IMF delays fourth tranche of $4.7 billion loan again 

The International Monetary Fund (IMF) has once again delayed the disbursement of the fourth tranche – amounting to $645 million – of its $4.7 billion loan to Bangladesh, according to Finance Adviser Salehuddin Ahmed.

The proposal for both the fourth and fifth tranches will now be presented together at the IMF executive board meeting in June, instead of the previously scheduled March meeting, he told journalists following the Deputy Commissioners' Conference at the Ministry of Finance today.

IMF conditions not met

According to finance ministry officials, the delay is due to Bangladesh's failure to meet two key IMF conditions. One was to fully allow the foreign exchange rate to be determined by the market. The other was to collect an additional Tk12,000 crore in VAT beyond the government's target for the current fiscal year.

To meet the conditions, the IMF had recommended several reforms, including separating the Revenue Policy Division from the NBR, ensuring necessary structural changes and amending VAT laws to impose a uniform 15% VAT on all products. It had also urged the government to limit subsidies in the power and energy sectors.

Attempts at policy adjustments

Initially, the fourth tranche had been scheduled for approval at the IMF board meeting on 5 February, with disbursement expected by 10 February. 

However, the government's decision to reduce import duties on essential commodities such as edible oil, sugar, and dates – aimed at curbing inflation – led the IMF to drop the loan proposal from its agenda.

The Ministry of Finance, after discussions with IMF officials, had also tried to impose new VAT and duties on over 100 products to boost revenue. In response, the IMF assured that Bangladesh's loan disbursement proposal would be placed in the March board meeting.

However, amid public criticism, the government later withdrew the additional taxes and duties on various products, prompting the IMF to push back the loan decision again.

Another major sticking point is the exchange rate.

While the IMF insists on a fully market-driven rate, Bangladesh Bank is unwilling to comply, fearing it could push the exchange rate above Tk130 per dollar, increasing import costs and further fuelling inflation.

After the fall of the Hasina government on 5 August, the authorities stated that the exchange rate of the US dollar would be determined by the market but the Bangladesh Bank set a maximum limit for the dollar price.

Currently, dollar prices are being capped at Tk120, allowing a maximum fluctuation of 2.5%. This effectively sets a crawling peg system, with banks currently selling dollars at around Tk122, though businesses claim they are unable to buy dollars for less than Tk125-126.

According to finance ministry officials, negotiations with the IMF are ongoing regarding these issues. 

They opined that meeting the IMF's conditions – raising VAT and fully floating the exchange rate – would drive inflation even higher, potentially affecting the government's popularity. 

As such, the government aims to control inflation before implementing these conditions. However, IMF officials are unwilling to accept this approach, they said.

Government's stance

While talking to journalists, Finance Adviser Salehuddin Ahmed dismissed concerns over the delay. He said, "We have our own economic priorities and are not in a rush."

"Many think we are begging for this money, but that is not the case. We are following conditions that align with our own economic needs. Not every condition set by the IMF must be met immediately. Our macroeconomic indicators, including the current account balance, financial position and remittance inflows, are stable. There is no desperation [on our end]."

When asked whether the IMF wanted to postpone the disbursement or the government, the adviser said, "We asked for the delay, they [IMF] also wanted the same."

A finance ministry official told TBS that the government has assured the IMF of plans to restructure the NBR by creating separate divisions for revenue policy and its implementation, which is expected to improve tax collection. 

Additionally, once inflation stabilises by June, the government has pledged to increase VAT and withdraw tax exemptions in the upcoming budget.

The government has also committed to taking steps toward a market-based exchange rate before June. Based on these assurances, the IMF has agreed to include Bangladesh's fourth and fifth tranches in its June board meeting.

Bangladesh signed the $4.7 billion IMF loan agreement in 2022, set to be disbursed in seven installments. The first tranche was released in January 2023, followed by two more, with the most recent disbursement occurring in June 2023. 

No funds have been released since the formation of the interim government.