Is it possible to fulfil IMF conditions?

Bangladesh has firmly established its position as one of the fastest-growing economies in the world. Its growth trend had surpassed many developed economies before the coronavirus appeared on the horizon.

The virus failed to rotate the growth trend to negative thanks to speedy measures taken by the government. In South Asian economies, Bangladesh performed better in holding around 3.4 per cent-a positive growth trend. At that time, developed countries saw the first-ever negative growth trend in the economy.

According to a World Bank (WB) report, Bangladesh is among top 10 fastest-growing countries in the world. Given the positive trend, the World Bank expressed optimism about Bangladesh's economy. However, the World Bank in its study further said that an ‘economic boom' is never a permanent trend’.

Actually, a country’s economic strength is measured by its foreign exchange reserve volume. Besides, a country’s current account, capital account, financial account and above all balance of payment situation are taken into consideration whenever assessments are made. The key macroeconomic indicators mentioned earlier began to deteriorate sharply following unwelcome global affairs.

At one stage, Bangladesh carried out negotiations with the International Monetary Fund (IMF) seeking financial support in a bid to address problems related to the national budget and forex reserve. The seeking amount was $ 4.5 billion. Finally, the IMF board approved the loans asked by Bangladesh. Already, an amount of $ 448 million was released recently. The rest amount will be released in phases or in six instalments likely to be completed by December 2026. It is important to know that the interest rate of this loan has been set at 2.2 per cent. The entire loan to be returned to IMF within 10 to 20 years. No matter or no worry regarding interest rate and repayment tenure. To get all instalment of the loans matter now.

Previously, the global lender, IMF provided loans to Bangladesh many times whenever approached. The loans amount worth $ 330 million in 1990, $ 316 million in 2003, $ 634 million in 2012, 177 million in 2020, $ 355 million came from the IMF. The IMF generally provides loans in the form of Extended Credit Facility ( ECF), Extended Fund Facility ( EFF). Bangladesh is the first nation to receive loans from newly created Resilience and Sustainability Facility ( RSF). RSF will ensure green growth in the world with this fund. The loan repayment tenure for ECF and EFF is 10 years and 20 years for RSF.

Basically, IMF loans are granted from its board upon conditions. The conditions are given for reshaping the economic policies of the country getting the loan. As loans amounting to $4.7 billion have been granted to Bangladesh by IMF management, Bangladesh has to fulfil IMF-provided conditions.

If the conditions remain unfulfilled, the instalments may even be halted. Bangladesh has to give emphasize five areas in respect of reform works. The reform works undoubtedly would help to create a decent macroeconomic framework. Previously, Bangladesh took loans from the IMF on condition of fulfilling conditions.

Did Bangladesh fulfil IMF's conditions before that? According to newspaper reports Bangladesh failed to comply with IMF’s conditions in 2012. The global lender did not release all instalments during that period due to showing callousness in rebuilding policies. In 2012, two instalments were released only.

Bangladesh's economy is facing tough times in some areas. IMF directives for reshaping monetary and fiscal policy are one of the key conditions stressed by the IMF. Besides, the withdrawal of subsidies on oil and gas is a challenging task for the government considering the current situation. Subsidies are given to protect the masses of low-income groups. Already people of all classes had been experiencing abnormal prices for essential goods. If the subsidy is lifted, in what way the government will protect the vulnerable people hit hard by high inflation. According to the Bangladesh Bureau of Statistics, inflation in Bangladesh eased to 8.57 per cent in January 2023 from 8.71 per cent in December 2022.

Non-performing loans ( NPL) in the banking sector reached skyrocketed. Right now, close to 10 per cent of loans out of the total disbursed loans have been recorded as NPL. NPL in state-owned lenders accounts for over 20 per cent. How possible to bring down the NPL volume of state-owned banks by 10 per cent by June this year. Is it possible to reconstruct the vulnerable financial sector within a brief time?

Still, the central bank in Bangladesh prefers an outdated monetary policy framework. According to IMF conditions, a new monetary policy framework must keep pace with developed economies. Following IMF directive, a monetary policy statement two times in a fiscal year would be announced.

Bangladesh has recently been brought under a wide range of discussions for having the lowest tax-to-GDP ratio in the world. Now needs fiscal flexibility in expediting revenue earnings. The IMF demands fiscal reform that will improve spending efficiency. Tax policy and revenue administration reform in Bangladesh take time. VAT law still remains in the state of unimplemented. As per IMF prescription regarding fiscal issues, Bangladesh has to increase 9.5 per cent tax-to-GDP ratio from the current 7.8 per cent by 2026. Increasing of revenue collection amounting Tk 2.34 trillion within three years would be impossible if current global crisis stays for a longer period. Tax exemption facilities have to be stopped right now for fulfilling IMF-given conditions. In some special cases, tax exemption may be provided.

A great number of conditions related to economic policies have to be fulfilled for obtaining remaining instalments that will be released after every six months. It is true that Bangladesh now needs massive reform in the economic arena. According to the World Bank report, without massive reforms, Bangladesh’s GDP could fall below 4 per cent by 2035. So, IMF conditions came to us as a blessing for sake of the economy, no doubt. The World Bank identified three obstacles to economic reforms. The obstacles are declining trade competitiveness, a weak and vulnerable financial sector, and unbalanced and inadequate urbanization. If requirements given by IMF management are implemented, most obstacles will vanish soon.

The previous record suggested that Bangladesh could not fulfil IMF’s requirements fully. The suggestions coming from the global lender, IMF help the world’s least-developed countries in respect of being prosperous economically. As Bangladesh aspires to become a higher-middle-income country very soon, there is no alternative to reform economic policies. Bangladesh will not be benefited from $ 4.7 billion loan package to a great extent. Bangladesh will be benefited much if economic reforms at a massive scale are done in light of IMF prescriptions. Reforms in the economy require huge money. Is Bangladesh ready to finance the reform proposals?

The writer is economic affairs analyst. He can be reached at [email protected]