It is a news of relief that the IMF agreed to give the loan to Bangladesh. It is not a big loan in terms of amount and it will not solve all our problems. Even though we will not get all the money at a time, we would say this loan will have a positive bearing on the balance of payment in Bangladesh.
Also, there is a sort of message in the fact that the IMF agreed on the loan. It will relieve other multilateral agencies.
Bangladesh will get $450 million in the first installment, which is not a big amount in comparison to our reserve. It is the same even in comparison to the reserve as calculated by the IMF. But it will encourage organisations like the World Bank and the Asian Development Bank (ADB) to provide us budget support. It is important from the point of view that the budget support also adds to the reserve.
Along with the loan, there are lots of discussions about increasing our institutional capacity, reforming the banking sector, boosting the capacity of the NBR, capacity charges in the energy sector. The lack of good governance has also been discussed for many years.
We lack not only reserves, but also money to spend. So it is ourselves who will benefit if we manage to improve institutional capacity through reforms. If these are done, our bad loans will decrease or our tax-to-GDP ratio will increase.
I think we should execute by ourselves the issues that have come up during our talks with the IMF. It is important for the economy as a whole.
One of the key issues of the discussion was making the currency exchange rate market-oriented. It is nothing new as the economists here have been saying this for a long time. It is important to bring these issues into order.
The IMF has talked about reducing subsidies. I will not say that it is completely irrelevant. But we have to determine a sector that we will coordinate. Here, we have to take into account the fact that our food security should not face any threat.
Another thing is that the interest rate of the IMF loan is above 2 per cent. It is not very low, but lower than commercial loans, which is 4-5 per cent. We should pay attention so that we do not face difficulties while repaying this loan.
The money will come in installments. When the second one will come, it will be evaluated how much we have been able to reform. The second installment will be cleared on the basis of these issues. So the weaknesses of our economy, lack of good governance, and institutional weakness should be in our thoughts all the time.
We have dealt with a pandemic shock and the Russia-Ukraine war began before it ended. Also, a natural disasters may come at any time.
If we can achieve the capacity to deal with these internally, the risk reduces. It is the resilience of the economy. It needs reforms, but those should be done by realising our own needs and importance.
***The author is the distinguished fellow of the Centre for Policy Dialogue (CPD)