The International Monetary Fund's (IMF) approved loan of the second installment of $689.8 million will be added to reserve by next Friday.
At its December board meeting on Tuesday, the IMF approved the release of a second tranche of a $4.7 billion loan that was approved last January.
“The IMF has approved $689.8 million as the second installment of the total loan of $4.7 billion promised for Bangladesh. This amount will be added to reserve by next Friday,” said Executive Director and spokesperson of the Bangladesh Bank, Md Mezbaul Haque on Wednesday.
However, Bangladesh received $476.3 million as the first installment of the loan on February 02 this year.
More funds will come from various donor agencies in December so reserves will increase, not decrease, after availing those loan facilities. Mezbaul Haque also informed that besides $400 million from ADB, $90 million from a South Korean fund, and another $620 million from various donor agencies will be added to the reserves this month.
Regarding reserves, the BB spokesperson said that now there is a gross reserve of $24.66 billion, and according to BPM-6, gross reserves are 19.13 billion.
However, in the process of releasing the second installment, the reserve and revenue conditions given by the IMF could not be fulfilled, but the IMF mission that came to visit Bangladesh on October 4, on that time Bangladesh assured them they will be able to meet those targets after the national election.
But the global lender will monitor implementation of 38 conditions to release the loan in different installments.
So, it’s being expected that another IMF mission will arrive in the country in March to monitor what the Bangladesh government has been doing to fulfill the required conditions set for December. At that time, they will discuss the third installment of the loan package.
The IMF in a press release said Bangladesh will receive the IMF’s loan (2nd tranche) under three categories: SDR 352.35 million (about $468.3 million) from Extended Credit Facility (ECF), Extended Fund Facility (EFF) and SDR 166.67 million (about $221.5 million) from Resilience and Sustainability Facility (RSF).
It is also stated that Bangladesh's economy has been buffeted by multiple shocks. Spillovers from Russia’s war in Ukraine and global monetary tightening have interrupted a strong post-pandemic recovery, with real GDP growth slowing to 6% in FY23 and headline inflation reaching a decade high of 9.9% year-on-year in August 2023.
Due to strict import compression, the current account (CA) deficit narrowed considerably (¾ percent of GDP in FY23 compared to 4.1% of GDP in FY22).
However, an unprecedented reversal of the financial account, driven by global uncertainties and inadequate policy response, has kept Foreign Exchange (Forex) reserves and the Taka under pressure.
The IMF expects that Forex reserves are expected to increase gradually in the near term and are projected to reach about four months of prospective imports in the medium term.
It’s also highlighted that, to restore Bangladesh’s near-term macroeconomic stability, monetary policy should be further tightened, supported by neutral fiscal policy and greater exchange rate flexibility. The IMF–supported program will lay the foundations to unlock Bangladesh’s growth potential, harness its demographic dividend and support long-term inclusive and green growth.
Antoinette Sayeh’s statement
Antoinette Sayeh, deputy managing director and acting chair of the IMF, issued the following statement: “Bangladesh’s economy is navigating multi-faceted economic challenges. Despite a difficult external environment, program performance has been broadly on track, reflecting the authorities’ strong commitment.
Near-term policies should continue to focus on containing inflation and rebuilding external resilience. This requires a calibrated monetary policy tightening, supported by a neutral fiscal stance, and greater exchange rate flexibility to alleviate foreign exchange pressures and rebuild buffers. Ongoing reforms to modernize the monetary policy framework will improve policy transmission and foster macroeconomic stability. Gradually transitioning to a more flexible exchange rate regime and strengthening Forex reserve management would enhance external resilience.
Raising tax revenues and rationalizing expenditures will allow increasing social, developmental, and climate-related spending. Continued efforts to enhance public financial and investment management are needed to increase spending efficiency and mitigate fiscal risks.
Financial reforms should focus on addressing vulnerabilities in the financial sector, by strengthening banking regulation, supervision, and governance. Deepening capital markets will help mobilize financing to support growth objectives.”
Executive Board assessment
Directors stressed that near term policies should focus on containing inflation and building external resilience, while mitigating the impact of these policies on the most vulnerable. They also underscored the importance of addressing structural challenges to support strong, inclusive and green growth.
Directors called for a calibrated monetary policy tightening, supported by a neutral fiscal stance, and for greater exchange rate flexibility to restore near term macroeconomic stability and bolster external resilience.
They commended the authorities’ efforts to further modernize the monetary policy framework, which will enhance policy transmission and help reduce inflation. Directors also welcomed the adoption of a unified exchange rate and stressed that a gradual transition to a more flexible regime is needed to enhance the economy’s resilience to external shocks.
Directors underscored that advancing financial sector reforms remains important to meet growing financing needs and support growth. They emphasized the need to reduce banking sector vulnerabilities by implementing NPL reduction and capital restoring strategies in state owned commercial banks.
Finally, directors encouraged the authorities to expedite long standing reforms to help Bangladesh reach upper middle income status. They emphasized that liberalizing trade, enhancing the investment climate and governance, upskilling the labor force, and increasing female labor force participation are crucial to attract more FDI, diversify exports, and boost growth potential.
It is expected that the next Article IV consultation with Bangladesh will be held in accordance with the Executive Board decision on consultation cycles for members with Fund arrangements.