Should Bangladesh go for IMF loan?

To commence with, there are several reasons why Bangladesh should take a loan from the International Monetary Fund (IMF). As Bangladesh is having bit of an economic crisis and Bangladesh Bank's current reserve just decreased and the amount is around $39.7 bn because of certain reasons. As per media reports, import has risen by 39 per cent in 2022 compared to last year and may increase even more. So that's why our reserve is decreasing. After considering the relevant factors, Bangladesh's finance minister requested for a loan of $4.5 billion from the IMF this year, including assistance with its budget and balance of payments. Even though taking a loan from International Monetary (IMF) Fund is the last option for a country, yet Bangladesh is trying to get a loan because they did it previously, but the amount was small back then. However, getting a loan from IMF is not an easy task as they try to put some stern conditions on loan-taking countries. Some are hard to follow because of short-term economic issues. But the writer believes that Bangladesh should try it.

Firstly, The IMF might request that the government stop providing subsidies to the energy sector as Bangladesh's energy sector is completely controlled by the government and is not transparent at all. IMF might ask the government to stop intervention in this sector because they want to make sure that only the market should control Bangladesh's energy sector pricing. The market should control it. And the price should fluctuate according to the demand and supply of the market. In Bangladesh, if prices of the energy sector go up, they never fall again, even if the price decreases in the world market. So, if they stop intervention in this sector, then people may get energy by spending less amount of money. Even though people might face problems in the short run, people will be benefitted in the long run.

Secondly, our inflation rate is increasing at a rapid pace. To control it, IMF might ask to increase the interest rate for a particular time. If it happens inflation rate may decrease, and the value of money will increase because people will not be able to take loans because of the higher interest rate. Even though it is bad for developing countries like Bangladesh as small businesspeople or start-up businesses will suffer a lot.

Yet Bangladesh should apply it for a few months to reduce inflation and stabilise the exchange rate. After implementing this, the government can again reduce interest after the positive outcomes. The current inflation rate is around 7.48 per cent, whereas, in January 2022, it was around 5.86 per cent. It means within eight months, Bangladesh's inflation rate has raised by more than 27 per cent. 

Lastly, IMF may urge Bangladesh to become much more pro-active regarding the environment. For example, they may encourage the government to put a carbon tax on some industries which are actually responsible for carbon emissions. As our country is heavily dependent on the garments industry government may get a massive amount of money as a carbon tax. So, the garments industry will try to use some other energy sources which are environmentally friendly instead of using fossil fuels. As increasing pricing on carbon will reduce global warming and less air pollution, it will be really beneficial for our country.

As it is a heavily populated country so ensuring environmental security is really hard. By increasing taxes in some industries, this country can be an environmental-friendly country.

In my opinion, the government made the right decision by applying for this loan. This will be very beneficial in stabilizing the market and regaining people's confidence. The $416 billion economy of the country has long been among the fastest-growing in the world, but as a result of rising oil and food costs brought on by the Russia-Ukraine war, its import bill and current account deficit have increased.

To solve those issues taking a loan from IMF is a prudent decision of the government. Even though taking a loan may create some short-term issues, but if the government is determined and can handle these issues meticulously and cautiously, then this country has the potential to solve these issues.

According to informed finance ministry insiders, of the $4.5 billion requested, $1.5 billion is likely be interest-free, and the remaining amount would have a rate of less than 2 per cent. So, the interest rate is also favourable for Bangladesh, and some ongoing mega projects are expected to end within a few years. So, this country's economy will be strong again if things go as per the prediction. 

The writer is a researcher. He can be contacted at mahadi.hassan5@northsouth.edu