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Bangladesh - Bank & Finance - 4 weeks ago

Doubts over third tranche of IMF loan

Reserves far below target

Staff Correspondent: Dollar crisis has been going on in the country for a long time. Various initiatives are not solving this problem. Central bank is selling a lot of dollars in the market to meet the import liability. As a result, Bangladesh is not able to maintain the desired target foreign currency savings or reserves. In such a situation, uncertainty has arisen regarding the disbursement of the third tranche of the International Monetary Fund (IMF) loan.
In August 2021, the reserves of Bangladesh Bank reached a maximum of $48 billion.
Now this reserve has come down to $24 billion. However, expendable reserves are even lower at $13.28 billion, according to the International Monetary Fund (IMF). Such a situation in the reserves has raised doubts about the receipt of $1.15 billion of the third tranche of the IMF’s $4.70 billion loan.
This is because the revised target for reserve maintenance in June was $14.80 billion. But the current reserve is $1.52 billion less than the target.
To fulfill this goal, the central bank has taken various steps including stopping the sale of dollars and buying dollars, said the concerned people.

On the other hand, it is said that the final decision regarding the loan may come at the IMF board meeting on June 24.
According to the latest data of Bangladesh Bank, the country’s total reserves are $24.78 billion. 19.52 billion as BPM 6. If we subtract $5.24 billion from current liabilities, the expendable reserve is $13.28 billion. Which is about $1.52 billion less than the target set by the IMF of $14.80 billion.
A senior official of Bangladesh Bank involved in reserve management said on condition of anonymity that the issue of the third installment will be raised in the board of the IMF on June 24. If the reserve target is not met, this installment may not be released. Reserves data has been provided to the IMF as of June 6. They were about $2 billion short of their target. Among these loans came from abroad. Another $900 million loan will come soon, including 500 million from the World Bank. Then the deficit will decrease. And this June only $40 million were sold. Direct purchase of dollars from the market continues as the IMF objects to buying dollars from banks through currency swaps. If $900 million of new loans are added, the reserve may cross $14 billion. However, the deficit will not be met. However, the central bank is determined to increase the reserves to get the third installment at any cost.
According to sources in the Ministry of Finance, the reserve target has been reset to $14.80 billion in this June as a condition of the IMF’s $4.7 billion loan. The deficit is more than one and a half billion. Bangladesh Bank will send the updated information of reserves on June 22. And if the target is not met, there may be trouble in getting board approval for the third tranche of $1.15 billion on June 24.
This is the former chief economist of the Dhaka office of the World Bank Zahid Hossain said that although the new target of the reserve is $14.80 billion, it is difficult to meet it. Because there is no balance in the country’s reserves from where foreign currency comes and goes. As a result, reserves could not be maintained. In such a situation, getting the third installment of the loan can’t be confirmed. However, due to progress in meeting other IMF conditions, the board may take a positive view on the loan.
According to a source of the Ministry of Finance, the reserve target at the end of September this year has been set at $14.89 billion and at the end of December $15.30 billion. Apart from this, the reserve target of $16.61 billion by the end of March 2025 and $19.44 billion in June of the same year has been set. Whereas the target of expendable reserves in December 2023 was $26.81 billion.
According to the data of Bangladesh Bank, the total reserve record in August 2021 was $48.06 billion. Which decreased to $24 billion in just 34 months. And expendable reserves stood at $13.5 billion.
According to Bangladesh Bank data, Bangladesh Bank has sold $9.84 billion from reserves in the current financial year despite the IMF’s hurdles. Which was $13.38 billion in the financial year 2022-23. And in the fiscal year 2021-22 it was $7.74 billion. In these three fiscal years, $30.86 billion have been sold from the reserve. On the other hand, Bangladesh Bank has collected $4.93 billion from commercial banks in the current financial year in the face of IMF’s objection.
It is reported that $476.27 million of the first installment of the $4.70 billion IMF loan came in February 2023. And as the second installment, about $681 million came in December last year. And the issue of the third installment discount is going to be taken up on the board on June 24 (Monday).

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