IMF talks BB autonomy, reforms to monetary policy, exchange rate formula

A review mission from the International Monetary Fund (IMF) has focused on changing monetary policy, amending the Bangladesh Bank Order 1972 and revising the country's exchange rate system during discussions with the Bangladesh Bank.

Bangladesh Bank spokesperson Husne Ara Shikha briefed journalists on the developments, saying the IMF's mid-term review meeting with the central bank began on Tuesday afternoon and continued until 7pm.

The central bank plans to incorporate these changes into the new monetary policy for the second half from January to June of the fiscal 2024-25.

Earlier in June, in its report, "Bangladesh: Technical Assistance Report-Interest Rate Corridor Adoption," the IMF recommended prioritising the amendment of the Bangladesh Bank Order to enhance the central bank's autonomy and accountability by making price stability its primary objective. 

The multilateral lender's report stated that this amendment is crucial for transitioning from a reserve money-based monetary policy, which was announced for the July-December 2023 period, to a new interest rate-based monetary policy regime.

"Crucial to this transition is the amendment of the Bangladesh Bank Order to prioritise price stability as the objective of monetary policy, to enhance BB's autonomy and accountability, and to eliminate direct BB lending to priority sectors," the report said.

Spokesperson Shikha said discussions are ongoing between the Bangladesh Bank and the IMF on various issues, with potential changes to several aspects of monetary policy and the Bangladesh Bank Order.

"However, no decisions have been made yet. The IMF will clarify matters after the final meeting with the government," she continued.

Bangladesh is on track to meet all 12 conditions required to receive the fourth tranche of the IMF's $4.7 billion loan programme, although it is falling behind the revenue collection target.

A delegation led by IMF mission chief Chris Papadakis has been in Bangladesh since 4 December to review the IMF conditions and will remain in the country until 17 December.

A central bank official said the country's exchange rate has remained stable for the past three months. If this stability continues, customers may be more inclined to hold on to dollars.

"As a result, the central bank is considering a new mechanism to allow for fluctuations in the dollar rate. The crawling peg system was also discussed during the meeting," she added.

In line with the IMF's suggestion, Bangladesh has been following the crawling peg regime since May this year.

The visiting IMF delegation is expected to meet with officials from the Bangladesh Bank, the Ministry of Finance, the Ministry of Power and Energy, the National Board of Revenue and the Bangladesh Bureau of Statistics.

The IMF's conditions include targets for net international reserves, budget deficits, the balance of international transactions, reserve money, tax revenue, priority social spending and government capital investment.

According to the IMF's target, the government's tax collection was expected to reach Tk3.94 lakh crore by June.

According to the Finance Division, the government managed to collect Tk3.69 lakh crore by June, which is Tk25,321 crore less than the IMF target.

Another major condition set by the IMF was to increase the country's net international reserves. However, in May of this year, the IMF reduced this target at the request of the then government.

The initial target for net international reserves by 30 June was $20.11 billion. However, by the end of May, the IMF revised it down to $14.79 billion.

As of 30 June, Bangladesh's net international reserves stood at $16.70 billion. The country had failed to meet this target in each of the previous instalments of the loan programme.