No waiver needed for govt for 2nd IMF loan tranche
Though Bangladesh could not meet two conditions to qualify for the second tranche of the International Monetary Fund's loan, the government did not have to seek any waiver from the board of the global lender.
On Tuesday, Bangladesh received $689 million under the $4.7 billion loan programme.
According to the rules, if a country misses a quantitative performance criteria (QPC) condition, it may seek a waiver.
The IMF executive board may approve the waiver if it is satisfied that its programme will still succeed. This happens when the lender thinks that the deviation was minor or temporary or is convinced about the corrective actions taken by national authorities.
So, it was assumed that Bangladesh would need to seek the waiver since it missed the targets on the foreign currency reserves and the revenue collection.
As the financial account of the balance of payments has remained in the negative territory for higher outflows of US dollars than inflows, Bangladesh could not meet the condition on forex reserves.
And during the staff-level discussion with the IMF in Dhaka in October, the government explained the reason and the visiting mission was convinced, said a finance ministry official.
The ministry had also sought the concession from the board of the IMF but the latter has not needed to take into account while approving the loan, he said.
One of the two conditions was to maintain a minimum net international reserves (NIR) of $24.46 billion at the end of June. The target was missed by about $3 billion as the government had to dip into reserves to pay for essential imports of fuel, fertiliser and foodstuff from the reserves.
The other was to ensure a minimum tax revenue. The government needed to collect at least Tk 345,630 crore in tax revenue in 2022-23. It was missed by about Tk 17,946 crore as collections slowed down as a result of the import curbs put in place to preserve the strained dollar stockpile.
Missed structural benchmarks (SB) and indicative targets (IT) do not require waivers but are assessed in the context of overall programme performance.
The minimum NIR is a QPC while the tax revenue floor is an indicative target.
Bangladesh's financial account turned negative for the first time in the last financial year, standing at $2.08 billion, against a surplus of $16.69 billion a year earlier, Bangladesh Bank data showed.
"The financial account had always been in the positive territory. So, when the IMF set the target, it might not have assumed that it would keep falling," the official said.
The financial account covers claims or liabilities to non-residents concerning financial assets and its components include foreign direct investment, medium and long-term loans, trade credit, net aid flows, portfolio investment and reserve assets.
On Tuesday, the IMF also described the reversal of the financial account as "unprecedented."
It, however, said the financial account is expected to improve, including through timely repatriation of export proceeds. And the forex reserves are expected to increase gradually in the near term.
Short-term credits from external sources fell gradually owing to tightened global monetary policy.
The short-term private sector external debt surged to $16.42 billion in 2022, the highest in nine years, central bank data showed. It declined to $12.13 billion in October this year.
Similarly, trade credit, which appears on a buyer's balance sheet as accounts payable, slipped to the negative territory at $6.44 billion in FY23 from a surplus of $311 million in 2021-22.
"The IMF took the two factors into consideration," the official said.
Zahid Hussain, a former lead economist of the World Bank's Dhaka office, said Bangladesh was not facing a Sri Lanka-like situation when it approached the IMF.
"The macroeconomic situation was in good shape. However, owing to external and internal factors, it was deteriorating. So, the government turned to the IMF as a pre-emptive measure in order to avoid any collapse."
Bangladesh has taken a number of steps to deal with the balance of payments crisis as part of the IMF's programme and there are scopes for the country to build on the initial progress.
"So, the IMF did not want to disrupt the momentum and approved the second instalment despite the country not meeting the two conditions," the economist said.
"Besides, Bangladesh did not have to seek the waiver."
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