IMF accepts $4.5 billion loan to Bangladesh; First installment scheduled for next February: Minister of Finance

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

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

“The amount will be disbursed in seven installments until December 2026. The first installment, $447.78 million, of the loan will be settled in February next year. The remainder will be $659.18 million each.”

“The interest rate of the loan will depend on the market rate at the time of maturity. The Ministry of Finance has calculated that the rate will be around 2.2%.

According to an IMF press release issued in this regard, “IMF staff and Bangladeshi authorities have reached a staff-level agreement to support Bangladesh’s economic policies with a 42-month arrangement of about 3.2 billion under the Extended Credit Facility (ECF) and Extended Financing Facility (EFF) as well as about $1.3 billion under the Resilience and Sustainability Facility (RSF).

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

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

Conditions

The IMF laid down certain conditions when granting the loan, informed the governor of the Bank of Bangladesh, Abdur Rouf Talukder.

Bangladesh Bank Governor Abdur Rouf Talukder said: “The IMF had recommended removing the fertilizer subsidies. But Bangladesh has convinced the IMF that the country has to pay the subsidy because we need fertilizer to ensure food security.

The IMF also recommended that fuel oil prices be adjusted periodically, based on the international market price, so that if the price of oil drops in the international market in the future, it can be similarly reduced in the country.

The organization recommended closing the capital shortfall of banks and complying with Basel III.

The IMF also asked to see Bangladesh’s net reserve, as opposed to the country’s gross reserve.

Bangladesh’s gross reserve currently stands at $34.4 billion. However, the net reserve will be lower according to the calculations, which is around $26 billion.

Bangladesh has agreed to show the net reserve.

Over the past four years, regardless of the renovations that Finance Minister Mustafa Kamal has committed to when allocating the country’s budget, as well as the Prime Minister’s commitment to climate control measures, the IMF recommended turning all this into reality.

Measures to be taken by the government

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

“The IMF has advised to reduce non-performing loans and increase revenue collection,” the finance minister said.

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

“We took the initiative to set up EFD machines for VAT collection. To date, 6,732 machines have been installed,” added the Minister.

He also said that 60,000 more machines will be installed next year and 240,000 machines will be installed over the next four years; fuel oil prices will be adjusted from time to time with the international market price, so that if the oil price drops in the international market in the future, it can be reduced in the same way in the country; the task of determining the exchange rate should be left to the market; the issue of climate change risk must be seriously taken into account when formulating the government’s development plan, implementing the annual development program and carrying out development projects in this regard; disaster risk financing should be provided, including disaster relief and more.

Discussing development, Rahul Anand, who is heading the IMF delegation currently visiting Bangladesh, said: “The authorities of Bangladesh and the IMF team have reached a staff-level agreement to support the authorities’ reform policies. under a new 42-month FEC/EFF. deal of approximately $3.2 billion and a concurrent RSF deal of approximately $1.3 billion.

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

“Even as Bangladesh addresses these immediate challenges, addressing long-standing structural issues remains essential, including threats to macroeconomic stability from climate change. To successfully graduate from least developed country status and achieve the middle-income country status by 2031, it is important to build on past successes and address structural issues to accelerate growth, attract private investment, improve productivity and build climate resilience.

“In this context, and following the first steps to maintain macroeconomic stability, the authorities have developed a program – supported by the IMF – which should strengthen its external position, reduce vulnerabilities and prepare the ground for robust and inclusive growth. -increasing much-needed social, development and climate spending Key elements of the program include:

Create additional fiscal space – Greater revenue mobilization and rationalization of expenditures will allow for increased growth-enhancing spending. The impact on vulnerable people will be mitigated by higher social spending and better targeted social protection programs.

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

Strengthening the financial sector – Reducing financial sector vulnerabilities, strengthening supervision, improving governance and the regulatory framework, and developing capital markets will help mobilize finance to support growth objectives.

Stimulate 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 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, Finance Secretary Fatima Yasmin and other senior government and Bangladesh Bank officials. He also met with representatives of the private sector, bilateral donors, think tanks and development partners.

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