IMF mission meeting with BB
Arun Sarker: Revenue collection and net foreign exchange reserves lag behind the International Monetary Fund (IMF) loan defaults. The international donor organization has expressed concern about these two issues.
At the same time, it has been asked to give maximum importance to the creation of net reserves and the collection of additional revenue in the financial year 2023-24. Apart from this, the IMF also wanted to know about the price hike of fuel oil in the second phase and price setting in coordination with the world market. The delegation of the visiting IMF held these discussions in a separate meeting with the Finance Department and Bangladesh Bank.
This information was found in the relevant sources. Earlier, to meet the conditions of the IMF, the price of fuel oil was increased to reduce the subsidy. The IMF wants to establish a different system where the increase and decrease in the price of fuel oil in the world market will be reflected in the country’s market.
A five-member delegation arrived in Dhaka on Tuesday to review the progress of the conditions given to Bangladesh before the second tranche of the US$ 4.7 billion loan was waived. But Mission Chief Rahul Anand did not come with the team. Because IMF Managing Director Kristalina Georgieva is scheduled to have a meeting with Bangladesh Prime Minister Sheikh Hasina in Washington on May 1. Rahul Anand will be present as the mission chief in that meeting.
In the first half of the first day of the visit, a part of the delegation met with the officials of the macroeconomic department and in the afternoon with the senior secretary of the finance ministry, Fatima Yasmin. Another part met with Bangladesh Bank.
According to the terms of the IMF loan, the additional tax collection for the next financial year should be raised to 0.5 percent of the total GDP. According to that, at least Tk 65 thousand crore should be collected in comparison to the current financial year. In this meeting, the IMF asked how and by what strategy this additional tax will be collected.
A senior official of the finance department who was present at the meeting said that the main concern of the IMF is about revenue collection. IMF representatives said, whether any steps have been taken to increase revenue of huge amount? This additional tax will be collected through any type of activity. Various questions have been asked about this. However, they were told by the government that the National Board of Revenue has appointed additional manpower for tax collection. They hope to achieve the revenue collection target in the new financial year.
Sources also said that the meeting also sought to know how much money will be spent in the current revised budget and the budget of the next financial year. Apart from this, the challenges of the current economy and the next transition steps are also discussed. On the other hand, it has been said to reduce the budget deficit for the intermediate fiscal year (2024-27) and borrow 1/4th from savings bonds to finance the deficit. According to the IMF conditions, by 2026, borrowing from savings bonds should be reduced to 1/4th of the total deficit. The matter was brought to the notice of the Finance Department.
Sources also said that the meeting sought information on the losses of Bangladesh Petroleum Corporation (BPC), Bangladesh Power Development Board (PDB) and Trading Corporation of Bangladesh (TCB). These three organizations were asked to know what kind of assistance is being given from the budget. Apart from this, foreign loans, energy import costs, measures to get out of the Corona situation were discussed.
Meanwhile, the IMF has stipulated that the net reserve should be $24.46 billion (2446 million) by June. Current total reserves are $31 billion (3118 crore). According to the finance department, the net reserve will likely be $19 to $20 billion ($2000 crore). As a result, another $4.5 billion is required to reach net reserves in the next 2 months. Which is highly impossible. The company has expressed concern about this.
A senior official of the finance department involved in the process told Daily Industry that the conditions that the IMF asked to be met by June have been met in all areas except revenue collection and net reserves. It seems that it will not be possible to meet the net reserve calculation. However, some foreign currency will be added to the reserve in the next 2 months, some expenses will also be incurred. However, there is now a deficit of about $4.5 billion as net reserves. which adjustment will not be possible.
If asked, the former chief economist of the Dhaka office of the World Bank Zahid Hossain told that it will not be possible to build a net foreign exchange reserve by June. In this case the conditions of IMF may not be met. However, failure to meet the conditions will require a clearance from the company’s stop management system. In order to seek normality waiver, the agency may ask for lifting the loan interest rate cap, undertaking to make the exchange rate market-based.
He also said that there is a backlog in terms of foreign currency reserves and revenue collection as per the terms of the loan. How to meet them is now a matter to be seen.
Meanwhile, in the meeting with the central bank, the main discussion came about the reserve situation and inflation control strategy. Questions are asked about the current rate of inflation in the country, expectations of inflation in the future and strategies to control it. Besides, it was also asked when the interest corridor of bank loans will be effective. However, once the corridor comes into force, the cap on interest on existing loans will be lifted. And that will increase the interest rate of bank loans. Apart from this, the introduction of market-based currency exchange rates was also discussed there.
Bangladesh Bank Spokesperson Executive Director Md. Majbaul Haque said that the IMF delegation had a meeting with the Offsite Supervision Department of the Central Bank. The organization discussed loan interest rates, reserves, inflation. They have asked for some information from the central bank. We are serving information according to their needs.
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