$4.7B Loan Programme: IMF mission to check Bangladesh’s progress

The IMF staff mission is set to begin its next series of meetings with the Bangladesh authorities today to measure how the country is faring with the $4.7 billion loan programme.

The staff mission, led by its chief Rahul Anand, will discuss recent economic developments and policy implementation under the programme during the eight-day visit.

"The authorities are taking steps to meet programme objectives, such as reducing un-targeted subsidies by raising electricity and natural gas prices and gradually moving toward a unified market-determined exchange rate. Further, increasing exchange rate flexibility and strengthening the foreign exchange reserve management framework will enhance external resilience," Anand earlier told The Daily Star.

The International Monetary Fund has set six targets for the first quarter of 2023, which would give the lender an indication of the government's seriousness in adhering to the programme objectives.

Meeting the March targets is not mandatory for the release of the next tranche of about $476.27 million, which will be based on how Bangladesh fares with the targets for June.

Bangladesh has met five of the six targets set by the International Monetary Fund for the first quarter of 2023, The Daily Star has learnt from finance ministry officials involved with the proceedings. They spoke on the condition of anonymity due to the sensitivity of the issue.

The condition that the government has failed to meet is the minimum net international reserves (NIR) of $22.95 billion.

At the end of March, the NIR was less than $22 billion, they said.

NIR is calculated as gross international reserves (GIR) minus short-term foreign currency drains. Short-term foreign currency drains include impending import bills and loan repayments.

The GIR as per the Bangladesh Bank's methodology on March 30 were $31.14 billion, while going by the IMF's methodology, it is in the neighbourhood of $24 million.

As per the IMF's methodology, GIR calculation does not include the various funds that the Bangladesh Bank has formed from the reserves as well as the loan guarantees provided for Biman, the currency swap with Sri Lanka, the loan to Payra Port Authority, deposits with the Islamic Development Bank and the below-investment-grade securities. At present, these account for about $6.9 billion.

In the first two months of the year, letters of credit amounting to $11.4 billion were opened, according to data from the BB. LC opening is an indicator of impending import bills.

There is uncertainty on whether June's NIR target could be met.

The IMF stipulated a minimum NIR of $24.46 billion on June 30.

"While we have managed to bring down overall imports, there is still pressure on reserves because of the need for petroleum imports for the summer months," said a finance ministry official.

The government is banking on budget support from the other multilateral lenders to get within a touching distance of the IMF floor on NIR for June.

"Hopefully, if the other targets are met, the IMF will excuse this," the official added.

The NIR floor is one of the three mandatory conditions tagged by the Washington-based lender for the loan programme.

BB Governor Abdur Rouf Talukder remains confident.

"They [IMF] are happy with how we are progressing with the programme -- there has been no problem so far," he told reporters earlier this month in Washington DC on the sidelines of the IMF-World Bank spring meetings.

He went on to express hope about meeting all of June's conditions.

Asked when the uniform exchange rate would be implemented, which is one of the programme requirements, he said: "There will be no single exchange rate. There will be separate rates with a deviation of 2 percent. We will gradually move towards a market-based exchange rate."

The government though has committed to adopting a market-determined exchange rate for all official foreign exchange transactions by the end of June.

Asked about the subsidy cuts for fuel and energy, Talukder denied that the IMF has tagged it as a condition in the loan programme.

"We are bringing it down on our own volition as we feel the bill is becoming too high. There is no subsidy on fuel but there is some subsidy on electricity. We raised the electricity tariffs thrice this year -- this was necessary to bring down the subsidy burden."

However, in their letter of intent to the IMF, Talukder and Finance Minister AHM Mustafa Kamal committed to containing spending on subsidies.

"Going forward, we plan to eliminate all structural subsidies for petroleum products and, to this end, will move to a periodic formula-based price adjustment mechanism (end-December 2023). Furthermore, we will aim at adjusting electricity prices further to reduce subsidies," they said.