Although the disbursement of the fourth installment of the International Monetary Fund (IMF) loan has been delayed, it may be released along with the fifth installment in June.
Finance Adviser Dr Salehuddin Ahmed recently informed journalists about this.
He said: “Bangladesh has informed the IMF that it cannot fulfill all the conditions at once. Based on discussions between the two parties, a decision may be made to release both installments together.”
The IMF loan is essential for budget support. For this reason, the Bangladesh government and the IMF have agreed to release the two installments simultaneously, according to the finance adviser.
Meanwhile, before the disbursement of the fourth and fifth installments, an IMF team will arrive in Dhaka on Saturday to review the progress in meeting various conditions, the adviser said.
The team will hold meetings with different government departments starting Sunday, he added.
Discussions are scheduled with the Finance Division, National Board of Revenue (NBR), Power Division, Power Development Board, Bangladesh Energy Regulatory Commission (BERC), and the Energy and Mineral Resources Division, as per Salehuddin.
The progress in fulfilling the IMF conditions will be reviewed in a meeting on April 17, he added.
Conditions to be met
To receive the fourth and fifth installments, Bangladesh must meet at least three key conditions:
Making the exchange rate market-based.
Collecting additional revenue equivalent to 0.5% of GDP.
Separating the policy and administration functions of the National Board of Revenue (NBR).
Economists point out that collecting additional revenue equivalent to 0.5% of GDP would require an additional Tk57,000 crore. This would necessitate reducing subsidies and increasing electricity prices.
Additionally, the exchange rate must be left to the market.
Failure to meet these conditions could lead Bangladesh into a new financial crisis, which could not only affect IMF loans but also hinder financial support from other development partners, economists noted.
If electricity prices are raised in anticipation of IMF loans, inflation—already near controlled levels—could surge again, they said.
Moreover, allowing the market to dictate exchange rates could result in a situation similar to that of Pakistan and Sri Lanka.
Exchange rate not becoming market-based before June
Despite IMF pressure to implement a market-based foreign exchange rate, the government will not enforce this by June, according to Salehuddin Ahmed.
At a policy discussion meeting held at the Finance Division on March 25 with the Executive Committee of the Economic Reporters Forum (ERF) and finance ministry reporters, he said: “Making the exchange rate market-based is important, but given the current economic reality, it is not feasible immediately. The government will make decisions considering inflation and other economic challenges.”
He warned that prematurely allowing the exchange rate to fluctuate freely could lead to situations similar to Pakistan and Sri Lanka. Currently, under the crawling peg system, the exchange rate has been kept stable at Tk122 per US dollar.
On the other hand, to meet the additional revenue target of 0.5% of GDP, the government has increased VAT.
A 15% VAT has been imposed on 43 goods and services, yet the revenue collection target has not been met.
Business owners have expressed dissatisfaction, arguing that instead of expanding the tax net, increasing VAT is not a fair approach.
Revenue shortfall and caution over electricity price hikes
Experts warn that failing to meet the IMF conditions could create complications in receiving the next loan installment.
Economist Dr Zahid Hussain noted that the government has yet to meet its revenue collection targets.
“To achieve the target, an additional Tk57,000 crore in revenue needs to be collected, but the necessary initiatives are lacking. However, in compliance with IMF conditions, the government may proceed with separating the NBR's policy and administration divisions and reducing tax exemptions," he said.
But business owners are strongly opposed to reducing tax exemptions, which the government must take into account, he added.
Dr Zahid Hussain also advised caution regarding electricity price hikes, warning that although inflation has eased slightly, it is not yet at a comfortable level.
Increasing electricity prices could further fuel inflation, he said.
He emphasized that the government must carefully evaluate its decisions and that the IMF should also consider Bangladesh's economic realities.
He suggested that both parties should work toward a mutually agreeable loan program.