Why IMF approves $4.7b against Bangladesh's loan proposal for $4.5b
Many people have questions about why the IMF approved an additional $200 million in loan to Bangladesh against its proposal for $4.5 billion.
The Business Standard spoke to relevant officials at the Ministry of Finance to clarify and learned that the additional amount came thanks to the stronger position of IMF's Special Drawing Rights (SDR) against the dollar.
Currently one SDR is equal to $1.35 which fluctuates over time.
Given the calculation, Bangladesh's debt will go up if dollar depreciates further in the future.
However, if dollar strengthens against the SDR, the amount of debt in dollars will also decrease.
Finance Ministry officials said Bangladesh had proposed a total SDR3.5 billion in loan from the IMF.
At the time the loan was proposed, the dollar rate against the SDR amounted to $4.5 billion. Now SDR3.5 billion is equal to $4.7 billion due to the depreciation of dollar.
The IMF approved a loan of SDR3.5 billion for Bangladesh, which Bangladesh will accept in US dollars. It is now equivalent to $4.7 billion in US dollars.
The IMF said the SDR is an international reserve asset created by the IMF to supplement the official reserves of its member countries.
The SDR is not a currency. It's a potential claim on the freely usable currencies of IMF members. As such, SDRs can provide a country with liquidity.
A basket of currencies that defines the SDR are the US dollar, Euro, Chinese Yuan, Japanese Yen and the British Pound.