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Will second IMF loan tranche be easily attained by Bangladesh?

by tbhdesk

Four out of six IMF loan conditions fulfilled
New IMF reserve conditions achievable
Continuous foreign exchange reserve growth expected

The International Monetary Fund (IMF) is relaxing loan conditions for Bangladesh. During the visit by the IMF mission, there has been a positive outlook regarding the disbursement of the second installment of a $681 million loan in favor of Bangladesh.

Bangladesh Bank Executive Director Majbaul Haque expressed hope that the second installment would be received in December, pending the decision at the IMF board meeting in that month.

Bangladesh has managed to fulfill four out of the six conditions of the loan agreement. Even if there is a failure to meet both remaining conditions, it will not hinder the release of the second installment.

As a result, the requirement to maintain net reserves of $26.8 billion by December is no longer in effect.

By the end of this year, reserves are expected to reach $18 billion, with a target of $20 billion by the following June, which will be enough for the IMF loan. Currently, actual reserves stand at just under $17 billion.

IMF’s position

The IMF mission, led by Rahul Anand, chief of the IMF Asia and Pacific Division, held meetings with various government departments over 15 days, concluding on Thursday with meetings with Finance Minister AHM Mustafa Kamal, Bangladesh Bank Governor Abdur Rauf Talukder, and Finance Secretary Dr Md Khairuzzaman Mozumder.

In a statement on the final day of the IMF meeting with the government on Thursday, the mission announced that a consensus had been reached with the Bangladesh government on various policies, marking the conclusion of the first review for the second installment of the loan disbursement.

The IMF acknowledged the challenging nature of the lending conditions and praised the steps taken by the government to address them, affirming its ongoing support to Bangladesh.

The IMF anticipates a continuous increase in Bangladesh’s foreign exchange reserves in the short term, with the medium-term goal of having reserves equivalent to four months of imports.

However, the organization also recognizes a high level of uncertainty and risk facing Bangladesh.

According to the IMF, achieving macroeconomic stability in Bangladesh requires both increasing revenue and enhancing spending efficiency. Moreover, addressing the impact of high inflation on the common people is crucial.

The IMF stresses the importance of addressing weaknesses in the banking sector to meet the growing financing needs, including reducing non-performing loans of state-owned commercial banks, increasing supervision, and strengthening governance in the entire banking sector.

Developing the internal capital market is also seen as vital to achieving growth targets.

The 11-member IMF delegation led by Rahul Anand will return to the United States to report on the new conditions.

To meet the new IMF conditions, reserves must increase by at least $1 billion in the next one and a half months and reach $20 billion by next June. In other words, an additional $3 billion must be deposited in the reserve within the next seven and a half months.

IMF approved a $4.7 billion loan in January to address the economic crisis in Bangladesh, with the first tranche of $47 million disbursed immediately. The second installment is expected in December, pending approval by the IMF Board of Directors on December 11.

What experts are saying?

In this context, former chief economist of the World Bank Dhaka office, Zahid Hossain, expressed optimism that there would be no obstacles to receiving the second installment of the IMF loan.

“Under the new agreement, there is no longer a requirement to maintain $26.8 billion in actual reserves by December. Even if the actual reserve falls slightly short of $18 billion, it is not expected to impede the disbursement,” he said.

Zahid Hossain believes that Bangladesh’s loan proposal can be swiftly approved by the IMF Board of Directors, as long as there are no complications or objections. However, any objection from a European or Western member of the IMF board could present a different scenario.

Dr Ahsan H Mansoor, executive director at the Policy Research Institute, emphasized that meeting the new IMF targets is achievable for Bangladesh, provided the government is willing to do so.

He highlighted the importance of government goodwill and the need to increase remittances through formal channels to bolster reserves.

Dr Ahsan said: “Maintaining political stability until December is crucial, and any political uncertainty or government instability could potentially delay the second installment. If elections are postponed or political uncertainties arise, the disbursement may be affected.”

Source: Dhaka Tribune.

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