Export development fund downsizes for IMF condition

Mahfuja Mukul: Bangladesh Bank is reducing the size of the Export Development Fund (EDF) which is made up of reserve money consistently as per the conditions of the International Monetary Fund (IMF). In the meantime, $1.8 billion has been reduced from $7 billion to $5.2 billion in three rounds. In addition, the debt has also been tightened.
However, considering the global crisis, Bangladesh Bank formed an export-assistance fund of Tk 10,000 crore in January this year to keep the export sector strong. The fund was created to reduce pressure on the Export Development Fund (EDF), which was originally made up of reserve dollars. In the last three months, exporters have shown no interest in availing Export-Assistance Fund loan facilities. Basically, they are more interested in borrowing from dollar funds.
Exporters said, we used to get loans in dollars and pay import costs in dollars. There was no problem. But now I will get a loan from the bank in taka, then I have to buy dollars from other banks, which are not easily available at present. So, no interest in EFPF funds. Besides, many exporters are not fully aware of this fund, hence taking less loans.
It is known that in the last three months, nearly Tk 3,000 crores of loans have been disbursed from the EFPF fund. Of this, two thousand Tk 700 crores have been taken by five Islamic banks and one state-owned bank in liquidity crisis.
BKMEA Executive President Mohammad Hatem said that banks are trying to give loans to exporters from their own sources instead of giving money from EFPF. The interest rate on loans from banks’ own funds is high. If banks take loans from EFPF as per the demand of exporters, its utilization will increase manifold. Also, many exporters are not fully aware of this fund. But this fund was supposed to be used like EDF.
The central bank has guidelines on who can borrow from the new export-support fund. It has been said that local export-oriented industries can take financing from the fund against import of raw materials for production or procurement from the local level. This fund will be available for both direct and indirect exporters. The funds can be used to import raw materials for production through exporter’s back-to-back letter of credit.
Local manufacturers and suppliers can take loans from this fund to import raw materials as opposed to back-to-back letters of credit.
After taking a loan from this fund, if the export price is not recovered against the export of the product, the concerned institution will not get a new loan. Before giving new loan, the customer has to pay minimum 50% of the deposit against the previous back-to-back loan in cash. If the concerned customer has taken loan from any other fund of Bangladesh Bank for import of raw materials against the export letter of credit, he will not get any type of loan under this fund.
Some exporters said that it is not right to reduce the size of EDF now. Because opening a Back-to-Back LC will make it very difficult to get dollar shortages. This may cause a blow to exports.
Meanwhile, EDF has been very strict in obtaining loans. There is also a lot of scrutiny in terms of giving new loans. Penalty interest has been provided for failure to repay on time. Again, the loan limit of a single organization from EDF has been reduced by $5 million at all stages.
Bangladesh Bank officials said that the central bank is doing this so as not to face problems in getting the second installment of the IMF loan. Because Bangladesh currently calculates its foreign exchange reserves in a way that is not compatible with the IMF. One of the conditions of the company’s $4.7 billion loan is that the reserve account must be internationally compatible. And for this reason, the money provided to various funds including EDF cannot be shown in the reserve.
All things considered, net reserves should be $24.46 billion next June. $25.32 billion in September and $26.81 billion in December. So, these decisions have been taken to maintain the net reserve.
Bangladesh Bank officials said that not only EDF loan adjustment, but product price is being verified through regular monitoring. As a result of verification, it has been possible to reduce import costs much more than before.
Recently, Bangladesh Bank’s Executive Director and Spokesperson Majbaul Haque told that previously $8.5 billion were being spent to bring the products, now loans for these products are being opened with $5.5 billion. Dollar costs are falling due to price checks on imports. Spending more dollars has reduced bringing in goods.
He also said that Bangladesh Bank will start monitoring whether the products being exported are being priced correctly or not. The central bank believes that this will reduce money laundering under the guise of exports. As a result, the hundi system in expatriate income will also decrease.