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.
Requirements of IMF
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.