Published: 12:35 PM, 12 April 2023
The International Monetary Fund (IMF) is sending its staff consultation mission to Dhaka almost three months after approving a loan proposal of USD 4.7 billion to Bangladesh. The mission will discuss the conditions of regarding utilisation of the funds sanctioned as budget-assistance. The discussions will also include credit programme. IMF Asia and Pacific Division Head Rahul Anand is likely to lead this meeting as before. The team will consist of three to four members. Sources in the finance division of the finance ministry informed Prothom Alo of the matter.
According to sources, the IMF mission will hold meetings with various government agencies in Dhaka from 25 April to 2 May. These will include the finance division of ministry of finance, the Finance Institution Division, the Economic Relations Division (ERD), Bangladesh Bank and the National Board of Revenue (NBR).
The IMF approved a USD 4.7 billion loan proposal for Bangladesh on 30 January. It released the first tranche, USD 476.27 million after three days. The entire amount of the loan will be paid in seven instalments in three and a half years until 2026. Currently there are six more instalments left.
A senior finance division official said IMF usually reviews various aspects of meeting the conditions before releasing each tranche. Accordingly, an IMF team will visit Dhaka in September to review the compliance with loan conditions before disbursing the second tranche.
Former finance secretary Mahbub Ahmed told Prothom Alo, "The IMF mission this time will discuss the time-bound conditions related to the loan programme including budget-assistance. Some conditions are to be met between next June and September. They may inquire as to what initiatives Bangladesh has taken so far in this regard. But Bangladesh Bank, Financial Institutions Division and NBR have already taken some initiatives, which we have been speaking of for many years.”
According to the sources of Bangladesh Bank, IMF's Dhaka office chief (resident representative) Jayendu Dey sent a letter to various organisations last week informing them about the visit of the IMF's staff consultation mission. In the letter, he requested the heads of departments to prepare an updated report of Bangladesh's preparations to meet the conditions specified by the IMF against for the loan programme.
Meanwhile, when contacted by Prothom Alo, Jayendu Dey, refrained from commenting on the matter.
Bangladesh has to meet 38 conditions to receive IMF loan. Most of the terms are related to the financial sector. The financial sector again significantly comprises the banking sector, a large part of which is under the central bank.
It is learned that the IMF mission will discuss introducing market-driven exchange rate of the dollar in Bangladesh, introducing the actual usable reserve accounting system and the risk-based supervision system of the banks by next June, publishing the bad loan information of the banks every year, bringing the rescheduled loans of the banks as defaulted loans, announcing the monetary policy twice a year and so on.
This year's mission will inquire about the progress in enacting five laws including the latest situation of state-owned banks, their risk management, recapitalisation, bad loans, liquidity situation, foreign exchange shortage, amendments to the Bank Companies Act and Finance Companies Act and enacting a bankruptcy act.
Bangladesh is one of the countries in the world where the tax-GDP ratio is low. For this reason, sufficient amount of funds cannot be invested in the necessary sectors in this country. IMF has asked to fix the strategy of tax collection as a condition of loan approval. The institution has promised to provide technical assistance in this regard. This must be completed before the first review. The mission would like to know what NBR has done in this regard after receiving the first instalment.
A major condition for the NBR is to reduce the amount of duty-tax exemptions. Another requirement is to set up a risk management unit in the customs and VAT department. According to NBR sources, currently NBR provides tax exemptions of Tk 2.5 trillion on an average annually. The IMF is in favour of increasing the government's capacity to spend in various sectors by gradually reducing these tax exemptions. These reforms will be launched in the next financial year 2023-24 and should be completed by the financial year 2025-26.
Former IMF official and executive director of Policy Research Institute (PRI) Ahsan H Mansur told Prothom Alo that usually an IMF mission comes to Dhaka to discuss budget-assistance before every budget. Beside budget assistance the issue of meeting the loan condition will be included in the discussion this time as the loan programme has been ongoing. They will now see how the next budget is compatible with the terms of the loan programme. Because of this, the IMF mission this time is also important, no matter how small it is.”
*This report, originally published in Prothom Alo print edition, has been rewritten in English by Farjana Liakat