IMF inquires cenbank about exchange rate mechanism

A visiting staff mission of the International Monetary Fund (IMF) has wanted to know from the Bangladesh Bank about the present exchange rate mechanism and how the dollar rate is set by the association of banks and their top executives.

During the daylong meeting, the IMF officials also asked the central bank to explain the mismatch in different components of the balance of payment, including trade credit and errors and omissions, according to meeting sources.

Trade credit, which included exports and imports, stood at negative $1.8 billion in the first two months – July and August – of the current fiscal year, when errors and omissions stood at $796 million, central bank data shows.

When errors and omissions are negative, that means the figure is short in terms of the inflow of exports. The errors and omissions rose to a negative $3 billion in FY23.

The IMF team opined that Wednesday's policy rate hike will not work immediately to control inflation, as the reference rate is measured by the six-month average rate of the Treasury bill. It means the result will not come before six months.

A top official who attended the meeting said the IMF officials inquired about how the Association of Bankers, Bangladesh (ABB) and the Bangladesh Foreign Exchange Dealers Association (Bafeda) determine the dollar exchange rate and the sources of data they use for this purpose.

"They also wanted to know whether the ABB and Bafeda can fix the rate independently," he said, adding, "However, the Bangladesh Bank officials were unable to provide a satisfactory answer."

In September last year, the Bangladesh Bank introduced multiple exchange rates and instructed ABB and Bafeda to set the rates every week based on market demand.

Since then, the two associations have continued to set the rates, but many banks are ignoring these rates when buying and selling dollars because the announced rates are not market-driven; instead, they are instructed by the central bank.

The Bangladesh Bank has recently fined 10 banks for not following the ABB and Bafeda announced rates, which reflects that the rate is not market-driven and managed by the central bank.

Currently, ABB and Bafeda set the exchange rate at Tk110.50, even though the market rate is above Tk116.

Also, an IMF representative inquired about the progress of the Sustainable Public Procurement (SPP) policy formulation from the officials of the Central Procurement Technical Unit (CPTU), which monitors all government procurements, according to sources at the unit.

During a meeting at the CPTU office, officials informed the representative that the IMF had a requirement to formulate the SPP policy, which has already been drafted. Currently, it has been sent to the Cabinet Division for final approval. The SPP policy is expected to receive approval at the upcoming Cabinet meeting.

Officials said the issue of good governance in public procurement is related to the SPP policy. That is why the IMF is giving importance to the policy. This policy emphasises the purchase of sustainable, environmentally friendly products. Also, social sustainability and economic sustainability have been given importance in this policy.

The SPP policy is designed to assist procurement entities in procuring goods, works, and services complying with the sustainable definition in an efficient, consistent, equitable, and accountable manner.

IMF's Senior Economist Suphachol Suphachalasai and CPTU Director General Mohammed Shoheler Rahman Chowdhury were present at the meeting.

On Wednesday, the IMF said the Bangladesh Bank's monetary policy has failed to control inflation, pointing to the central bank's failure to fix the exchange rate based on the actual market situation and to set a sufficiently high lending rate to reduce the money supply.

Revenue collection to achieve target, NBR tells IMF

The National Board of Revenue (NBR) has informed the visiting IMF team that an additional revenue of Tk24,500 crore will be collected this year thanks to some measures taken by the board.

Of the amount Tk5,750 crore will be collected as a result of changes made to the new income tax. Besides, the revenue board aims to collect Tk15,400 crore through regular measures, including through control of tax evasion.

The IMF team also held separate meetings with the Value Added Tax (VAT) Department, the Customs Department, and the Tax Department of the NBR.

A Tax Department official, who was present at the meeting, told TBS that the revenue board expressed hope that it will be able to achieve this year's target. "The IMF team expressed its satisfaction at our efforts," he said.