An exigent switch from project aid to budget-support loans from bilateral and multilateral development financiers in the interim period will yield some breathing space for Bangladesh's economy, the IMF observes.
The International Monetary Fund (IMF) has noted that apart from the recent political tensions, there have also been disruptions on the balance-of- payments side and particularly for external financing.
"So, the budget loans (will) provide some breathing space," said Thomas Helbling, Deputy Director of the Asia-Pacific Department at the IMF, about the interim government's approach to foreign financiers for higher budget-support finances against the backdrop of August changeover.
He was replying to a query from The Financial Express as to whether the decision of taking budget-support loans in increased volumes from development partners instead of project loans was right one and what impact it may have on Bangladesh's economy.
Mr Thomas said the budget-support loans would also provide the interim government with an opportunity to formulate the policy reforms.
After taking office this August, the interim government has intensified efforts to secure increased financial assistance in the form of budget-support loans as the past regime left the state coffer "empty".
The government has sought budget support amounting to $8.0 billion from the IMF, the World Bank, the Asian Development Bank, the Asian Infrastructure Investment Bank (AIIB), and Japan International Cooperation Agency (JICA), among others.
Of the total amount, some $3.0 billion has been sought alone from the IMF in addition to the lender's $4.7 billion worth of ongoing lending programme for Bangladesh.
In reply to another query on Bangladesh's ongoing economic challenges and efforts to control inflation, Mr Thomas said the country experienced unrest and also major floods. "That has (impact) on the economic side, meaning economic disruptions in particular, on the supply side. That is the major reason for upward revision in inflation in our forecast.
"But inflation has been high for some time (there). It was ratcheted up in 2022 and stayed relatively high. So there in terms of monetary policy, yes, monetary policy tightening helps and is needed, so the recent increase in the repo rate was a step in the right direction."
The IMF deputy director further said even though much of the recent increase in inflation was
supply-related, they think "it's important for the central bank to prevent second-round effect from the earlier inflation".
Asked whether the monetary tightening is enough to contain high inflation in Bangladesh, he said the country's fiscal policy should support monetary policy and support external stability by tightening overall. "…at the same time they need to rebalance fiscal policy to maintain space to support poor and support development."
Last month, point-to-point inflation flared up to 10.87 per cent from 9.92 per cent in September. Also, the food inflation shot up to 12.66 per cent in October from 10.40 per cent in the previous month, compounding woes of poor and middle-income group of people.
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