How prepared is Bangladesh to meet IMF conditions

It is mandatory to meet certain conditions for availing loans from the International Monetary Fund (IMF).

The government had enacted the prevailing law on Value Added Tax (VAT) in the aftermath of conditions set by the global lender earlier when it had provided Tk 1 billion in seven installments.

This time, Bangladesh sought Tk 4.5 billion from the IMF. Bangladesh Bank governor Abdur Rouf Talukder, in a press briefing in Washington on Monday, claimed to have received a significant assurance from the lender regarding the loan.

The governor hinted at possible conditions for the loan. These include modernisation of the revenue administration, gearing up the revenue collection process, raising the tax collection in comparison to the gross domestic product (GDP), restoration of good governance in the banking sector, and reduction of bad loans. Also, the IMF might place conditions on reducing subsidies and stimulus packages.

An IMF team is scheduled to visit Bangladesh this month and more specific conditions will be revealed by them.

Ahsan H Mansur, a former IMF official and the executive director of the Policy Research Institute (PRI), said the government should willingly implement the conditions that are speculated to be placed by the IMF. Rather, it has been a big question how sincere the government will be in fulfilling the IMF conditions.

Besides, the IMF is expected to talk about the interest rate as most of the countries have raised the interest rate to keep inflation in check, he said, explaining that it has nothing to do with the investment. Investments are now lower than the period of high interest rate.

When the local currency depreciated significantly against the greenback, the government itself fueled the inflationary pressure by raising the fuel oil prices. In the meantime, the increased imports strained the country’s forex reserve.

Acknowledging these macroeconomic indicators, the governor held a meeting with the IMF on the sidelines of the World Bank-IMF annual meeting in the United States.

The finance ministry sources said the government lacks preparedness to meet possible IMF conditions against the loan. The Tax-GDP ratio is yet to exceed the threshold of 8 per cent. The IMF will not ask to raise this rate overnight, but will seek a timeframe and action plan as to how much Bangladesh will raise the figure in the certain years. It has been learnt that the government has already formulated a plan in this regard.

Apart from that, the specialised global lender is expected to ask Bangladesh to fix the calculation of foreign exchange reserves and to place conditions for enacting income tax and customs laws.

Besides, it will seek decentralisation of tax administration to the grassroot level, in addition to its automation. Also, good governance in the banking sector and the cemented interest rate are expected to be on the table.

The foreign currency reserve jumped to $48 billion in August last year, but it has now plummeted to nearly $36 billion. The IMF estimates the actual figure to be $28 billion as some $8 billion have been allocated for different sectors from the reserve.

Asked whether any change is being made in the reserve calculation method in line with the IMF demand, Bangladesh Bank executive director and spokesperson GM Abul Kalam Azad told Prothom Alo that a study is underway over the issue. They will take a decision upon completion of the study.

The IMF has always had questions about high defaults in the banking sector, but there is no noticeable development. The IMF is expected to set conditions for its improvement, but will not be very strict. The lender itself knows that bringing good governance to the banking sector or improving the default situation is not an easy task for the government.

Even, the whole negotiation might go in vain if the loan conditions become too strict, according to sources who attended the meeting in Washington.