Bangladesh finally secures $4.5b loan from IMF 

The International Monetary Fund (IMF) is all set to provide a loan of USD 4.5 billion to Bangladesh, under three separate schemes through seven installments in 42 months in total.

The first installment will be cleared in February, 2023 while the next ones are scheduled to arrive within December 2026. 

An IMF delegation, led by its Asia and Pacific chief Rahul Anand, finished a Dhaka trip on Wednesday and settled the conditions finally through a meeting with finance minister AHM Mustafa Kamal at the secretariat. 

Later, minister Kamal held a press briefing and disclosed that Bangladesh is going to avail the loan. Many feared, he said, that there will be some tough conditions that Bangladesh will fail to meet and the negotiations will go in vain. 

“But we are going to get the loan just the way we wanted,” the minister said, adding that all the formalities and the approval of the IMF board would be completed by the next three months. 

He also said that SDR 2.3 million – USD 455 million – will be cleared in the first installment. The special drawing rights or SDR refers to an international monetary reserve currency created by the IMF in 1969. It operates as a supplement to the existing money reserves of member countries. Each SDR is equal to USD 1.29.  

The finance minister expressed his satisfaction over the loan as there are no tough conditions against it. The IMF will lend SDR 1.06 billion under its extended credit facility (ECF) scheme, which is completely interest free. Apart from that, USD 2.12 billion will be provided under the extended fund facility (EFF) while the remaining USD 1.29 billion under the resilience and sustainability facility (RSF).  The lender will receive interest for the following two schemes. 

The total amount of loans is calculated at USD 4.474 billion as per the SDR value. 

The IMF delegation, the minister claimed, appreciated the macroeconomic management in Bangladesh and said the situation here is better than many other nations. They also agreed with the ongoing economic reforms of the government. 

The four main goals for the borrowing are to stabilise the external sector of the economy, put the economy on a solid base ahead of the transition from the group of least developed countries (LDCs) in 2026, strengthen the financial sector, and achieve high growth in the face of climate change risks. 

The economies across the world have been going through a transitional period. Commodity prices have risen abnormally in all countries, from developing to the developed ones. Almost all the nations have registered significant falls in the value of local currency and the reserve of foreign currency. 

Citing the scenario, the minister said Bangladesh is also feeling the heat of the crisis. The IMF loan was sought as a precaution to ensure that the ongoing tension does not intensify the crisis.

“We have successfully completed the phase of loan negotiation today,” he announced before the media. 

Immediately after the minister's briefing, the IMF delegation held another press conference at the secretariat on Wednesday. Rahul Anand, the delegation chief, said the Bangladesh economy was reviving after the Covid-19 shock and the imports were rising. But the Russia-Ukraine war started in the meantime and pushed up the commodity prices globally.  

The world economy is in turmoil and things are so uncertain that no one knows where it is going, he added. 

Noting that the hike in fuel price reduced the subsidy burden here, Rahul said subsidies are necessary in some cases, but it needs to monitor who are receiving them. A subsidy should be targeted. 

Rahul Anand also said the reserve is like an insurance system for a country. A good reserve lessens the risk. However, it is difficult to say whether a reserve of three months is more or less in the current situation. 

He also clarified that the export development fund (EDF) can never be counted as reserve. 

The finance minister said the conditions include enactment of some important laws for the financial sector, gearing up the amendment of some previous laws, reforming the revenue system, raising the revenue through improvement of the tax administration’s efficiency, and setting up asset management companies. 

Later, his ministry provided a release that mentions some other issues, including adjustment of the fuel oil price in line with the world market from time to time. 

Apart from that, leaving the currency exchange rate on the market, formulating a development plan by the government, and placing importance on the climate change risks while implementing the annual development plan were also mentioned in the release. 

The finance minister said they have taken an initiative to set up electronic fiscal device (EFD) machines for VAT collection.” Some 6732 machines have already been set up while another 60000 will be installed in the next year. The asset management companies will also be established.  

Asked whether there was any statement of IMF regarding the interest rate in the banking sector, the finance minister said all would have collapsed if the interest rate on loans were 20 to 22 per cent for three to four years. 

“My idea is to make the interest rate (loan and deposit) 9 and 6 per cent. I own it,” he added.

Referring to the IMF stance on subsidy reduction and tax exemption, the minister said, “They (IMF) did not discuss subsidies. I am exempting the tax and have to exempt more. I have to do it for the import of daily necessities. Otherwise, how will the people survive?”

Bangladesh Bank governor Abdur Rauf Talukder said the IMF officials did not prolong the issue when they were informed that the subsidies in fertilizer have kept the farmers alive here. The IMF asked to keep the non-performing loans (NPL) within 10 per cent and the government, in response, briefed them that the NPL has been within the threshold, but some 8 to 10 banks have been in capital deficit.   

What is the current reserve? The governor, replying to the query, said it is USD 34 billion and at least USD 8 billion will be deducted in case of net reserve.    

The IMF delegation, at the press briefing at the secretariat, also provided a media release. It said Bangladesh was moving forward in economic recovery overcoming the pandemic shock, but the process was disrupted due to the Russia-Ukraine war. The deficit in the current account continued to widen and the forex reserve kept declining.  At the same time, inflation rose and growth slowed down. 

It also said Bangladesh successfully dealt with these setbacks, but some structural problems remain there in the long run. Climate change has undermined macroeconomic stability. 

The IMF believes that Bangladesh needs to advance depending on previous successes and address the structural issues, to ensure a successful LDC graduation and rise to a middle-income country by 2031. 

Apart from attracting private investment, Bangladesh needs to boost productivity and its resilience to climate change.