Bangladesh is getting US$1.152 billion, more than double the amount scheduled in the third tranche of an IMF loan meant to prop up falling forex reserves.
The all-clear comes as the International Monetary Fund (IMF) Wednesday reached a staff-level agreement with the Bangladesh authorities on the policies needed to complete the second review of the ongoing loan programme.
Once approved by the executive board in the coming weeks, the IMF will make available about a total of US$1.152 billion to Bangladesh, says an IMF release.
Of the total sum, $932 million will come as Extended Credit Facility (ECF)/ Extended Fund Facility (EFF) while $220 million will come as Resilience and Sustainability Facility (RSF).
Bangladesh was supposed to get $668 million after the completion of third review but the IMF staff team agreed to raise the dollop to $1.15 billion on request by the government.
In the face of continuous depletion of forex reserves, "this time the government requested raising the amount of the tranche so that the reserves stand in a handsome position," a finance division official told the FE.
"Bangladesh authorities adopted some critical reforms to address macroeconomic imbalances, including the realignment of the exchange rate, adoption of a crawling -peg regime, and the full liberalisation of retail interest rates," says the IMF readout.
"It is imperative to sustain the reform momentum and ongoing efforts towards macroeconomic stabilisation," adds the multilateral lender in its to-do list.
A team of the IMF led by Chris Papageorgiou visited Dhaka during April 24 - May 8 discussing economic and financial policies in the context of the second review of the IMF with government officials.
The team reviewed the progress Bangladesh had made until December last and found that except target for net international reserved, all other quantitative performance criteria and indicative targets were met then.
So, the IMF staff team agreed to recommend for its executive board to approve the second review and release the third tranche of the total $4.7-billion loan.
Sources at the Finance Division said as Bangladesh could not meet the net international reserves target for December and there is little chance to achieve the target set for June, the IMF team agreed to revise target for June at $14.769 billion from previous target of $20.10 billion.
Briefing newsmen at Bangladesh Secretariat in the capital IMF's Mission chief, Chris Papageorgiou, said Bangladesh has made significant progress from structural reforms under the IMF-supported programme, including the implementation of a formula -based fuel -price- adjustment mechanism for petroleum products.
He said larger-than -expected spillovers from the tightening of global financial condition still elevates international commodity and food prices, coupled with some domestic vulnerabilities, and that had led to high, and persistent inflation and declining foreign-exchange reserves.
"This has exacerbated pressures on the economy and heightened macroeconomic challenges," he said.
"So, against this backdrop, we welcome Bangladesh Bank's decision to realign the exchange rate and simultaneously adopt a crawling- peg regime with the bank as a transitional step toward greater exchange- rate flexibility to restore external resilience," he said.
Following the liberalisation of retail interest rates, the additional tightening of monetary policy announced earlier Wednesday by the central bank should help alleviate any inflationary pressures resulting from the exchange- rate reform. "Fiscal policy should support this monetary tightening efforts through gradually stabilising."
He said real GDP growth is projected to moderate to 5.4 per cent in FY '24 owing to the ongoing import compression and policy tightening. However, it is anticipated to rebound to 6.6 per cent in FY '25 as imports rebound and FX pressures ease.
Inflation is projected to remain elevated at approximately 9.4 per cent (year-on-year) in FY '24 but is anticipated to decline to around 7.2 per cent in FY '25, on the back of the continued tighter policy mix and projected lower global food and commodity prices.
"Considering Bangladesh's low tax-to-GDP ratio, it is imperative to prioritise sustainable revenue generation to bolster investments in social welfare and development initiatives. To this end, tangible tax policy and administrative measures should be incorporated into the FY25 budget to augment tax revenues by 0.5 percent of GDP," he suggested.
Reducing banking- sector vulnerabilities remains a priority, said the IMF mission chief.
"Efforts to implement the non-performing loan reduction strategy should help support the growing financing needs of the economy. At the same time, Bangladesh Bank should continue the transition to risk-based supervision to enhance financial sector resilience, while continuing legal reforms to improve corporate governance and regulatory frameworks.
"Looking ahead, domestic capital market development will be instrumental in mobilizing long-term financing to support growth," he added.
Replying to a query on falling forex reserves, he said reserves had been falling for several months now. "And we have all been concerned and especially from where the reserve started. For example, pre pandemic, the reserves were pretty high, but we have seen extended decline."
Contacted Wednesday, former lead economist of the World Bank Dr Zahid Hussain said the central bank on the day raised policy interest rate and removed cap on bank loan and deposit interest rates which is a good move.
However, he was sceptical about the results of crawling peg in case of exchange rate that has been introduced on IMF's prescription.
syful-islam@outlook.com