IMF loan release may face NPL, capacity payment roadblocks

Disbursement of a US$1.0-billion aggregated tranche from the IMF lending package principally faces NPL roadblocks as its reform-reappraisal mission indicates fund holdback unless banks' bad-loan buildups cut as per terms, sources said.
Officials said Tuesday fund release from the International Monetary Fund's assured package of budget-support credit worth $4.7 billion to Bangladesh might be affected for failure in lowering the loads of non-performing loans (NPLs) banks are burdened with.
Huge capacity-payment arrears to the quick-cure private power producers hired by the past regime also stand in the way.
Only upon fulfilment of some of the conditions binding the loan, including slashing the NPLs within a shorter period of time, the IMF will release the funds, Ministry of Finance (MoF) officials said following the latest round of Fund-government negotiations.

The government expects an enhanced amount of US$1.0 billion from the staggered lending basket within this fiscal year (FY) 2024-25 from the IMF, they said.
"If the conditions are not fulfilled, the fund release may be delayed," says a senior MoF official.
Another MoF official says: "We are hopeful of getting the 4th and 5th trances combined within this FY2025. The total amount of the funds could be $1.0 billion."
He notes that Bangladesh is on track regarding the IMF-set condition to get the next trances of the loans although some emerging challenges like the higher NPLs in the banks and arrears of capacity charge to the private-sector power producers stand in the way.
The IMF mission met different government agencies and ministries during its Bangladesh fact-finding mission on December 4-17.
The mission has already reviewed the Bangladesh economic performance and compliance with structural-reform conditions.
"The Bangladesh Bank has already shared a roadmap with the IMF during the last meeting regarding the requisite cuts in NPLs in the banking sector," the official told the FE writer.
Banks' NPL volume reached a record high of over Tk 2.11 trillion as of last June-end, the central bank's statistics showed.
According to the BB data, the bad loans increased by over Tk 290 billion in just three months from March 2024 when the volume of classified loans was over Tk 1.82 trillion.
At the end of June this year, the total disbursed loans stood at Tk 16.83 trillion, of which Tk 2.11 trillion became defaulted--the highest in the history of Bangladesh.
The MoF official said not only the higher NPLs are a problem, a massive amount of arrears to the Independent Power Producers (IPPs) and rental power plants as the capacity charges and purchase of electricity also stand as roadblocks to getting the next trances of the IMF loan.
He said the global lender also suggested the Bangladesh Power Development Board (BPDB) to increase the electricity tariffs for adjusting the huge arrears to the private power producers.
The government has allocated some Tk 360 billion for electricity subsidy in the national budget for the current FY. Almost entire funds are being spent for paying the dues to the IPPs and rental power plants.
The MoF official said: "The BPDB has also given an arrears-reduction roadmap to the IMF mission for reducing the huge outstanding payments."
As such, they hope the IMF would be convinced and disburse the much-sought-after $1.0 billion before June this fiscal year.
Meanwhile, the IMF in late June 2023 released $1.115 billion worth of the third tranche of the $4.7-billion loan allocated for Bangladesh.
The lender disbursed the 1st trance worth $447.8-million budget support in February 2023, and $681 million worth of 2nd trance in December of the same year.
The entire amount of the IMF loan is packaged to be released to Bangladesh in seven instalments over three and a half years till 2026.
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