Bangladesh is not in a crisis and its external position is very different from several other countries in the region, IMF Asia and Pacific Division chief Rahul Anand has said.
The IMF official made the remark while giving a briefing on the current economic situation in Bangladesh during an online conference on Tuesday.
According to IMF, the decision on providing loans to Bangladesh will be finalized in October. There is no relation between IMF loan conditions and rising fuel oil prices in the country.
“The increase in the price of fuel oil is Bangladesh's own matter. It has no relation to the IMF loan,” Anand said.
He also said Bangladesh’s external debt is relatively low at around 14% of GDP.
“Bangladesh has low risk of debt distress and is very different from Sri Lanka,” he added.
Furthermore, he stressed that the devaluation of the taka was not yet comparable to what has been seen in some other countries, despite Bangladesh’s dwindling foreign currency reserves.
Bangladesh’s reserves have come down, but stocks are still high enough to cover four to five months of prospective imports, he said.
Amidst the ongoing global economic crisis, Bangladesh sought a $4.5 billion loan from the IMF last month. IMF has already agreed to provide loans to reduce the risk to Bangladesh's economy.
In a statement earlier this month, the IMF said it had agreed to provide the loan in view of Bangladesh's application as the country had already qualified to receive money from the fund.
IMF loan Negotiation likely in October
Anand described the Bangladesh government's loan appeal to IMF as "pre-emptive."
Support packages from the IMF are likely to begin after the third week of October, the multilateral lender said on Wednesday.
The first staff mission is expected to take place after the 2022 annual meetings of the IMF and the World Bank Group. The annual meetings will take place from October 10–16 in Washington.
The loan may be given through the newly created Resilience and Sustainability Trust (RST), which was established in April.
Once a staff level agreement is reached, which usually takes a few months, the program will be sent for approval to the IMF Executive Board. Funds are disbursed after approval from the board.
Loans from RST come with a 20-year maturity and a ten-and-a-half years' grace period. The IMF has come up with a three-tier interest rate structure, depending on the income status of applicant countries.
Bangladesh can get up to $1.5 billion from the RST, which targets specific areas within the mandate of the IMF and not all areas of climate change.
The latest Article IV consultation assessed that Bangladesh's debt outlook is expected to remain sustainable; the country has a low risk of debt distress as public sector debt to GDP ratio stands around 6%, with external debt to GDP ratio at14%.
During Article IV consultations, an IMF team of economists visits a country to assess economic and financial developments and discuss the country's economic and financial policies with government and central bank officials. The IMF's most recent Article IV consultation was in December last year, and the report was submitted in March this year.
Details of what the loan conditions may be are yet to be revealed by the IMF.
What do economists say?
AB Mirza Azizul Islam, economist and former financial adviser to the caretaker government, thinks the volatile situation in the foreign exchange market may stabilized through the IMF loan.
“Bangladesh has taken IMF loans before and the country paid all external loans on time, including the IMF loans. The latest loan application from Bangladesh to the IMF will help the economy to stabilize the foreign exchange situation,” he said.
It was initially thought the recent hike in fuel prices was the result of IMF loan conditions, Anand clarified that this was not the case.
“Fuel prices in Bangladesh have nothing to do with IMF loans,” he said.
Former IMF economist and Policy Research Institute (PRI) Executive Director Ahsan H Mansur earlier said: “Why does the government administer the petroleum price? Nowhere in the world would you find this. The price should follow the ebb and flow of the global market."
The interest rate cap should never have been imposed, said Mansur, also the chairman of Brac Bank.
“Nowhere in the world would you find this. Now it is crunch time. Inflation is high, so the interest rates have been hiked everywhere. But, in Bangladesh, that scope is not there because of the interest rate cap. Is this approach reasonable and sound?”
“If the program initiates a house-cleaning in Bangladesh, that will be the biggest achievement for the government,” he added.