Govt to buy IMF RCF bonds to meet next FY’s budget deficit

The government is likely to buy bonds to be issued by the Bangladesh Bank against the fund it has received under the International Monetary Fund’s (IMF) Rapid Credit Facility (RCF) mechanism, in a bid to meet a large budget deficit in the next fiscal year.  

The Bangladesh Bank (BB) has already received Tk 6,190 crore ($732 million) under the IMF’s RCF mechanism. With this along with assistance of the Japan International Cooperation Agency (JICA), the central bank’s foreign currency reserves crossed record $34 billion (Tk 3,423 crore) on Wednesday for the first time, according to the BB.

The central bank will now issue bonds against the fund received under the RCF -- to be purchased by the government.

In this regard, a memorandum of understanding will be signed between finance division and the central bank, said sources in the finance division.

On condition of anonymity, an official of the finance division said the division has just completed the document for purchasing the bonds – BB will issue the bonds for a period of 5-10 years with an interest rate at 6-7 percent.

The government will use the money to address the fiscal needs in the next revised budget, said the official.

Meanwhile, development partners and other global lenders have promised to provide Bangladesh Tk70,000-80,000 crore as budget assistance for the next fiscal, added the official.

According to the sources in the finance ministry, the budget deficit next fiscal is expected to hover around 5.6-5.8 percent of the GDP (gross domestic product). In the money term, it stands Tk 170,000 crore to Tk 185,000 crore.

IMF in its World Economic Outlook published last month predicted that Bangladesh’s GDP growth would come down to 2 percent in the current 2019-2020 fiscal year due to the global coronavirus pandemic.

IMF, however, said Bangladesh’s economy will grow at 9.5 percent in the next 2020-2021 fiscal year. The Washington-based lender had earlier projected a GDP growth rate of 7 percent for Bangladesh for the current fiscal year.

On May 29, IMF approved $732 million emergency assistance for Bangladesh under the Rapid Credit Facility and the Rapid Financing Instrument to address the urgent balance-of-payments and fiscal needs. The money was disbursed under the emergency financial assistance of IMF to help its member countries address the challenges posed by Covid-19. As per the terms and conditions of IMF fund, the government can use the money as per its desires. 

According to the IMF, the fund will help finance the health, social protection, and macroeconomic stabilisation measures, meet the urgent balance-of-payments and fiscal needs arising from the Covid-19 outbreak and catalyse additional support from the international community.

The pandemic is severely impacting the Bangladeshi economy. Two major sources of external financing, namely exports of ready-made garments (RMG) and remittance inflows, are projected to decline rapidly. Necessary policy responses to prevent a domestic pandemic, including the shutdown of major cities, will inevitably affect economic activities and slow growth, it added.

Bangladesh’s income from the RMG export accounting for over 80 percent of the county’s overall export earnings plunged by almost 85 percent in April this year to $366.58 million from $2.42 billion in the same month of 2019 due to the shutdown in the country since March 26 and in other countries for tackling the virus.

April’s remittance inflow decreased by 24.63 percent to $1.08 billion from $1.43 billion the same month last year severely affecting the overall economic growth.

According to economic relations division of finance ministry, the government has sought around $2.0 billion from the donor agencies, including IMF, to tackle the adverse impacts on the economy from the Covid-19. Of those, the Asian Development Bank has approved $600 million in two instalments, they said.

Earlier, the Asian Infrastructure Investment Bank (AIIB) approved a $250 million loan to Bangladesh as the country grapples with the fallout from the novel coronavirus.

The government asked $850 million from the World Bank, $250 million from the Asian Infrastructure Investment Bank, and $150 million from the Islamic Development Bank.

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