Some conditions not fulfilled
Zarif Mahmud: The second installment of $4.7 billion IMF loan becomes uncertain due to not compliance of some of the pre-conditions set by the donor agency including the development of forex reserve at $ 24.46 billion, adjustment of fuel oil and power tariff. In the real scenes, the reserve stood at $ 20 billion while the prices of oil and electricity hike not possible as the general election knocking at the door.
Bangladesh has come a long way in implementing the conditions of the International Monetary Fund (IMF). The central bank’s reserve target has not been met as per the condition set by them to receive a $4.7 billion loan from the IMF. But in other cases, the government has gone a long way in implementing the conditions. Loan interest rates and exchange rates have been reformed. But the problem is that the reserve target is not met. The IMF does not want to give concessions in this case, even if it gives concessions in other cases. In addition, the reserve is decreasing almost constantly. This information is known from the Ministry of Finance and Bangladesh Bank sources.
According to sources, an IMF mission is coming to Dhaka today to implement the conditions of the $4.7 billion loan given by the IMF and to monitor the overall economic situation of Bangladesh. The mission will hold meetings with various government agencies in Dhaka until October 19. The agencies are Ministry of Finance, Financial Institutions Department and Economic Relations Department (ERD), Power and Energy Department, Bangladesh Bank and National Board of Revenue (NBR). Sources from the Ministry of Finance have given this information.
Note that on January 30 this year, the IMF approved a loan proposal of $4.7 billion for Bangladesh. After three days, the first installment was disbursed. About $700 million of the second installment is expected to be disbursed next November. The IMF mission is coming to Dhaka to monitor the financial progress of the implementation of the conditions given by them before releasing the money of the second installment of the loan.
The IMF is expected to pay the full amount in seven installments over three and a half years till 2026. Bangladesh has to fulfill 38 conditions to take this loan.
According to the conditions, the fact that the central bank’s foreign exchange reserves should be raised to $26.81 billion by next December has been seriously mentioned. According to the terms of the IMF loan, the country’s net foreign exchange reserves were supposed to be $24.46 billion at the end of last June. Net reserves stood at $20.47 billion in June.
At the same time, the IMF has set a revenue collection target of Tk 3 lakh 48 thousand crore for the National Board of Revenue (NBR) in the financial year 2022-23. In this case, NBR has collected a revenue of Tk 3 lakh 31 thousand 502 crores. Non-fulfillment of net foreign exchange reserves and revenue targets is a cause of concern for Bangladesh, the stakeholders said.
According to IMF loan terms, the country’s net foreign exchange reserves are lagging behind, as the government has to pay dollars from reserves to import fuel, fertilizers and food items. However, Bangladesh Bank’s other commitments such as the introduction of the corridor system for determining interest rates, the publication of reserve accounts as per IMF’s Balance of Payments Manual-6. Apart from this, the exchange rate is left to the market. At the same time, the financial stability report of the banks has been published after completing the risk-based supervisory action plan. The central bank has also said that the reform activities will help to increase the reserves in the future.
However, Bangladesh has made good progress in other areas. According to the conditions, Bangladesh Bureau of Statistics (BBS) has started the quarterly calculation of labor force survey at the beginning of this year. Apart from this, the IMF has stipulated the calculation of GDP on a quarterly basis by December 2023. Last week, the BBS started releasing the GDP figures on a quarterly basis. In the first phase, it released the GDP on a quarterly basis from 2015-16 to 2021-22.
Another condition given by the IMF was that by December 2023, a risk management unit should be established in the customs and VAT department. A separate risk management unit has been constituted for the customs department to meet this condition. The issue is said to be discussed during the second review of the upcoming IMF mission.
The National Board of Revenue was asked to collect an additional 10.5 percent of GDP in the current fiscal year 2023-24 as per the IMF conditions. Which is equal to about Tk 20 thousand crore. NBR will have to fix a medium-term revenue strategy for this within the current financial year. According to NBR sources, a committee has been formed under the leadership of NBR member Shamsuddin Ahmed. While NBR wants to increase revenue collection through effort-based strategy, IMF wants to increase revenue collection through automation. Besides, more emphasis should be placed on the sectors from which more revenue comes. It is also known that these matters will be discussed with the mission.
Sources also said that information on the losses of Bangladesh Petroleum Corporation (BPC), Bangladesh Power Development Board (PDB) and Trading Corporation of Bangladesh (TCB) has been sought by the IMF. What kind of support is being given to these three organizations from the budget is sought. Besides, it is said that foreign loans, energy import costs, measures to get out of the Corona situation may be discussed again.
According to the IMF’s conditions, the draft Bank Companies Act should be tabled in the National Parliament in the form of a bill before June. The draft has already been passed after the final approval by the cabinet and presented in the form of a bill in the parliament.
However, analysts of the country’s economic sector consider retention of reserves and failure to achieve revenue collection targets to be critical issues in getting the second installment of the loan. They think that the IMF does not want to give concessions in these two cases, even if it gives concessions in other cases. Mahbub Ahmed, the former finance secretary of the government and the former alternate executive director of the Asian Development Bank, and the former chief economist of the World Bank Dhaka office Dr Zahid Hossainthinks that the target should have been achieved by retaining reserves and collecting revenue.
In this context, Dr. Zahid Hossain said, another major weakness of Bangladesh is not being able to finalize the new formula by adjusting the price of fuel oil with the international market. The price of goods will rise, so the formula is not being implemented – such an argument is not acceptable to the IMF. It is necessary to change it.
If asked, the former senior secretary of the finance department and the former alternate executive director of the Asian Development Bank Mahbub Ahmed said that the foreign exchange reserve is quite a bit behind the target. If it could be fulfilled, there would be no doubt in getting the second installment loan.
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