IMF team due 26 Oct for negotiating loan terms
Finance Ministry officials expect to receive $1.5 billion as the first instalment of the loan in January next year after negotiations on loan terms
A delegation of the International Monetary Fund (IMF) is coming to Dhaka next Wednesday (26 October) to discuss the terms of the $4.5 billion loan sought by Bangladesh as budget support.
Finance ministry officials expect to receive $1.5 billion as the first installment of the loan in January next year after negotiations on loan terms.
According to a press release issued by the international financial institution on Tuesday (18 October), IMF staff plan to visit Dhaka from October 26 to November 9, 2022, to start discussions with the Bangladeshi authorities on economic and financial reforms and policies.
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The objective is to make progress towards a staff-level agreement on a prospective Extended Credit Facility/Extended Fund Facility programme and access under the newly created Resilience and Sustainability Facility (RSF) in the coming months, said the release.
The RSF aims to provide affordable, long-term financing to help build resilience against climate risks in countries highly vulnerable to climate change, such as Bangladesh, it stated.
IMF staff would also continue the engagement with other stakeholders during the visit. This is the first mission and programme discussion which could continue over the coming months. The team will be led by Rahul Anand, IMF Mission Chief to Bangladesh.
An official from the Ministry of Finance, on condition of anonymity, told The Business Standard (TBS) that the government has to take political decisions, as well as the consent of the relevant ministries, in order to adhere to the terms that will be negotiated with the IMF team. Thus, it is unlikely to get the loan before January next.
Dr Ahsan H Mansoor, former IMF official and executive director of the Policy Research Institute of Bangladesh, told TBS, "Currently, Bangladesh Bank has to release $1.5 billion from the reserves to the market every month. Under the circumstances, if the $4.5 billion loan is received from the IMF, it will take only three months to run out."
IMF also knows that the loans given to Bangladesh will not be refunded in the current situation. Therefore, the organisation will naturally give several conditions for the macroeconomic stability of Bangladesh. Because the existing crisis in Bangladesh cannot be solved with money. It has to be solved with policy, he added.
IMF will impose medium conditions to raise revenue and for this, the revenue system should be reformed. Besides, the agency will impose conditions for withdrawing the cap imposed on bank loan interest rates. IMF will ask to activate monetary policy to control inflation, Dr Ahsan H Mansoor said.
"One of the conditions of the IMF will be to ensure a market-determined exchange rate of the US dollar. At present, our country has four exchange rates – one for the government, one for importers, one for exporters and one for remittances. The conditions of the IMF will be to ensure a uniform exchange rate as before and reduce the gap between the exchange rate and the kerb market rate," he added.
Even if the IMF does not impose conditions for the withdrawal of subsidies in agriculture, electricity and energy, the organisation will impose conditions so that subsidies are not increased in these sectors, said Dr Ahsan.
"Now there is no scope to waste time. If reforms are carried out in line with the IMF's advice, macroeconomic stability will return within the next six months. Otherwise, an economic crisis may arise in the country before the next parliamentary elections," the former IMF official added.
Asked about the IMF's conditionalities for Bangladesh, a senior Finance Division official said those are not yet fixed. But implementing reforms in state-owned commercial banks, reducing non-performing loans, developing capital markets, especially for the domestic debt market, and improving monetary, fiscal and financial governance are expected to come with the loan offers.
Broader issues that may also be tagged include modernising monetary policy framework, improving fiscal frameworks and reducing fiscal risks, creating fiscal space for growth-enhancing and inclusive spending, reducing financial vulnerabilities by recognising problems, strengthening supervision and enhancing regulation, enhancing the quality of data and carrying out reforms related to reducing climate-related vulnerabilities, he noted.
