IMF team due in Dhaka to review compliance of loan conditions

A 10-member delegation of the International Monetary Fund (IMF) is scheduled to arrive in Dhaka on Tuesday, to review the progress in fulfilling the conditions set during the approval of a $4.7 billion loan. 

They will hold meetings with different government agencies, including the Finance Division, Bangladesh Bank, National Board of Revenue (NBR), during their stay in Dhaka until 8 May. 

It is also a regular practice that an IMF team visits Bangladesh before the announcement of the annual budget. 

This year, the visit came at a time when Bangladesh is struggling to maintain the required level of net forex reserves, control inflation, and meet the revenue collection target.

Bangladesh has already received two installments of the $ 4.7 billion loan, while the third tranche is expected to be disbursed within the next two months. 

The net foreign exchange reserves are yet to reach the desired level, while inflation remains at nearly 10 per cent, revenue collection remains not even near the target, and reforms in the banking sector are not up to the mark.

At a press briefing in the United States on 18 April, Krishna Srinivasan, the director of the IMF’s Asia and Pacific Department, said Bangladesh adopted a contractionary monetary policy to keep inflation under control, but the reserves situation did not improve to a significant extent. It is the time for Bangladesh to go for a flexible currency exchange rate.

The IMF placed a set of conditions when it approved the $4.7 billion loan in January, 2023. Bangladesh managed to fulfill all the conditions, except for the one associated with net reserves, and already received the first two installments of the loan.

The third tranche is scheduled to be disbursed in June, following a successful assessment on developments in the loan conditions, according to the Finance Division. 

Bangladesh received the second installment in December last year, though it failed to fulfill the net reserves target for the quarter. The country officially sought exemption from the obligation of meeting the net reserve requirement and demanded a downscale in the target. 

The IMF approved the demand and revised the December target for net reserves down to $17.78 billion from previous $26.8 billion. Still, Bangladesh could not meet the target as its net forex reserves were $16.75 billion in December. 

Also, the country could not meet the March target as it maintained a net forex reserve of nearly $15 billion against the target of 19.26 billion in the month. The reserves were $19.5 billion in Jnne last year, against the target of $23.7 billion.  

However, the governor of Bangladesh Bank, Abdur Rauf Talukder, is optimistic about securing the third installment. Following a meeting at the World Bank and IMF headquarters in the US on 16 April, the governor told the media that there will not be any issues in receiving the installment, after fulfilling 90 per cent of conditions. 

Recently, the central bank has taken initiatives to merge some banks with others. According to sources, the IMF delegation will discuss the merger of banks, in addition to the loan conditions.

Ahsan H Mansur, executive director of the Policy Research Institute (PRI), said an IMF delegation always visits Bangladesh this time of the year and observes how the budget is being formulated. Now, they will also observe the policy initiatives associated with the loan programme. 

Particularly, they will hold discussions with the government agencies on why the currency exchange rate is not being flexible, what happened to the interest rate corridor, how the prevailing weaknesses can be addressed, how long the financial account will take to get positive, and what about the updates on inflation control, he said. 

The economist further said the authorities are taking loans in foreign currencies from some other international agencies, but those are running out to meet the cost of oil-gas imports. Hence, the reserves are not increasing eventually.