Hopes for $30b reserve by June amid concerns to meet IMF threshold

With an IMF review mission already in Dhaka amid finance officials' concerns about complying with the net reserves threshold to get the lender's second instalment of loans, the government is projecting a $30 billion foreign reserve buildup by June next year.

The projection will be made at the World Bank-IMF annual meeting in Morocco's Marrakech later this month, where official delegates will portray a stable macroeconomic state of the country, official documents seen by The Business Standard reveal.

One of the key conditions agreed to implement before the second instalment of IMF's $4.7 billion budget support package due in December is to hold at least $25.32 billion in net international reserves on 30 September. But the amount was $21.15 b as of 27 September, according to the Bangladesh Bank.

As the threshold of tax revenue also remains unmet, finance bureaucrats are trying to explain the ground reality for the failures and convince the visiting review mission so that the second tranche of IMF loan is disbursed as per the schedule.

On their second day in Dhaka, the IMF staff team led by Rahul Anand met central bank governor Abdur Rouf Talukder and Finance Secretary Dr Khairuzzaman Mazumder at a city hotel on Monday.

They will hold a series of meetings with officials of more than a dozen ministries and government divisions until 19 October. The team is supposed to report to IMF's regional executive director Dr Krishnamurthy, who will visit Dhaka on 18 October and seek an appointment with Prime Minister Sheikh Hasina.

The review mission will evaluate the success and failures in achieving the targets and set new ones for next December and June 2024.

A finance ministry official who preferred anonymity told TBS on Monday that the IMF board would see the staff team's report and decide if the next tranche would be disbursed in December.

However, Salman F Rahman, private industry and investment adviser to the prime minister, said a day earlier that the government is not worried about the disbursement of the second instalment of the IMF loan before the elections (in December or January) as the country has $21 billion in reserves, and the imports have come down to $5 billion.

"We have resolved all conditions for the second IMF loan instalment. There will be no issues in receiving that," he told reporters.

In the last financial year, the National Board of Revenue (NBR) fell short of its IMF-mandated revenue target by Tk14,000 crore. In the current financial year, the NBR must collect an additional 0.5% of GDP in revenue, which amounts to Tk4.10 lakh crore. The NBR is trailing behind its pledge to earn Tk61,560 crore in the first quarter of the current fiscal year.

In their meeting on 5 October, the revenue officials will explain that sluggish import was among the factors behind slow growth in revenue income in the last fiscal, and elaborate on initiatives to meet the revenue target for the current fiscal year, according to NBR sources.

Last week, the NBR sent a letter to the IMF regarding its revenue collection situation and potential collection in the current fiscal year. The letter stated that the NBR expects to meet its IMF-mandated revenue target, but that lower imports and slower implementation of government development projects could impact the collection of import duty and VAT.

The VAT wing noted that imports have shown a negative trend this year, which could hamper revenue collection if the trend continues.

So stability in the import of raw materials and consumable items, lessening of the existing dollar crisis, adequate supply of fuel to continue production etc are the prerequisite for achieving projected revenue, sources said.

According to NBR, VAT collected against procurement by government projects and other agencies is about 10% of the total VAT revenue. This year, this sector is expected to see a decline in revenue as many companies and the government has already curtailed their budget.

"So projected VAT in FY24 may not be possible to be collected if this trend continues in next year as well," said the sources.

However, NBR officials would tell the IMF team of their expectation to earn Tk2,400 crore as additional VAT from restructuring cigarette taxation and another amount of Tk4,000 crore from duty and tax adjustments for mobile phone, polypropylene staple fibre, software, LPG cylinder and Electronic Fiscal Device (EFD), which will boost their overall earning this year.

Hopes for a bigger reserve holding

Meanwhile, in a report prepared for the World Bank and International Monetary Fund (IMF) annual meeting, the finance division projects that foreign exchange reserves will be more than $30 billion by the end of FY24.

"The Macroeconomic Performance of Bangladesh" report will be presented at the high-profile joint meeting scheduled for 9-15 October in Marrakech, Morocco.

"To improve the foreign exchange reserve, the government has taken various cautionary measures, price & volume monitoring of the import items and other monitoring steps," says the report.

According to the finance department report, there are plans to receive more budgetary support under subprogram (SP)-2 in the current fiscal year, which will help increase reserves.

Budget support of $400 million to $800 million will be available in the current fiscal year from the ADB and the AIIB. Another $250 million in budget support from the World Bank will be available by next June. In addition to this $1.05 billion budget support, the government plans to seek budget support from other development partners.

Finance division report states that the overall macroeconomic performance of Bangladesh has been quite satisfactory over the last few years driven by the buoyant performance of the external sector until the outbreak of Covid-19 pandemic and other global crises.

Strong growth in export, gradual improvement of current account balance, stabilisation of foreign exchange market and inflow of worker's remittances are the salient features of external sector development of Bangladesh economy. But during the last fiscal year due to the financial account deficit and heavy pressure of import payment has put the foreign exchange reserve under some pressure, it reads.

However, latest data released on Sunday show inward remittance dropped to its lowest in 41 months in September, while exports slid to five-month low, raising concerns about the looming pressure on the country's external balance.

Despite a record 11.3 lakh workers went abroad in the last fiscal year, remittance earnings marked a massive fall for, as migration watchers and economists say, unabated hundi operations that offer higher rate of dollar than banks, shrinking transactions through formal channels. Though the central bank has initiated tough measures, like fining treasury chiefs of 10 banks recently, dollar rate volatility continued, impacting both remittance and export incomes, analysts say.