After a two-week long visit to Bangladesh, the multinational lender International Monetary Fund (IMF) and the Bangladesh government on Wenesday reached a staff-level agreement to support Bangladesh's economic policies.
The IMF is satisfied with Bangladesh's reform proposals and is ready to provide $4.5 billion in loans to help the country cope with the ongoing global economic crisis and internal foreign exchange (forex) reserve crisis, Finance Minister AHM Mustafa Kamal told reporters at a briefing.
“We are getting the loan just the way we wanted it," he beamed.
Economists believe that this $4.5 billion loan will allow the nation to provide a buffer for its economy amid dwindling forex reserves, but also stressed the need to implement the economic reforms that the IMF wants.
Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh, told Dhaka Tribune: "If money comes, it will be spent again. As a matter of fact, economic reforms are more necessary for us.”
The former IMF economist also explained: “The IMF loan will actually give a small relief from the ongoing crisis on the one hand. If an overall positive economic reform happens, it will be more sustainable for our economy. In that case, this IMF loan will be even better for our macroeconomy.”
In an official statement, the IMF said that in this 42-month arrangement, Bangladesh will get about $3.2 billion under the extended credit facility (ECF) and the extended fund facility (EFF) as well as about $1.3 billion under the resilience and sustainability facility (RSF).
These staff-level agreements are based on five reform policies.
These are: creating additional fiscal space, containing inflation and modernizing the monetary policy framework, strengthening the financial sector, boosting growth potential, and building climate resilience.
Rahul Anand, IMF's delegation lead, said: “Bangladesh's robust economic recovery from the pandemic has been interrupted by Russia's war in Ukraine, leading to a sharp widening of the current account deficit, rapid decline of foreign exchange reserves, rising inflation and slowing growth.
“The Bangladesh authorities and the IMF team have reached a staff-level agreement to support the authorities' reform policies under a new 42-month ECF/EFF arrangement of about $3.2 billion, and a concurrent RSF arrangement of about $1.3 billion,” he explained.
When will Bangladesh get the loan instalment?
Although the staff level agreement has been completed, the entire process is far from over.
After the visit to the applicant country, the mission head submits a statement which conveys its preliminary findings.
The staff level agreement is subject to IMF management approval and executive board endorsement, which are expected in the coming weeks.
The IMF's official statement also said that the views expressed in this statement are those of the visiting IMF staff and do not necessarily represent the views of the IMF's executive board.
However, Finance Minister Kamal and officials under his ministry are highly optimistic about getting the final approval and the subsequent loan.
They even expect to receive the first instalment of the loan by February next year after approval at the next board meeting of the IMF.
The amount will be disbursed in seven instalments till December 2026. The first instalment of $447.78 million will be cleared in February next year. The other instalments will be $659.18 million each, the finance minister said during the press briefing.
Implementations of IMF 5's reform policies
Rahul Anand also said in his statement: “Even as Bangladesh tackles these immediate challenges, addressing long-standing structural issues remains critical, including threats to macroeconomic stability from climate change.
“To successfully graduate from Least Developed Country status and achieve middle-income status by 2031, it is important to build on past successes and address structural issues to accelerate growth, attract private investment, enhance productivity, and build climate resilience.”
He also said that the government's program to maintain macroeconomic stability -- something already supported by the IMF -- is expected to bolster its external position, reduce vulnerabilities, and prepare the ground for a robust and inclusive growth pick-up by scaling up much-needed social, development and climate spending.
The program aims to create additional fiscal space, contain inflation, as well as modernize the monetary policy framework, strengthen the financial sector, boost growth potential, and build climate resilience.
Major findings and recommendations
The IMF mission led by Rahul Anand visited Dhaka from October 26 till November 9 to discuss the IMF's support for Bangladesh and the authorities' comprehensive economic reform agenda.
During this visit, they spoke with several government authorities, including several ministries, Bangladesh Bank, representatives from the private sector, bilateral donors, think tanks, and development partners.
In their meetings they discussed a few relevant issues which Bangladesh needed to clarify.
During its meeting with the central bank, the IMF team asked Bangladesh Bank (BB) to publish the correct information on forex reserves and defaulted loans.
The global lender said that their published reserve data on the ratio of defaulted loans was much higher than the central bank data.
The IMF team also recommended that the definition of non-performing loans (NPLs) be brought up to international standards.
In another meeting, the IMF suggested that the Bangladesh Bureau of Statistics (BBS) release quarterly data on gross domestic product (GDP) instead of existing annual reporting practices.
The visiting mission of the IMF also recommended changing the base year of calculating the consumer price index (CPI) and inflation.
The visiting delegation later sat with the Power Division and Bangladesh Power Development Board (BPDB).
It inquired about subsidies in the power sector, the procedure of buying electricity from oil-fired power plants, and future plans for power-sector development.
The visiting team also asked the BPDB if it can take loans from commercial banks instead of taking subsidies from the government.
The IMF also questioned the Bangladesh Energy Regulatory Commission (BERC) on how it determined its bulk and retail tariff gas and electricity prices in the country.
The four-member team, while meeting the regulatory commission, also wanted to know how often it revised or adjusted tariffs in a certain year and whether the commission has the freedom to set prices independently, said a BERC official.
The multilateral funding agency also recommended to the National Board of Revenue (NBR) about trimming tax waivers and rationalizing import duty to navigate the ongoing global economic downturn and tackling the current budget deficit of the country.
The team also recommended that the country's tax-collecting authority trim tax exemptions and rationalize import duty.
Furthermore, the IMF mission discussed large taxpayers' audits and tax- collection status by the Large Taxpayers Unit (LTU), which is a brainchild of the development partner.
On customs matters, the IMF mission wanted to know details of customs trade data and changes in effective rate of collection across the fiscal year.
In a meeting with the Ministry of Commerce, the IMF team inquired about the country's preparedness for the post-LDC-graduation regime and market access of export items to the European Union and the United States when the country will lose various trade preferences.
It also reportedly suggested lessening dependence on the apparel sector and diversifying the product basket to boost exports.