USD 4.5b loan: Govt starts meeting IMF requirements

A logo of IMFReuters file photo

The government has initiated the process of meeting the requirements put forward by the International Monetary Fund (IMF) for clearing a USD 4.5 billion loan. The regulators concerned have already taken initiatives to slash the defaulted loans in the banking sector and subsidies.

The Bangladesh Energy Regulatory Commission (BERC) recently raised the bulk electricity price by 19.92 per cent, which prompted the power companies to propose a 20 per cent hike in the electricity price at the consumers' end.

The financial sector regulator, Bangladesh Bank, has asked four state-owned banks to pull their defaulted loans down to 12 per cent by June next year. At the same time, it started the calculation of net forex reserve as prescribed by the global lender.

The loan is scheduled to be sanctioned finally at a meeting of the IMF board of governors in the last week of December. An IMF delegation has completed the prior negotiations with Bangladesh, during their Dhaka trip from 26 October to 9 November.

They held separate meetings with the finance ministry, the National Board of Revenue (NBR), the Bangladesh Bank, and the power, energy and mineral resources ministry. They placed various requirements for clearing the loan and the authorities here started working accordingly even before the final approval.

The IMF demands include reforms in the banking sector and reduction in defaulted loans, slashing expenses on subsidies, and reforms in the revenue sector.

Ahsan H Mansur, a former IMF official and executive director of the Policy Research Institute (PRI), said the conditions that are heard to have been placed by the IMF should be fulfilled and it will not be wise to dissent here.

“The conditions are too flexible this time. If we cannot accept these (conditions), then we have to understand that we do not want to solve the problem,” he added.

Reforms in the banking sector

The IMF has asked to bring down non-performing loans in the banking sector to 10 per cent by 2024. The defaulted loans in most of the private banks are below the threshold of 10 per cent, but the ratio is more than 20 per cent when it comes to the state-run banks. The Bangladesh Bank, against such a backdrop, directed four state-run banks – Sonali, Agrani, Janata and Rupali – to bring down the ratio of their bad loans to 12 per cent by June next year.

The central bank governor, Abdur Rouf Talukder, recently held a meeting with the managing directors (MD) of the four banks and passed the directive, but did not specify any certain method for reducing the defaulted loans.

Agrani Bank MD Murshedul Kabir told Prothom Alo, “The defaulted loans have soared as some loans have gone bad. We are trying to bring it down to 12 per cent as per the directive.”

Janata Bank MD Abdus Salam Azad echoed the remarks and said they started working as per the central bank directive. They are trying to drag down the defaulted loans through loan recovery and rescheduling.

According to the Bangladesh Bank data, the defaulted loans totaled Tk 1343 billion until September, where six state-run banks make up Tk 600 billion. The BASIC Bank topped the list of the banks with defaulted loans as some 59 per cent of its total loans are now defaulted.

The Bangladesh Development Bank Limited (BDBL) has 40 per cent defaulted loans while the rates of Janata, Rupali, Agrani, and Sonali banks are 28 per cent, 17 per cent, 19 per cent and 17 per cent respectively.

The bankers said the defaulted loans would subside had all the loans been rescheduled and the central bank’s policy support been there. But the loans would not be recovered and the amount of defaulted loans would not subside in reality. Rather, some defaulters will be unlabeled and awarded with a new opportunity to avail loans again.

Calculation of net reserve

There was a forex reserve of USD 46 billion in the fiscal year 2020-21 and it dropped to USD 44 billion in January this year. Then the increased import expenses and dollar crisis appeared in the scene and prompted the Bangladesh Bank to offload dollars from its forex reserve to deal with the adversities.

The figure now shrank to USD 34 billion. The IMF delegation, during the Dhaka trip, asked the authorities here to bring changes into the calculation method of the forex reserve as USD 8 billion in total was allocated from the reserve to different sectors.

The government formed the export development fund (EDF) with USD 7 billion taken from the reserve while some other amounts were allocated to form the long term fund (LTF) and green transformation fund (GTF).

Also, the Sonali Bank received money from the reserve to buy an aircraft for Bangladesh Biman and the Payra port authority took an amount for dredging along the Rabnabad channel.

The IMF asked to calculate the reserve excluding these expenses and the Bangladesh Bank complied with it. So, the actual reserve amounted to a little more than USD 26 billion.

The central bank governor said on 9 November that the forex reserve is USD 34 billion and the net reserve will come out if USD 8 billion is subtracted from the total amount. He did not mention the actual figure.

However, Salman F Rahman, an advisor of prime minister Sheikh Hasina, told a programme in Meherpur on Friday that there is nothing to panic about the reserve. There is a forex reserve of USD 26 billion, including the IMF loan, and it is enough to cover expenses of six months.

In reality, the reserve will cover import expenses of a bit less than four months if import payments of September – USD 7 billion – is considered as the average.

Apart from that, the IMF asked to introduce a market-based interest rate and adopt a floating exchange rate.

Reduction of subsidy

The IMF asked to reduce the subsidies. The government provides subsidies to power, energy and agriculture sectors.

Earlier, the fuel price hiked in August while the bulk electricity price rose 19.92 per cent on 21 November. The power development board (PDB) submitted an application to the BERC on Wednesday to raise electricity prices at the retail level. Later, two other companies also applied to the commission with the same appeal on Thursday.

A rise in electricity prices affects all other sectors and pushes up inflation. Living becomes difficult for a large section of people.