Cenbank optimistic of $681m second tranche IMF loan approval by Dec
The International Monetary Fund (IMF) yesterday said it welcomes the progress of reform implementation and the authorities' continued commitment to undertake decisive policy actions, amid a challenging environment.
"The authorities have made substantial progress on structural reforms under the IMF-supported programme, but challenges remain. Continued global financial tightening, coupled with existing vulnerabilities, is making macroeconomic management challenging, putting pressures on taka and foreign exchange reserves," said Rahul Anand, division chief in the IMF's Asia and Pacific Department.
Meanwhile, the Bangladesh Bank has said it is optimistic that the IMF will approve the $681 million second tranche of its $4.7 billion loan during its board meeting on 11 December.
At a press briefing following the meeting with the visiting review team from the IMF, central bank spokesman Mezbaul Haque said Bangladesh had met four of six conditions set out by the IMF. The review team – sent to monitor how the initial funds from the first tranche of the $4.7 billion loan – held a meeting with the Bangladesh Bank today.
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The IMF also said it has reached a staff-level agreement with Bangladesh authorities on the policies needed to complete the first review of the fund-supported programme.
Rahul Anand said, "The Bangladesh authorities and IMF staff conducted discussions for the 2023 Article IV consultation and reached staff-level agreement on the policies needed to complete the first review under the ECF/EFF/RSF arrangements. The staff-level agreement is subject to IMF Management approval and Executive Board endorsement, which is expected in the coming weeks."
Completion of the first review will make available about $462 million under the ECF/EFF and about $219 million under the RSF, he added.
He also said near-term policy priorities should focus on containing inflation, softening the impact of these economic disruptions on the vulnerable, and building external resilience.
"We welcome Bangladesh Bank's decision to raise the policy rate by 75 basis points (bps) on 4 October. Further calibrated monetary policy tightening, greater exchange rate flexibility, and tight fiscal policy will help restore macroeconomic stability," the IMF official added.
According to the IMF, Bangladesh's growth is projected to stay at 6% in FY24, while inflation is projected to moderate to a little over 7% by end-FY24.
Forex reserves are expected to increase gradually in the near term and are projected to reach about four months of prospective imports in the medium term. However, uncertainties around the outlook remain high and risks are tilted to the downside, it said.
Rahul Anand, "Raising revenue is critical to create additional space for social spending and investment. Concerted tax policy and administration measures are needed to raise Bangladesh's low tax-to-GDP ratio in a sustainable manner. Rationalising subsidies, improving expenditure efficiency, and managing fiscal risks will allow for additional spending on social safety nets and growth-enhancing investment."
"Modernising monetary and exchange rate policy frameworks and improving FX management remain important to bolster external resilience. The introduction of the interest rate corridor system and the adoption of a unified single exchange rate are welcome steps. Building on these, Bangladesh Bank should continue to fully operationalize the interest rate targeting framework and gradually move to a flexible exchange rate regime," he added.
The IMF also said addressing banking sector vulnerabilities remains important to meet Bangladesh's growing financing needs.
Reducing non-performing loans of state-owned commercial banks, enhancing supervision, strengthening governance, and improving regulatory frameworks would increase financial sector efficiency. Developing domestic capital markets will help mobilise financing to support growth objectives, it added.
"Discussions also focused on the structural reform agenda to support the authorities' ambition to reach an upper middle-income status by 2031. Expanding trade, attracting more FDI, enhancing the investment climate, and raising women's economic participation are crucial to boost growth potential," IMF's Asia and Pacific Department division chief said.
"Given Bangladesh's high vulnerability to climate change, it is important to scale up resilient infrastructure investment, through climate-responsive public investment management and green public financial management reforms. Better management of climate-related risks will help enhance financial sector resilience and mobilise private climate finance," he added.
The IMF official further said the global lender is grateful to the Bangladesh authorities and other stakeholders for their hospitality and candid discussions.
The team held meetings with Finance Minister AHM Mustafa Kamal, Bangladesh Bank Governor Abdur Rouf Talukder, and other senior government and Bangladesh Bank officials. The team also met with representatives from the private sector, think tanks, bilateral donors, and development partners during their visit.
The IMF review team came to Bangladesh on 4 October to check on the progress and use of loan funds under Article IV of the IMF agreement.
The team laid out its final conditions for the release of the second tranche at the meeting on Thursday.
The Bangladesh Bank finalised the policy targets regarding the amount of net reserves, the rate of defaulted loans, the reduction of the inflation rate, and the market-oriented changes to the exchange rate by next June.
