreign debt positions stood at $95.85 billion. Of this figure, $20.64 billion or 21.5 per cent are short term loans.

On the issue, Prof Mustafizur said, “Taking the IMF loan will further increase the country’s amount of foreign debt. So, the debt repayment liabilities will also increase slightly. Since the loan interest rate can hit 2.2 per cent on average, the pressure will be light.

“However, if Bangladesh fails to implement the IMF reforms properly, the debt repayment will become a problem.”

How will the loan get finalised?

The IMF will finalise the programme document once staff-level agreements are reached. There will be details regarding the loan conditions. A letter of intent from Bangladesh will be sent to the IMF. There will be details on how to fulfill the conditions, sources say.

There will be some prior actions before the first instalment, followed by trigger actions. Before every instalment, the reforms must be implemented according to the conditions of the global lender.

Commenting on the matter, Ahsan H Mansur said, “The delegation will make a staff report after reaching Washington, USA. It will be presented before the board after an internal review. The board will then finalise the $4.5 billion loan.

However, before the board approves, Bangladesh has to fulfill a number of prior conditions.

Former lead economist of World Bank Dhaka Office Zahid Hussain said, “It is not yet clear what the prior action will be before the first instalment is disbursed. However, an increase in fuel prices and a new way to calculate reserves may be taken into consideration.”

However, Ahsan Mansur said, “The global lender will not consider the increase in fuel oil prices. There may be new conditions, such as an increase in electricity prices or something else. But we still do not know what the conditions are.”

Prof Mustafizur pointed out that when Bangladesh sends the letter of intent to the IMF before the board meeting, the conditions will be made clear.

The IMF described its condition in five areas – creating additional fiscal space, containing inflation and modernising the monetary policy framework, strengthening the financial sector, boosting growth potential and building climate resilience.