IMF conditions met, putting pressure on people

The government has started fulfilling some conditions ahead of the final approval of the loan by the International Monetary Fund (IMF).

The conditions that are easier to be met and which put pressure on the general public are being fulfilled hurriedly.

However, in the past it had been observed that the conditions which are unpopular, will create pressure on the influential, will lessen their privileges, if not finally implemented.

The government has hurriedly increased the power tariff by 5 per cent. Earlier, the price of fuel oil was raised in a record amount in August and the price of gas was raised in June. Now only the price of water is left to be increased.  

Meanwhile, the state minister of power and energy has said the price of fuel oil will be adjusted every month. Price of water, power and gas will be adjusted simultaneously as the government has to cut subsidies in these sectors. This is the main condition of the IMF.

There has been social unrest in countries due to fulfilling IMF conditions. In Venezuela, Egypt, Morocco, Nigeria, Indonesia and South Korea, people took to the streets for this. As Pakistan is unable to fulfill the conditions, the loans got stuck. However, the country said they do not want to do anything which affects the general people.

Bangladesh has sought loans of USD 4.50 billion from the IMF to tackle the economic crisis. IMF has given the initial consent. The IMF board will approve the loan proposal at the end of this month and the first installment of loan will be received at the beginning of February.

The deputy managing director (DMD) of the International Monetary Fund (IMF) Antoinette Monsio Sayeh arrived in Dhaka on Saturday to hold the final discussions.

Bangladesh received loans from the IMF in 2012. Finance minister at the time, Abul Maal Abdul Muhith, first disclosed the issue of loan from IMF in 2010. In the following year, he sought loans in the annual meeting of the World Bank and IMF in Washington in September.

On 27 March 2012, Bangladesh formally sent a letter to the IMF. The IMF approved the loan proposal at its board on 11 April and the first installment of loan was received the following year. That loan in the name of extended credit facilities (ECF) continued till March 2015.

Since the beginning of discussions of the loan proposal till the receipt of the last installment, the government increased the price of fuel oil five times, power tariff 8 times and water tariff five times.

However, it was found that although the government quickly implemented these decisions accepting the conditions to cut subsidies, it failed to carry out some reforms ahead of the 2014 election.

A new VAT law was one of them. When the government said it would not formulate VAT law ahead of the election, IMF halted the installments of the loan for one year. As the government made a commitment to implement the new VAT law from 2016, the IMF released the last two installments of the loan in November 2015. The government didn't carry out reforms in the banking sector completely in accordance with the commitment.

The national election will be held in the beginning of 2024.  Although the government is increasing the price of various services through executive orders, the question is how far the government will be able to carry out reforms in the finance and revenue sector.

Earlier, Bangladesh took loans from IMF 12 times. Becoming a member in 1972, the first loan was taken from IMF in 1974. The loan was of USD 987 million in 2012. That was the highest loan taken from IMF. This time Bangladesh will get USD 4.50 billion. USD 3.20 billion will be received under the extended credit facilities (ECF) and remaining USD 1.30 billion be available for tackling risks induced by the climate change.

The type of conditions is almost the same. But the lender does not release loans at a time. It is disbursed in seven installments and IMF reviews the implementation of conditions ahead of releasing an installment. Bangladesh will get USD 447.8 million in the first installment. The remaining amount of loans will be given in six installments with USD 659.1 million in each installment. So the loan will be halted if conditions are not met.

After approval in the board, IMF will reveal when the conditions have to be met. However, this issue has been discussed during the meeting with IMF delegation members. At that time, Bangladesh have given consent to carry out some reforms.

Bangladesh mainly has to take five types of steps--building financial capacity of the government, modernisation of monetary policy structure to lessen inflation, strengthening the financial sector, improving the business environment and enhancing capacity to tackle the risk induced by the climate change.

For this the government has to increase the prices of power, energy, gas, water and fertilizer. The government has to give more subsidy in these areas. The government is doing this task very easily. This time there is a condition to increase revenue. Besides, IMF has suggested decreasing tax rebate in different sectors. How far the government will do this ahead of the election, is the question.

Bangladesh is not using the monetary policy to decrease inflation. Bangladesh Bank has to make the interest rate policy flexible and to leave it to the market system in order to update its monetary policy.

In the nineties, Bangladesh for the first time left the interest rate to the market system under the IMF loan programme. This government fixed 9 per cent interest rate again. IMF has suggested to lift this control. Now it is to be seen whether the government will be able to backtrack from making businesses happy ahead of the election. IMF has also raised questions about net foreign exchange reserve. As per the government estimate, the current reserve stands at USD 32.52 billion. Of the amount , Bangladesh has allocated USD 8.10 billion in different sectors, which the government cannot spend if it wants.  IMF has advised to deduct this amount from the estimation. Bangladesh has accepted this.

The country's banking sector is now in a vulnerable situation. IMF has suggested decreasing the defaulted loans, removing bureaucrats as directors from the governing boards of state-owned banks, enhancing the power of Bangladesh Bank, ensuring good governance in the private sector banks and improving the capital market. This would be the most difficult task for the government as the politically powerful people have occupied this sector. In this case the government has a patronisation.

IMF created a fund, the Resilience Sustainability Fund (RSF), in April 2022. Least and middle income countries which are at risk due to the climate change will get loans from this fund. Meanwhile, Barbados, Costa Rica and Rwanda have got loans from this fund. As the first Asian country, Bangladesh is going to get loan from this fund. Of the USD 4.50 billion, USD 1.30 billion is this loan. The payment of this loan is 20 years and the grace period is 10 years.

Of USD 4.50 billion, Bangladesh will be able to use USD 3.20 as budget support. The remaining USD 1.30 billion has to be used in tackling risks induced by the climate change in the long run. So the government will have additional money for spending in the next budget. The government has sought budget support from the World Bank, Asian Development Bank.

Now the question is whether the government will spend the money in the targeted programmes for the people affected by the economic crisis or the money will be spent for projects targeting elections. Meanwhile, questions have been raised over the projects for widening roads in the electioneering area of the finance ministry, constructing a flyover in the haor region and EVM. It is being thought more projects will come in the days to come.

When asked about the IMF conditions, Policy Research Institute (PRI) executive director Ahsan H Mansur said as the loan programmes are of 42 months, the government should start reforms in the banking and revenue sectors. If the government wants to evade this, it will be able to do so. That will not make any difference to IMF.

*This report, originally published in Prothom Alo print edition, has been rewritten in English by Rabiul Islam.