IMF proposal to cap foreign loans draws sharp reactions

The International Monetary Fund (IMF) has planned to set a borrowing limit on all types of Bangladesh's foreign loans, which, economists and government officials feared, would cost the country's independence in taking external aid.
Government officials said the global financial institution also proposed monitoring both concessional and non-concessional foreign loans of the government under the WB's newly-introduced Debt Limit Policy (DLP).
Government officials said they would protest against the IMF move, as it would affect the country's independence in borrowing and development.
The IMF in a proposal to the government said it planned to put a ceiling on the country's borrowings-both concessional and non-concessional-from any of the foreign lenders including the World Bank, the Asian Development Bank and Japan and monitor all the external loans.
In the DLP the global financial institution also proposed that the government of Bangladesh should inform the IMF before taking any big foreign aid for development projects or programmes, amounting to more than 1.0 per cent of GDP (gross domestic product).
Presently the IMF has a borrowing limit on the government's borrowing of non-concessional loans and it monitors it.
The Economic Relations Division (ERD) in a review meeting last week decided to oppose the IMF proposal.
"We will now have a meeting with the finance ministry to discuss details of the IMF proposal and then plan the next course of action," a senor ERD official said.
ERD additional secretary Arastoo Khan said they had reviewed the IMF's proposal in a meeting last week and taken the ERD stance on it. "Accordingly, we have informed the finance ministry of it for the sake of taking further action," he said.
"We can't agree on the proposal. If we agree on it, Bangladesh's independence in borrowing foreign loans will totally be obstructed," he said.
Development analysts and economists also opposed the IMF policy on Bangladesh, saying it would hamper sovereignty of the country in taking external loans. It would also hamper development in the country, they said.
Development analyst Zaid Bakth told the FE that the conditions set by the IMF would hamper Bangladesh's sovereignty.
"The condition must impede the external borrowing as well as development work in the country. The proposal of putting a ceiling on concessional loans along with non-concessional ones will put the country in trouble," Mr Bakht said.
"Since Bangladesh has a good foreign exchange reserve, the government has no obligation to obey the new conditions of the IMF," he said suggesting the government to be cautious about borrowing suppliers' credit or such hard loans.
Meanwhile, a top ERD official said since the government borrowed some hard loans from Russia and China for purchasing arms, setting up nuclear power reactors and installing power plants, the IMF planned to set the borrowing limit and monitor all the external loans.
Chief of the government's think-tank General Economic Division (GED)-Professor Shamsul Alam said Bangladesh should not agree on such a tough proposal of the IMF.
Since Bangladesh takes foreign aid which is less than 2.0 per cent of GDP and its record of servicing debts is very good, he saw no reason to accept the new conditions of the IMF.
Bangladesh was no more a country dependent on foreign aid, it now had a strong economic base for developing its infrastructure and cut poverty, he added.
Bangladesh receives nearly $ 2.0 billion in concessional loans and grants from different bilateral and multilateral donors including the WB, ADB, and Japan for improving its infrastructure and cut hunger.
It addition, some of the government agencies including Bangladesh Biman, Bangladesh Petroleum Corporation and Bangladesh Power Development Board borrow some hard-term loans for meeting their annual expenditures.
Meanwhile, the IMF under the nearly US$ 1.0 billion Extended Credit Facility (ECF) programme sets a certain borrowing limit on non-concessional loans for Bangladesh every year saying the country's debt management should be prudent.
The IMF has recently raised the borrowing limit on non-concessional external loan by $ 1.25 billion as of June next.
According to the report of the IMF's Article IV mission, the ceiling on new non-concessional external debts (maturing in more than one year) for the June end in the current year has been raised to US $ 5.75 billion from US$ 4.5 billion while it is setting a new ceiling of US$ 6 billion for end-December, 2014.
On November 27 last year, the IMF Article IV mission completed its third review of Bangladesh's economic programme under the three-year ECF and decided to disburse its fourth installment of US$ 140.4 million.
It would raise the total disbursements under the arrangement to about US$ 561.4 million out of the US$ 982.5 million committed under the ECF.