IMF team arrives Dhaka
Mahfuz Emran: As a condition of International Monetary Fund (IMF) loan, Bangladesh should have foreign exchange reserves of $24.46 billion ($2446 crore) by next June. But at the moment the reserve stands at $31.18 billion (3118 crore) and the usable reserve is $2318 million. Ahead of the ACU (Asian Clearing Union-ACU) payment, more than $170 million will fall.
Therefore, the government may face questions regarding the fulfillment of the conditions given by the IMF regarding the account of reserves. In such a situation, a delegation of this international donor organization arrives Dhaka yesterday for a seven-day visit. Apart from the reserve, it will also be asked how much there is in the financial, revenue and administrative sector reform announcement as a loan condition in the 2023-24 fiscal year budget. Before leaving Bangladesh on May 2, the IMF delegation will hold a series of meetings with the Department of Finance, Department of Internal Resources, NBR and other concerned authorities.
According to sources, during the visit, the team will review the impact of the second phase of fuel price hike on the economy and how much the government’s fuel imports have decreased as a result of management measures.
However, the government has already increased the price of fertilizers to keep the overall subsidy within the IMF prescribed limits. The price of fuel oil will be adjusted with the international market price every three months from September. The Ministry of Finance will reduce the amount of net subsidy in the next financial year compared to the current financial year.
Besides, there is a condition to present the draft of the Bank Company Act in the form of a bill in the National Parliament before June. The draft has already been approved by the cabinet. The finance ministry will raise it in the form of a bill in the coming budget session. Will be asked about this.
Sources also said that the IMF delegation is visiting Dhaka to check the progress of the loan conditions. $4.7 billion (4.7 billion) in loan approvals from the company. Now they will be asked to know the progress of implementation of reform promises within the stipulated time. In addition, there will be a discussion on how much reform should be done to get the second installment in November.
After this visit, the IMF delegation will come for another observation in September. At that time reporting on the progress of implementation of the latest conditions and based on this the second installment of the loan will be disbursed. The IMF will disburse the loan in seven installments until 2026. The first installment of $476.2 million was disbursed on January 30.
A senior official of the finance department involved in this process said that the response to the progress of financial and revenue sector reforms has been prepared. The IMF team expects to be satisfied with the overall progress in implementing loan conditions. According to him, the bank
Corridors will be accepted at interest rates on loans. The Governor of Bangladesh Bank has already said that the central bank is working on it. If this corridor is adopted, the cap on current interest rates will be lifted. As a result, the interest rate will increase compared to the present. Besides, market-based exchange rate will be established. And these are likely to be effective from July.
When asked, the former chief economist of the Dhaka office of the World Bank Zahid Hossain told that the amount of foreign exchange reserves should be increased to $24 billion by next June. But it has not yet reached that stage. June is still two months away. The possibility of reaching the reserve at that time is less. And failure to meet the conditions will require a clearance from the company’s stop management system.
In order to seek normality waiver, the company can ask for lifting the loan interest rate cap, undertaking to make the currency exchange rate market-based. He also said that according to the conditions of the IMF, revenue income should be increased by 0.5 percent of the GDP in the next financial year. According to him, there is a lag in foreign exchange reserves and revenue collection as per loan conditions. How they will meet, is now a matter to be seen. He said that Bangladesh Bank is working on the effective corridor on loan interest rates.
We hope that the government promises that when the corridor system will be effective, how will the account of reserve deficit be reconciled and how the administration will be reformed in revenue collection.
Meanwhile, the IMF delegation arrives Dhaka to see how much financial, revenue and administrative sector reforms are announced to meet the IMF’s loan conditions in the next budget, said former IMF official Dr. Ahsan H. Mansoor. He said that the loan conditions are now slowly being implemented.
A revenue collection target must be fixed. Revenue collection targets will not be achieved due to lack of preparation of government due to consideration of economic situation. He also said that the government should achieve the foreign exchange reserve target. Reserves are below current targets. It should be increased. It remains to be seen whether the management of reserves will be market based. Because, the government does not believe in market-based system.
This economist thinks that the IMF will assess the extent to which the reform of the foreign exchange reserve account and budgetary conditions is announced during this visit.
A Finance Department source said the visiting IMF delegation will be presented with a concrete action plan to raise reserves to $24.4 billion by June and raise the tax-GDP ratio to 0.5 percent. The finance department believes that budget support has been sought from donors World Bank, ADP, JICA and Korea. They are likely to receive between one and a half to two billion US dollars, which will add up to help realize the net account of reserves.
Meanwhile, according to IMF’s conditions, an additional Tk 16,000 crores of revenue should be generated with ongoing growth in the income tax, value added tax (VAT) and customs sectors. NBR has already formulated a strategy paper for this additional collection. It is said that tax exemptions in income tax, VAT and customs sectors will be reduced in the next budget to collect additional revenue.
Initiatives will be taken to increase tax rates, expand tax nets, introduce Document Verification System (DVS) to strengthen audit activities of institutional taxpayers, expand tax zones, reduce the cost of tax collection. Besides, VAT collection will be increased by strengthening VAT audit, speeding up activities of VAT intelligence to prevent VAT evasion, exchange of information of organizations with income tax department.
VAT rates will also be restructured, including removal of exemptions for luxury goods, imposition of VAT at the sales level of mobile phones. And this strategy paper will be presented to the visiting IMF delegation.
There are about 38 conditions in the IMF loan agreement. Among these, the organization will check the implementation situation of those that have to be implemented between June and September. Besides, the organization will also review the initiatives in the next budget to implement the conditions that the government has promised to implement by June 2024.
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