Confusion over meeting IMF’s reserve target

Reuters file photo

The International Monetary Fund (IMF) is not content with the current foreign currency reserve of Bangladesh and the projected figure for June this year.

The global lender's staff consultation mission is now in Dhaka to hold meetings with the government offices concerned, to verify how Bangladesh is responding to its loan conditions.

In a meeting with the finance division and the Bangladesh Bank on Tuesday, the IMF staff consultation mission said the forex reserve was expected to grow to USD 24.46 billion by 30 June, but they see no positive sign in this respect.

According to the finance division sources, the IMF mission is in favour of raising the power rate further to reduce subsidies. They sought to understand the finance division’s plan in this regard, but the latter did not say anything specific.

Bangladesh Bank governor Abdur Rouf Talukder, finance secretary Fatima Yasmin, other deputy governors and additional secretaries were present in the day-long meeting on Tuesday.

The visiting team will sit with other government offices until 2 May. The IMF’s Asia and Pacific department director and the IMF mission chief in Bangladesh were not present on the first day of the discussion. Joyendu De, resident representative of IMF in Bangladesh, and six other visiting officials negotiated various issues on behalf of the global lender.

The IMF mission chief in Bangladesh, Rahul Anand, is now in the United States and is supposed to hold a meeting with prime minister Sheikh Hasina there. Later, he will return to Bangladesh and join the visiting delegation here, said sources.

The Bangladesh Bank had estimated the reserve to be USD 31.18 billion on 18 April. The IMF has long been disputing the reserve calculation method as the central bank figure contains around USD 8.2 billion allocated by the government to different sectors.

The IMF calculated the country’s forex reserve at USD 23.08 billion.

Bangladesh has been granted a USD 4.7 billion loan by the global lender in January, on the condition that it would raise its forex reserve to USD 24.46 billion by June, in addition to other terms. The deadline is yet to be over and now there is a shortfall of USD 1.36 billion.

The IMF team pointed out that the country is supposed to pay Tk 170 million to the Asian Clearing Unit (ACU) soon and it will widen the deficit to USD 1.53 billion. The deficit will increase further when the government will make payments for different projects.

Sources said the IMF delegation also expressed concern over the targets for September and December. The IMF wants to see the reserve at a minimum of USD 25.30 billion in September and at USD 26.80 billion in December.

With only two months and four days left for the next fiscal, the IMF team asked the government about its strategy to reach the current fiscal’s target within the short period.

In response, they have been assured that Bangladesh is supposed to receive budget assistance from the Asian Development Bank (ADB) and World Bank and it will help achieve the reserve target.

But the IMF team is not confident enough that the fund will be available before the deadline.

Mejabaul Haque, spokesperson of Bangladesh Bank, said, “This is April and there is more time in our hand. I do not want to comment on the reserve right now."

Power rate to rise further?

The IMF placed a set of conditions while approving the loan for Bangladesh. The government had earlier raised the prices of gas, power and fuel oil to an unprecedented extent to reduce its subsidy in the sectors and relax the pressure on reserves. It also raised the fertiliser price recently.

Still, the finance division is planning to keep an allocation of Tk 1,000 billion as subsidy in the fiscal year 2023-24.

The fuel oil price here is now close to the international rate. Hence, the IMF team sought to know if the power rate can be hiked further. The finance division did not say anything specific in response but assured them that the fuel oil price would be adjusted in line with the global rate after every three months and the net subsidy will be reduced in the next fiscal.

How does the revenue-GDP ratio improve?

The IMF team also questioned the prevailing tax-GDP ratio and asked the finance division about the government preparations to reform the revenue sector during the meeting. They will hold a final discussion with the national board of revenue (NBR).

The IMF team was briefed that the authorities bought some electronic fiscal devices to ensure smooth tax collection. According to the finance division sources, the lending agency demanded only a 5 per cent rise in the revenue-GDP ratio and the NBR will apprise the IMF of the detailed action plan in this regard.

The week-long discussions with the government is expected to cover all the IMF conditions.

Ahsan H Mansur, former IMF official and executive director of the Policy Research Institute (PRI), said, “I am taking it for granted that some dollars will come in the next two months. But the government should stop selling dollars altogether to keep the reserves within the IMF's June target.”

The deficit is not so small and the failure to meet the IMF target will be nothing pleasant for Bangladesh, he added.

The noted economist also said Bangladesh will be considered as a weak performer on the global stage if it fails to meet the reserve target.

About the power rate, he said the government should make an assessment on the power price and hike it now if necessary as the national election will come to the scene later.

He also advocated for a long-term framework in addition to a vivid announcement regarding the increase in revenue-GDP ratio in the next budget.