Home ›› 08 Jan 2023 ›› Front
Bangladesh is hopeful of receiving the first tranche — $360 million, which was supposed to arrive in February — of the $4.5 billion loan from the International Monetary Fund (IMF) in March this year, according to Finance Ministry sources.
Officials concerned were briefed at a recent meeting about the development regarding the loan programme that includes some key long-awaited reforms, said a senior ministry official, requesting anonymity.
The official told The Business Post that continuous talks, held under the direct supervision of Finance Division Senior Secretary Fatima Yasmin and Bangladesh Bank (BB) Governor Abdur Rouf Talukder, with the IMF to get the loan for budget support and climate-related issues have been fruitful. “We are hopeful that the first instalment will come in March.”
In July 2022, Bangladesh wrote to the IMF asking for $4.5 billion in loans in two sectors to tackle the ongoing global economic crisis and its negative impacts on the country's overall economy. According to the quota, Bangladesh can get over $5.5 billion in loans from the global lender.
An IMF delegation visited Dhaka in October last year to hold discussions with the government. During that visit, they held separate meetings with the Finance Division, Economic Relations Division, Planning Ministry, BB and the Ministry of Power, Energy and Mineral Resources.
On the last day, on November 9, after a meeting with the IMF team, Finance Minister AHM Mustafa Kamal said that IMF will give the loan according to Bangladesh’s needs. The first tranche will arrive in February 2023 and the rest of the loan will come in six equal instalments of 519 million SDR (Special Drawing Rights) every six months until 2026.
According to Finance Ministry, the IMF team agreed with the country’s ongoing economic reforms and the government is moving ahead with a four-year loan programme accordingly.
IMF recently asked for all kinds of information on the country's external debt to learn more about the macroeconomic risks. The government has already given some information to the UN agency and is set to provide more information, which includes how much foreign loan instalments have to be paid and where will the dollar come from.
According to IMF, the number of short-term loans is low and long-term loans are high among the external ones meant for the public sector. As a result, the government gets enough time to repay the loans and there is not much risk to the overall economy due to the foreign loans. However, the scenario is quite the opposite in the private sector.
Although there is no risk to the government due to the high number of short-term loans in the private sector, the banks will still have to provide foreign currency to repay them. And since the banks do not have enough dollars, the central bank will have to provide dollars from the reserves. That will, however, put the reserves under more pressure.
A large share — $1.9 billion — of the foreign loans to the private sector has already gone to the country’s gas and power sectors. In addition, $140 million has gone to the construction sector and $1.79 billion to the trade sector. But there is no foreign currency income against these loans.
As a result, the foreign currency coming in from remittances and exports will have to be used to repay these loans. But that will be quite difficult as most of the export earnings are going to the import of raw materials and ancillary equipment now after international market prices went up.
Moreover, as the remittance inflow is low, it is not possible to meet the import deficits. This will make it more difficult to provide dollars from this sector and the banks will have to depend on BB for dollars to pay the foreign loan instalments. And if BB continues to do so, the foreign exchange reserve will decrease more.
According to Finance Ministry sources, after the first instalment of the IMF loan comes, loans from the World Bank and the Asian Development Bank will also be available. These loans will mainly be used to meet the rising import costs.
That means import expenses and foreign loan instalments will have to be paid with money from the forex reserves till March. That’s why, to reduce the pressure on the reserves, BB has extended the repayment period of back-to-back LCs by one year.
According to sources, the amount of short-term loans to government agencies is $390 million, which has decreased by 13 per cent in the past six months. On the other hand, the amount of long-term loans is $6.34 billion, which has increased by 4.5 per cent.
However, the total debt in the public sector is $6.72 billion, which has increased by 3 per cent.
Meanwhile, the amount of short-term loans in the private sector is $16.25 billion. Of this, the buyer’s credit alone is $8.21 billion and its repayment period has been extended by one more year. The amount of other short-term loans is $4.46 billion and they will have to be paid in stages.
