IMF team warns of potential export decline, calls for steps to cut external deficit
The International Monetary Fund's loan review mission has left Dhaka with a happy note at the policy measures taken to meet the June deadline for most of the agreed reforms except for the net foreign exchange reserves threshold, finance officials have said.
Citing concerns of a potential decline in the country's export earnings due to growth slowdown and inflation in major markets, the team suggested that Bangladesh needs to take initiatives to reduce balance of payments deficit to reach the agreed target of net reserves of $25.32 billion by September, they said.
In a wrap-up meeting with Finance Minister AHM Mustafa Kamal at the Secretariat on Sunday, the first review mission of the multilateral lender emphasised the implementation of agreed conditions before the release of the second tranche of the $4.7 billion loan in November.
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"The ministry informed the IMF that it would be able to meet the conditions set by the IMF and increase net foreign exchange reserves to $25.32 billion by September," a Finance Division official, who was present at the meeting, told The Business Standard.
During its two-week stay in Bangladesh, the eight-member team held a series of meetings with various ministries and government agencies to review the implementation of the conditions with June and September deadlines.
The IMF officials, who arrived in Bangladesh on 25 May, left Dhaka on Sunday.
According to finance officials, the IMF expressed satisfaction with the policy measures that Bangladesh has taken to meet the conditions with a June deadline. However, the lender has concerns about whether the country can raise its net foreign exchange reserves to $24.46 billion by the June deadline.
The IMF has warned Bangladesh that the economic growth of its main export markets, including the European Union, the United States, and the United Kingdom, is decreasing while inflation is increasing. Therefore, Bangladesh's export income may decrease further in the coming days. In such a situation, if the desired level of foreign exchange reserves is to be reached, initiatives should be taken to reduce the balance of payment deficit by limiting imports.
In an end-of-mission statement issued Sunday, IMF staff team leader Rahul Anand said,"Persistent inflationary pressures, elevated volatility of global financial conditions, and slowdown in major advanced trading partners continue to weigh on Bangladesh's growth, foreign currency reserves, and the Taka."
However, he said against a challenging economic backdrop, Bangladesh remains one of the fastest growing economies in the Asia-Pacific region.
The IMF officials informed the finance ministry that while the NBR and Bangladesh Bank have shared information about their plans to increase the tax-GDP ratio by 0.5% or reduce the balance of payments deficit, they did not specify how those steps would be implemented.
In this context, the finance ministry official stated that detailed information about the implementation of the steps will be presented in the budget proposal for the next fiscal year, adding, "It would not be logical to unveil it before the budget proposal."
Bangladesh Bank Spokesperson Md Mezbaul Haque told TBS on Sunday that the country's gross foreign exchange reserves stand at $29.76 billion after paying the Asian Clearing Union (ACU) import bills.
"If we exclude the amount of foreign currency spent in various sectors, including the outstanding instalments of Rooppur Nuclear Power Plant, the loan disbursed under the Export Development Fund, the net reserve amount will be about $20 billion," he added.
According to the IMF's loan agreement, Bangladesh's net reserves were supposed to be $22.95 billion as of last March, which the government failed to achieve. Finance Division officials feel that it will be a challenge to achieve the target for next June.
The IMF mission will come again in September to review the loan conditions before the second tranche is released in November. Before that, according to the terms of the lender, the net reserves should be $25.32 billion. And in December, it will have to be increased to $26.81 billion.
According to an Economic Relations Division official, $329 million has been set aside from the reserve for principal and interest on the loan taken for the Rooppur project since March as per IMF conditions. At the same time, the process of paying outstanding interest and principal has started.
