The IMF team is expected on October 26 to negotiate the terms of the loan

Finance Ministry officials expect to receive $1.5 billion as the first disbursement of the loan in January next year after negotiations over loan terms

TBS Report

October 21, 2022, 11:25 p.m.

Last modification: October 22, 2022, 9:11 PM

FILE PHOTO: The International Monetary Fund (IMF) logo is seen outside the headquarters building in Washington, U.S., September 4, 2018. REUTERS/Yuri Gripas/File Photo

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FILE PHOTO: The International Monetary Fund (IMF) logo is seen outside the headquarters building in Washington, U.S., September 4, 2018. REUTERS/Yuri Gripas/File Photo

A delegation from the International Monetary Fund (IMF) will travel to Dhaka next Wednesday (October 26) to discuss the terms of the $4.5 billion loan requested by Bangladesh as budget support.

Finance Ministry officials expect to receive $1.5 billion as the first disbursement of the loan in January next year after negotiations over loan terms.

According to a press release issued by the international financial institution on Tuesday, October 18, IMF staff plans to visit Dhaka from October 26 to November 9, 2022, to begin discussions with the Bangladeshi authorities on economic and financial reforms and policies. .

The aim is to progress towards staff-level agreement on a possible Extended Credit Facility/Expanded Financing Facility program and to access it under the new Resilience and Sustainability Facility (RSF) within months. to come, the statement said.

The RSF aims to provide affordable, long-term financing to help build resilience to climate risks in countries highly vulnerable to climate change, such as Bangladesh, he said.

IMF staff will also continue to engage with other stakeholders during the visit. This is the first mission and program discussion that may continue over the next few months. The team will be led by Rahul Anand, IMF mission chief in Bangladesh.

A finance ministry official, on condition of anonymity, told The Business Standard (TBS) that the government needs to make political decisions, as well as the consent of relevant ministries, in order to meet the terms that will be negotiated. with the IMF team. Thus, it is unlikely to obtain the loan before next January.

Dr Ahsan H Mansoor, a former IMF official and Executive Director of the Bangladesh Policy Research Institute, told TBS: “Currently, Bangladesh Bank has to release $1.5 billion of reserves into the market every “Under the circumstances, if the $4.5 billion loan is received from the IMF, it will only take three months to run out.”

The IMF also knows that the loans granted to Bangladesh will not be repaid in the current situation. Therefore, the organization will naturally lay down several conditions for the macroeconomic stability of Bangladesh. Because the current crisis in Bangladesh cannot be solved with money. It must be resolved through politics, he added.

The IMF will impose average conditions to increase revenues and for this, the revenue system must be reformed. In addition, the agency will impose conditions for the removal of the ceiling imposed on the interest rates of bank loans. IMF will ask to activate monetary policy to control inflation, said Dr Ahsan H Mansoor.

“One of the conditions of the IMF will be to guarantee a market-determined US dollar exchange rate. Currently, our country has four exchange rates – one for the government, one for importers, one for exporters and one for remittances. IMF conditions will be to ensure a uniform exchange rate as before and reduce the gap between the exchange rate and the market exchange rate,” he added. .

Even if the IMF does not impose conditions for the withdrawal of subsidies in agriculture, electricity and energy, the organization will impose conditions so that subsidies are not increased in these sectors, said Dr. Ahsan.

“Now there is no room for wasting time. If the reforms are carried out in line with the advice of the IMF, macroeconomic stability will return within the next six months. Otherwise, an economic crisis could arise in the country before the next few months. legislative elections,” said a former IMF official.

Asked about the IMF’s conditionalities for Bangladesh, a senior finance division official said they were not set yet. But the implementation of reforms in public commercial banks, the reduction of non-performing loans, the development of capital markets, in particular for the domestic debt market, and the improvement of monetary, fiscal and financial governance should accompany loan offers.

Broader issues that can also be labeled include modernizing the monetary policy framework, improving fiscal frameworks and reducing fiscal risks, creating fiscal space for growth-friendly and inclusive spending, reducing financial vulnerabilities by acknowledging problems, strengthening supervision and improving regulation, improving data quality and carrying out reforms related to reducing climate-related vulnerabilities, he noted .

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