IMF loan: Bangladesh expects second tranche in December

A participant stands near a logo of IMF at the International Monetary Fund - World Bank Annual Meeting 2018 in Nusa Dua, Bali, Indonesia, 12 October 2018.
Reuters file photo

Bangladesh is expecting to receive the second tranche of the USD 4.7 billion (USD 470 crore) IMF loan towards the end of December this year. The visiting the International Monetary Fund (IMF) team had given indication to this end, according to senior officials of the finance division of the finance ministry and also of the Bangladesh Bank.

The delegation, headed by the IMF Asia and Pacific division chief Rahul Anand, has been holding meetings from 4 October with various office of the government. As part of this, they held meetings yesterday, Wednesday, with the finance division and Bangladesh Bank. They will hold meetings with them today, Thursday, too.

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The IMF delegation is scheduled to have lunch at a five-star hotel in Dhaka this afternoon with finance minister AHM Mustafa Kamal. Then at 2:00 in the afternoon the IMF will hold a press briefing about the overall details of present visit.

Three days after approving the loan proposal for Bangladesh on 30 January, IMF provided USD 476 million (USD 47 crore 62 lakh 70 thousand) as the first installment of the USD 4.7 billion loan package. However, from December, each installment will be USD 704 million (USD 70 crore 40 lakh). The report to be prepared by the delegation after this visit will be placed for consideration at the IMF board meeting in December. Once approved, the second tranche of the loan will be made available.

While Bangladesh is expecting the second tranche of the loan, nothing has been ascertained. IMF has help up its loan installment to Sri Lanka this month as the country failed to meet the given conditions

According to sources in the government, broadly speaking, the IMF delegation was displeased with Bangladesh over three issues -- not having the maintained the net forex reserves, not setting a uniform currency exchange rate and failure to attain the revenue target. However, the concerned offices managed to convince the visiting IMF team to relax these targets given the realities prevailing in the country. They explained it would be difficult to meet the conditions before the national elections to be held in January. The government will be attentive to these issues after the election, they said. The IMF team apparently understood the situation and indicated that the conditions on these three issues would be relaxed.

According to the IMF conditions, Bangladesh's net reserves should be USD 24.46 billion (USD 2,446 crore). Bangladesh failed to maintain this. Also, the reserve target for September was USD 25.30 billion (USD 2,530 crore), but this too was not met. The target for December is USD 26.8 billion (USD 2,680 crore), but Bangladesh has already declared that it will not be able to achieve that either.

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Sources say that following Bangladesh's request, IMF may fix the net reserves anew at USD 20 billion (USD 2000 crore), which presently is below USD 18 billion (USD 1800 crore). As part of the loan conditions, IMF had fixed the reserve target at USD 26.81 billion (USD 2,681 crore) till June next year. That means the target till June may be brought down by over USD 6 billion (USD 600 crore).

When asked by IMF was softening its stance, an official of the finance division said, "We informed that that we had no choice by to sell dollars from the reserve in order to meet import costs. Bangladesh has never faltered in repaying its foreign loans. That is why, in order to maintain this good reputation, the installments are being duly paid despite the crisis. Also, the rising price of commodities in the international market has also had a negative impact. Export revenue hasn't been up to the mark either."

IMF was also informed that it will not be possible to meet the conditions unless the revenue target of Tk 4,104 billion (Tk 4 lakh 10 thousand 400 crore) set for the National Board of Revenue (NBR) for the 2023-24 fiscal is reduced by Tk 160 billion (Tk 16,000 crore).

The IMF had given a condition for a uniform forex exchange rate. Bangladesh bank said that rather than a uniform rate, it would be better to keep in within a certain ceiling that later would be made entirely market-based. The IMF team did not make any specific observation in this regard.

While Bangladesh is expecting the second tranche of the loan, nothing has been ascertained. IMF has help up its loan installment to Sri Lanka this month as the country failed to meet the given conditions.

Former IMF officials and executive director of Policy Research Institute (PRI) Ahsan H Mansur told Prothom Alo, "If the government provides the IMF team with a letter explaining why the conditions have not been met, and if the team accepts the letter, that means the matter is of receiving the second installment on the loan is positive. But if IMF does not accept the letter and says we will first discuss the matter with the board, then we must assume that there is a problem. We do not know which one is to happen."

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