IMF loan: Bangladesh hopes for 4th, 5th tranches together in June

Bangladesh is hoping to get over the hurdles it faced for the first time in availing loans from the International Monetary Fund (IMF). But for this, the government might have to take a set of unpopular decisions like slashing subsidies, raising power tariff and allowing the market to fix the currency exchange rate.

However, if both Bangladesh and the IMF remain adamant in their own positions, the country may not receive money from the global lender this time as well.

This will create new complexities for Bangladesh as other development partners also might grow reservations in lending money to the country.

Finance adviser Saleh Uddin Ahmed himself spoke about this apprehension recently.

According to the experts, apparently there are three obstacles for Bangladesh to receive the two tranches of the IMF loan. It would be tough to get the loan if those obstacles are not crossed. The hurdles are - allowing the market to fix the currency exchange rate, raising the tax-GDP ratio to 5 per cent and separating the NBR’s administration from its revenue policy.

Though the Bangladesh side informed the IMF that the conditions will be implemented, the Bangladesh Bank and finance ministry sources said not much advancements have been made regarding two conditions except separating the NBR’s administration from its revenue policy.

Asked about implementing the step to allow the market to fix the currency exchange rate by June, finance adviser Salehuddin Ahmed in a pre-budget discussion said, “I won’t say anything now because we will have to observe how long the (high) inflation rate continues. Dangers will intensify like Sri Lanka and Pakistan if the market is allowed to fix exchange rates suddenly.”

Currently, the crawling peg is being applied to set the exchange rate. The dollar price is now stable at Tk 122.

Bangladesh has so far received $2.31 billion from the $4.7 billion loan from the IMF in three tranches, starting from 30 January 2023. Though three tranches were released without any hitches, problems appeared before the release of the 4th tranche of the loan. Now the government has been hoping to receive 4th and 5th tranches of the loan together.

The finance adviser at a recent pre-budget discussion said the IMF loan is required as budget assistance. That is why the Bangladesh government and the IMF agreed on releasing together the two tranches of the loan for the 2024-25 fiscal year.

A team of the International Monetary Fund will arrive in Bangladesh 5 April to check whether the country has been fulfilling various conditions to avail the loan.

The team will meet with various departments of the government for two weeks, starting from 6 April, the finance division of the finance ministry said.

Speaking about this, former lead economist at World Bank’s Dhaka Office, Zahid Hussain told Prothom Alo that roughly speaking, the future of IMF loan tranches remains uncertain until the three hurdles are crossed. The IMF wants Bangladesh to leave the crawling peg system completely. The finance adviser remarked that the situation could be like Pakistan and Sri Lanka if the market is allowed to fix the currency exchange rate. But, Zahid Hussain questioned, there has been a record in remittance income, even the export growth is also positive. When would the exchange rate be left to the market if it is not done at this moment?

Zahid Hussain further said as of now we could not reach the revenue target. The initiatives to raise revenue are small though it needs to generate at least Tk 570 billion more.

But it could be said that the NBR administration is going to be separated from the policy division to fulfill the IMF’s loan condition. It is also being said that the amount of tax exemption will be brought down.

He, however, advised the government to keep in mind that the traders are united against the decision of slashing the tax exemption.

Zahid Hussain also remarked that it would be too much if the IMF asks to raise power tariff and decrease the government subsidy.

* The report, originally published in the print and online editions of Prothom Alo, has been rewritten in English by Shameem Reza