The IMF expressed its satisfaction and reached a staff-level agreement on the policies needed to complete the first instalment review on Thursday.
Meanwhile, the two parties have reached an agreement on the conditions for getting the second instalment.
Even if there is a failure in fulfilling IMFs all conditions, Bangladesh Bank thinks it will not prevent the release of the second instalment and expects to receive $681 million in December.
Bangladesh has been able to fulfill four of the six conditions of the IMF loan agreement.
However, both parties didn’t disclose agreements clause and conditions yet.
The IMF said that a staff-level agreement is subject to IMF management approval and executive board endorsement, which is expected in the coming weeks.
After a meeting with a mission of the global lender, Bangladesh Bank Executive Director and Spokesperson Md Mezbaul Haque said the two sides have reached an agreement.
“They agreed to our proposal. We are hopeful to receive the second instalment of $681 million.We hope the IMF's board meeting on December 11 will approve the second instalment of the loan," he commented.
“The IMF conditioned on market-based floating exchange rates, modernization of monetary policy, disclosure of risk-based asset information, calculating reserves according to the IMF's methodology (BPM6), market-based interest rates and increased collection of revenues.”
“There is a shortfall in both reserves and revenue collection. We have explained. We stated what steps have been taken and they are happy with our effort,” Haque also said.
He also hinted at another change in policy rates if necessary, adding that efforts would be made to bring inflation down to 8% by December.
In the meantime, the IMF released an official statement on the day.
IMF’s statement
Usually, they (IMF staff teams) convey preliminary findings after a visit to a country after end-of-mission.
It stated that the IMF reached staff-level agreement on the first review under the extended credit facility, extended fund facility, resilience and sustainability facility, and concluded the 2023 Article IV Consultation with Bangladesh.
However, they also clearly said that the views expressed in the statement are those of the IMF staff and do not necessarily represent the views of the IMF’s executive board.
Bangladesh Bank is still hopeful that the IMF will approve $681 million in the second instalment of its $4.7-billion loan on December 11.
IMF also said that monetary tightening, supported by neutral fiscal policy, and greater exchange rate flexibility was needed to restore near-term macroeconomic stability.
The IMF program will continue to support the authorities’ efforts to preserve macroeconomic stability and protect the vulnerable, while accelerating economic reforms and delivering on the climate agenda.
The IMF mission team, led by Rahul Anand, visited Dhaka during October 4–19, to discuss economic and financial policies in the context of the first review of the IMF’s Extended Credit Facility (ECF), Extended Fund Facility (EFF), Resilience and Sustainability Facility (RSF) and the 2023 Article IV consultation.
Rahul Anand's statement
“The authorities have made substantial progress on structural reforms under the IMF-supported program, but challenges remain. Continued global financial tightening, coupled with existing vulnerabilities, is making macroeconomic management challenging, putting pressures on the Taka and FX reserves," Anand said in his statement after their mission to Dhaka concluded.
“Near-term policy priorities should focus on containing inflation, softening the impact of these economic disruptions on the vulnerable, and building external resilience. We welcome Bangladesh Bank’s decision to raise the policy rate by 75 basis points (bps) on October 4. Further calibrated monetary policy tightening, greater exchange rate flexibility, and tight fiscal policy will help restore macroeconomic stability.
“Growth is projected to stay at 6% in FY24, while inflation is projected to moderate to 7.25% by end-FY24. FX 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. However, uncertainties around the outlook remain high and risks are tilted to the downside.
“Raising revenue is critical to create additional space for social spending and investment. Concerted tax policy and administration measures are needed to raise Bangladesh’s low tax-to-GDP ratio in a sustainable manner. Rationalizing subsidies, improving expenditure efficiency, and managing fiscal risks will allow for additional spending on social safety nets and growth-enhancing investment.
“Modernizing monetary and exchange rate policy frameworks and improving FX management remain important to bolster external resilience. The introduction of the interest rate corridor system and the adoption of a unified single exchange rate are welcome steps. Building on these, Bangladesh Bank should continue to fully operationalize the interest rate targeting framework and gradually move to a flexible exchange rate regime.
“Addressing banking sector vulnerabilities remains important to meet Bangladesh’s growing financing needs. Reducing non-performing loans of state-owned commercial banks, enhancing supervision, strengthening governance, and improving regulatory frameworks would increase financial sector efficiency. Developing domestic capital markets will help mobilize financing to support growth objectives.
“Discussions also focused on the structural reform agenda to support the authorities’ ambition to reach an upper middle-income status by 2031. Expanding trade, attracting more FDI, enhancing the investment climate, and raising women’s economic participation are crucial to boost growth potential," he added.
