The letter went on to say, due to the stimulus packages Bangladesh managed to hold onto its competitive edge in the export sector and there was also a tangible revival in the agriculture, manufacturing and service sectors. However, as critical times prevailed at present, Bangladesh required funds on an emergency basis to maintain balance in its transactions and also for budget assistance.
Unprecedented price rise, dramatic imports
The ongoing Russia-Ukraine war has introduced a new crisis into the country's economy, the letter stated, pointing out that the prices of fuel, food and essential commodities has seen an unprecedented increase. Supply chains had collapsed too. Just as the economy had been recovering from the impact of Covid, the Russia-Ukraine posed as a new danger. Fuel oil, gas, fertiliser and edible oil prices were still spiralling. An additional USD 7.6 billion (USD 769 crore) had to be paid for the import of nine commodities including refined and unrefined oil, Liquefied Natural Gas (LNG), coal, rice, wheat, corn, fertiliser, palm oil and soybean oil. If the dollar rate is taken to be 94.70 taka, this stands at Tk 719.72 billion (Tk 71,972 crore). This is the calculation at the present in comparison with May 2021.
IMF was informed that the price of essential commodities, capital machinery and industrial raw material has also increased significantly in the international market. Transportation and other costs have also increased for international trade. There has been a dramatic rise in imports in the country. In the 11 months of the 2021-22 fiscal (July-May), there was a 39 per cent increase in imports in the country compared to the corresponding period last year. At the same time, though, there was a 34 per cent increase in export growth. A large trade deficit emerged in the country. In May this year, this trade deficit stood at USD 28.23 billion (USD 2823 crore).
Remittance has had an important contribution to fill the current account deficit, but due to the delay in overcoming the impact of Covid on the labour market to revive the economy, remittance in the current fiscal saw a negative growth of 15.12 per cent. In the first 11 months of 2021-22 fiscal, current account deficit stood at USD 17.23 billion (USD 1723 crore). In the corresponding period last fiscal, this deficit was USD 2.78 billion (USD 278 crore).
IMF was also told, in the letter, that the current balance in transactions and inflation also had an impact on the price of commodities.
Bangladesh at risk
Climate change, the letter went on to say, has pitched Bangladesh into great risk. Referring to the reports of two international agencies, it was said that Bangladesh ranked at 167 among 182 risk-prone countries. Due to climate change, towards the middle of the century, Bangladesh would lose 2 per cent of its GDP and towards the end, 9 per cent.
In order to tackle the effects of climate change, Bangladesh had taken up the 100-year Delta Plan and the 5-year mid-term plan. This would require 2 to 3 per cent of the GDP.
The finance minister had recently said that we don't need foreign loans at the moment. It is incomprehensible why he made such a remarkAhsan H Mansur, executive director of Policy Research Institute (PRI)
Speaking about the contents of the letter sent to IMF, former official of the organisation and executive director of Policy Research Institute (PRI) Ahsan H Mansur told Prothom Alo, "Sending the letter during these difficult economic times has been justified and timely. Now it is needed to start discussions. The government should make an effort so that an IMF mission comes as soon as possible. The finance minister had recently said that we don't need foreign loans at the moment. It is incomprehensible why he made such a remark."
Ahsan H Mansur said that it would be a relief to the economy if the loan could be taken from IMF as soon as possible. He said there would be conditionalities when taking the loan, as the IMF staff mission recently indicated. What the government can do for the time being is lift the ceiling on the interest rate in the bank sector. IMF, I think, has said the same, Mansur said.
Loans from others
Other than from IMF, talks are on to seek assistance from the World Bank, Asian Development Bank (ADB), and Japan International Cooperation Agency (JICA) too. Sources in the Economic Relations Division (ERD) said that talks are on with ADB for budget assistance of USD 1 billion (USD 100 crore). Funds must be spent on social safety and economic recovery. The government two months ago sought assistance from ADB for the current budget and discussions are on concerning certain conditionalities. The conditionalities include simplifying the process of providing money under the social safety network, identifying the actual beneficiaries, ensuring transparency in expenditure, simplifying the process to pay taxes in order to increase revenue collection, introducing two new laws pertaining to income tax and duty, and supporting the small and medium industrial sector.
In the meantime, talks are on with the World Bank for USD 700 million (USD 70 crore) budget assistance. Assistance for budget is also being sought from JICA. The finance minister held a meeting in this regard on Monday with the visiting JICA president Akihiko Tanaka.
* This report appeared in the print and online edition of Prothom Alo and has been rewritten for the English edition by Ayesha Kabir