IMF agrees $4.5 billion loan to Bangladesh; First installment due next February: Treasury minister

The International Monetary Fund (IMF) has agreed to lend Bangladesh $4.5 billion in seven installments, says Finance Minister AHM Mustafa Kamal.

“We get the loan exactly as we wanted. A total of $4.5 billion will be lent to Bangladesh,” he told media on Wednesday at a briefing in Dhaka.

“The amount will be paid in seven installments by December 2026. The first installment, $447.78 million, of the loan will be repaid in February next year. The remainder is $659.18 million each.”

“The interest rate of the loan depends on the market interest rate at the time of maturity. The Treasury calculated that the interest rate would be around 2.2%.

According to a related IMF press release, “IMF staff and the Bangladesh authorities have reached a staff-level agreement to align Bangladesh’s economic policies with a 42-month agreement for approximately US$3.2 billion under the Enhanced Credit Facility (ECF) and the Extended Fund Facility (EFF) and approximately $1.3 billion under the Resilience and Sustainability Facility (RSF).

ECF’s payment period is 5.5 years and the payment period is 10 years. The EFF grace period is 3.5 years and the payment period is also 10 years.

Meanwhile, the grace period for RSF is 10 years and the payment period is 20 years.

conditions

The IMF placed some conditions in providing the loan, Bangladesh Bank Governor Abdur Rouf Talukder said.

Bangladesh Bank Governor Abdur Rouf Talukder said: “The IMF had recommended that fertilizer subsidies be withdrawn. But Bangladesh has convinced the IMF that the country needs to pay the subsidies as we need fertilizer to ensure food security.”

The IMF also recommended that fuel oil prices be regularly adjusted to the international market price, so that in the event of a future drop in the price of oil on the international market, the price of oil can be reduced in the same way in the country.

The organization recommended closing the capital gap at banks and complying with Basel III.

The IMF also requested that Bangladesh’s net reserves be contrasted with the country’s gross reserves.

Bangladesh’s gross reserves are currently US$34.4 billion. However, the net reserve, according to the calculations, will be lower, amounting to about $26 billion.

Bangladesh has agreed to report the net reserve.

For the past four years, the IMF has recommended putting into practice all of the renovations that Finance Minister Mustafa Kamal committed to during the country’s budget allocation, as well as the PM’s pledge to take action on climate control.

Steps to be taken by the government

According to the IMF press release, “Bangladesh’s new funded program aims to maintain macroeconomic stability and support strong, inclusive and green growth while protecting the vulnerable. The RSF is expected to provide affordable, long-term financing to support Bangladesh’s climate investment needs, catalyze climate finance and ease balance of payments pressures from import-intensive climate investment.”

“The IMF has recommended reducing non-performing loans and increasing revenue collection,” the finance minister said.

Government revenue collection will be increased by strengthening revenue system reform and improving tax administration efficiency, he added.

“We took the initiative to set up EFD machines for VAT collection. 6,732 machines have been installed so far,” the minister added.

He also said that 60,000 more machines will be installed in the next year and 240,000 machines will be installed in the next four years; Fuel oil prices are adjusted to the international market price from time to time, so if the oil price falls in the international market in the future, it can be reduced in the same way in the country; the determination of the exchange rate should be left to the market; the issue of climate change risk should be seriously considered when formulating the government’s development plan and implementing the annual development program and carrying out development projects from this point of view; Disaster risk funding should be planned, including disaster relief and more.

Commenting on the development, Rahul Anand, head of the IMF delegation currently visiting Bangladesh, said: “The Bangladesh authorities and the IMF team have reached a staff-level agreement to review the authorities’ reform policies under a new 42-month ECF/ EFF to support approximately $3.2 billion agreement and a concurrent RSF agreement for approximately $1.3 billion.”

“Bangladesh’s robust economic recovery from the pandemic was interrupted by Russia’s war in Ukraine, leading to a sharp widening of the current account deficit, a rapid decline in foreign exchange reserves, rising inflation and slowing growth,” Rahul added.

“Even as Bangladesh addresses these immediate challenges, addressing longstanding structural issues remains critical, including the threat to macroeconomic stability posed by climate change. To successfully exit least developed country status and reach middle-income status by 2031, it is important to build on, capitalize on past successes and address structural issues to accelerate growth, attract private investment, increase productivity increase and strengthen climate resilience.

“Against this backdrop, and after initial measures to maintain macroeconomic stability, the authorities have put together an IMF-backed program designed to strengthen their external position, reduce vulnerabilities and prepare the ground for a robust and inclusive growth pick-up by beefing up much-needed social , development and climate spending. Key elements of the program include:

Creating Additional Fiscal Space – Greater revenue mobilization and spending rationalization will allow for higher growth-enhancing spending. The impact on the vulnerable will be mitigated by increased social spending and more targeted social safety net programs.

Controlling inflation and modernizing the monetary policy framework – Monetary policy will be guided by the inflation outlook. The modernization of monetary policy will promote macroeconomic stability and improve policy transmission. Increased exchange rate flexibility will help cushion external shocks.

Financial Sector Strengthening – Reducing the vulnerability of the financial sector, strengthening supervision, improving the governance and regulatory framework, and developing capital markets will help mobilize financing in support of growth objectives.

Increasing Growth Potential – Creating an enabling environment for expanding trade and foreign direct investment, deepening the financial sector, developing human capital, and improving governance to improve the business climate will increase growth potential.

Building climate resilience – Strengthening institutions and creating an enabling environment will help achieve climate goals, support large-scale climate investments and mobilize additional climate finance.

The IMF team met with Finance Minister AHM Mustafa Kamal, Bangladesh Bank Governor Abdur Rouf Talukder, Financial Secretary Fatima Yasmin and other senior government and Bangladesh Bank officials. It also met with representatives from the private sector, bilateral donors, think tanks and development partners.

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