No agreement with IMF, discussions to continue

Whether or not Bangladesh will receive the next tranche of the USD 4.7 billion loan from the International Monetary Fund (IMF), depends on the government’s decision on relaxing the currency exchange rate.

Relaxing means letting the market decide the value of taka against the US dollar. But the Bangladesh government does not want to allow the market to solely decide the exchange rate.

The government and the IMF delegation could not reach an agreement over this issue in the nearly 90-minute virtual meeting on Monday evening, a source from the meeting said, adding that the avenue for further discussions was not closed either.

No official statement, however, was issued by any side after the meeting.

The Bangladesh side was led by central bank governor Ahsan H Mansur along with two deputy governors Habibur Rahman and Kabir Ahmed.

The source further said there will be more discussions to reach an agreement. At the same time, the Bangladesh side tried to convince the IMF that now is not the right time to let the market decide the exchange rate.

The issue of introducing the market-based exchange rate was one of the conditions to receive the IMF loan. This was negotiated in a meeting between the Bangladesh side and the IMF delegation in Dhaka last month. This was also discussed in a meeting last month that took place in Washington. But the sides could not reach consensus at that time.

Bangladesh Bank thinks the currency could become unstable if the market-based exchange system is introduced. Higher dollar prices could make imported goods costlier, leading to higher inflation rate. Currently the rate is over 9 per cent.

Sources said apart from the discussions on the USD 4.7 billion loan, there was a discussion about seeking a USD 1 billion stabilisation fund from the IMF.

Bangladesh argued this fund will be used to face the fallout of transitioning from the current system to market-based currency exchange rate. This suggests the Bangladesh Bank would use the fund to supply dollars without touching the forex reserve to keep the market stable if the dollar price shoots up.

The IMF, however, did not agree to this as of 5 May.

The Bangladesh government has been trying to ensure the loan continues.

However, recently finance adviser Salehuddin Ahmed, Bangladesh Bank governor Ahsan H Mansur and the chief adviser’s special assistant Anisuzzaman Chowdhury made certain remarks which suggest Bangladesh might withdraw from the programme if tough loan conditions remain in place.

Experts warned that withdrawing from the programme will question the country’s ability to manage the economy and slow down the pace of financial sector reforms in Bangladesh.

Speaking about this, South Asian Network on Economic Modeling (SANEM) Executive Director Selim Raihan told Prothom Alo, “It would not be right to pull out from the IMF loan programme. Bangladesh has been facing a difficult crisis as the previous government avoided initiating necessary reforms in the interest of maintaining short-term stability. I think that further discussions should be held in the interest of keeping the programme going along.”

The USD 4.7 billion loan programme with the IMF began on 30 January 2023. Just after three days of the launching, Bangladesh received USD 476.3 million as the first tranche of the loan on 2 February that year.

In December of that year, the country received USD 681 million as the second tranche and in June 2024, USD 1.15 billion was received as the third tranche. That is, Bangladesh received USD 2.31 billion from the IMF in three tranches. The remaining loan is USD 2.39 billion.

According to the rules, the approval of the IMF’s executive board is required before receiving the tranche. The fourth tranche was supposed to be received after December 2024, but the IMF postponed it as the loan conditions were not met.

At that time, however, the government was saying that the institutions’s board meeting, which was supposed to be held on 5 February this year, was postponed due to a natural disaster in the United States. Therefore, there will be a delay in receiving the tranche.

The IMF executive committee meeting, scheduled to be held on 5 February, was deferred to 12 March. The proposal was not tabled on that day either. Later, that was deferred to June.

On 17 February, Finance Adviser Salehuddin Ahmed informed the media that the proposal to release two tranches of the IMF loan together will be tabled at the IMF executive committee meeting. An IMF mission visited Bangladesh between 6 and 17 April to that end as well but agreement could be reached.

It was said at that time, further discussions will be held during the IMF-World Bank spring meeting in Washington from 21 to 26 April. The discussion was held too but no decision was made there either.

During a media briefing on 17 April, IMF’s Dhaka mission head Chris Papageorgiou said the exchange rate along with the reflex reserve is stable now in Bangladesh. But the economy’s elasticity will further increase if the currency exchange rate is relaxed.

Speaking to Prothom Alo from Washington on 24 April, Bangladesh Bank Governor Ahsan H Mansur said they have been negotiating over the time of introducing the market-based currency exchange rate.

Asked about not reaching an agreement until last night, former Lead Economist at World Bank’s Dhaka Office, Zahid Hussain told Prothom Alo, “Probably the government realises, it should continue the loan programme. That is why the meetings are being held; this is a positive sign. But the reason for not being able to convince the IMF is, the government is not doing what it is saying.”

He pointed out that a time of ease has been going on since the prices of fuel oil, coal, edible oil, gas and other products have come down in the global market.

According to him, this is a high time to relax the currency exchange rate. Rationally, that is what the IMF is supposed to say.

Zahid Hussain stated that the IMF is not agreeing as the government is unable to persuade the global lender. That is why the programme is facing a crisis.