Finance Minister AHM Mustafa Kamal on Wednesday hinted that the government was unwilling to withdraw the interest rate caps on lending, as it was anticipated as a condition expected to be a condition tagged by the International Monetary Fund with its support package.
"The IMF, the World Bank can say what they want but I think they will be in agreement with me and praise us -- this was our best decision," he told the media after a meeting of the cabinet committee on purchase.
Earlier in 2020, the Bangladesh Bank capped the interest rate on loans at 9% and on deposits at 6%.
It is because of the interest rate cap that the economy is in a good state. If the cap was not there, the interest rate for loans would have been 20-22% then and all the industries and businesses -- be it small, medium or large -- would have disappeared during the pandemic and there would have been rampant unemployment then, he also said.
The private sector banks, which were in the red before, are now in the green. Everything is fine, Kamal added.
However, the IMF staff mission, which recently wrapped up its nine-day tour of Bangladesh, called for withdrawing the interest rate ceilings, which would help control inflation and also ease the pressure on foreign exchange reserves.
Kamal said the request for opening talks for the loan comes as a precautionary move and not as a bailout to stave off an economic collapse.
Bangladesh's formal request to the IMF for negotiations has led many to draw a parallel to Sri Lanka and Pakistan's economic disarray.
"If we were going bankrupt, why would the IMF, World Bank, JICA want to give us money? People are lobbying us to take loans as Bangladesh is a good marketplace for them to lend to. They have full faith in us."
Kamal acknowledged that reinforcements are needed to shore up its foreign currency reserves in the face of bulging import bills, elevated commodity prices in the world market and a probable global recession.
"We don't print dollars -- we have to earn it. And we do so through our migrant workers and exporters. We are indebted to them. They are keeping us going."
"We do need the loan. But we will shop around for the best terms and lowest interest rate -- we are not in a desperate position. We will see the IMF's terms. If we get favorable terms, we will take it. We have not decided for certain."
When prodded on why the government made an about-face on its stance of not seeking the loan from IMF for now, he said: "The cost burden would have become higher if I announced it beforehand. This is a bargaining point. We don't want to seem desperate. What else could have been a better approach?"
