Make reforms to get $4.5b loan: IMF
The International Monitory Fund has outlined wider reform measures, including bringing discipline to the financial sector and boosting revenue collection, for Bangladesh to avail the $4.5 billion loan.
The measures were discussed during a series of meetings between a visiting Bangladesh delegation, led by Bangladesh Bank Governor Abdur Rouf Talukder, and officials of the multilateral lender in Washington DC last week.
This was the first discussion between the two sides since Bangladesh made a formal request to the IMF for the loan in July.
Talks were held on the measures Bangladesh needs to take in the next three years to get the loan. The conditions of the loan will be discussed in detail and finalised later this month when an IMF team would be visiting Dhaka, said a Bangladeshi official who attended the meetings.
"The IMF has verbally agreed to grant the loan. They even told us that Bangladesh could have more than the amount it has asked for," the official told The Daily Star, preferring not to be named.
He said the IMF officials observed that Bangladesh's economy was not in the worst shape like those of some of its South Asian neighbours.
But the lender observed that Bangladesh has to overcome a myriad of challenges for smooth graduation to middle-income status, he said, adding that the IMF asked Bangladesh to reform the banking and revenue sectors.
The IMF has once again expressed its disagreement with the Bangladesh Bank's method of calculating foreign exchange reserves, which include the riskier local investment exposure, the official said.
Regarding the reform, Governor Abdur Rouf said any reform would be made considering the country's overall socio-economic condition.
The Bangladesh delegation had meetings with IMF Deputy Managing Director Antoinette M Sayeh and Rahul Anand, chief of IMF Asia and Pacific Division. The talks took place on the sidelines of the World Bank and IMF's annual meetings, being held from October 10 to 16.
Of the $4.5 billion loan, Bangladesh sought $1.5 billion each for balance of payment and budget support and another $1.5 billion from the IMF's newly created Resilience and Sustainability Trust fund. The trust helps countries build resilience to external shocks and ensure sustainable growth.
The Bangladesh delegation also met Martin Raiser, World Bank vice president for South Asia, to discuss a $500 million loan for budget support and climate resilient fund.
The WB has agreed to give the fund in the next quarter on condition that its suggestions on reforms would be implemented, said the official.
The government requested the global lenders to grant it the funds to ease financing constraints and advance the efforts to manage fiscal, monetary and financial stability risks amid the Russia-Ukraine war and climate challenges.
The IMF, however, has asked the Bangladesh government to ramp up revenue collection as the tax-GDP ratio remained very low.
Tax collection as a percentage of Gross Domestic Product in Bangladesh has been stuck at around 7.6 per cent, the lowest in South Asia and also one of the lowest in the world.
To increase revenue, the IMF suggested meeting multipronged targets like simplifying the VAT rate structure, modernising the revenue administration and building compliance risk management capacity through focusing particularly on large taxpayers.
The IMF also said that high nonperforming loans in the banking sector, especially in the state-owned banks, remains a major challenge for Bangladesh and it suggested several measures to discipline the sector.
Nonperforming loans in the country's banking sector increased 16.38 per cent year-on-year to Tk 103,274 crore in 2021, according to Bangladesh Bank data.
As major reform priorities, the IMF suggested Bangladesh strengthen corporate governance, ensure strict supervision and enforcement of the current framework, and reform the legal system to support a stronger enforcement of creditor rights and debtor incentive for repayment.
Once the loan agreement between Bangladesh and the multilateral lender is reached, which usually takes a few months, a loan programme will be sent to the IMF executive board. The loan is disbursed after the approval of the programme by the board.
Bangladesh's economy was still recovering from the losses of the pandemic in February when the Russia-Ukraine war began. The war disrupted global supply chains and eventually caused inflation in many countries, including Bangladesh.
Uncertainties over the forex reserve has also become a major concern for Bangladesh. On August 4, the country's foreign exchange reserve was around $36 billion, down from around $46 billion at the same time last year.
Bangladesh is expected to receive more than $3 billion from the World Bank, IMF and other lenders this fiscal year.