by Rejaul Karim Byron in The Daily Star, Jan 7, 2023
Bangladesh has agreed to as many as 30 conditions of the International Monetary Fund (IMF) for the $4.5 billion loan programme that includes some key structural reforms stalled for years.
The loan proposal will be placed at the IMF executive board at the end of January for approval.
Before that, IMF’s Deputy Managing Director Antoinette Monsio Sayeh will arrive in Dhaka on a fact-finding mission on January 16. She will meet the finance minister, the Bangladesh Bank governor and other top government officials during her three-day visit.
Sayeh’s visit to Bangladesh is important as she is likely to preside over the next IMF board meeting where she would be explaining the current condition of Bangladesh and the rationale for the loan to the board members, according to finance ministry officials involved in the loan negotiations.
The government has reached a preliminary agreement with Rahul Anand, IMF Mission Chief to Bangladesh, over the loan programme.
After detailed discussion and communication, the conditions of the loan programme have been finalised last month, according to finance ministry officials.
“We have agreed on the IMF loan programme. Now it will be placed on the IMF board. I hope, the loan will be approved,” Finance Minister AHM Mustafa Kamal told The Daily Star on January 1.
If the IMF board approves Bangladesh’s loan application in January, the first instalment of $447.8 million would be released the following month. It will be followed by six equal instalments of $659.18 million subject to fulfilling the timebound reform measures laid out in the loan proposal.
The 42-month loan programme has 30 conditions that fall under three categories: quantitative performance criteria (QPC), structural performance criteria (SPC) and general commitment.
The Washington-based multilateral lender tagged three binding conditions.
The mandatory conditions — which are specific, measurable targets called QPCs — would be a minimum level of net international reserves and domestic revenue collection and a ceiling on the government’s budget deficit, The Daily Star has learnt from people involved in the negotiations with the IMF staff mission to thrash out the terms for the loan.
The government must meet the stipulated targets for the respective QPCs before the IMF releases the instalments.
The targets for the three QPCs, which were set by the IMF with the view to building on the country’s reserve buffer and creating fiscal space, would progressively increase with each instalment.
At present, net foreign currency reserves stand at about $32.6 billion — which is enough for three-and-a-half months’ import bills.
More reserves are needed going forward and the IMF programme will catalyse additional financing from other developmental and bilateral partners, which will prop up the dollar stockpile.
This fiscal year alone, the Bangladesh Bank has supplied more than $7.5 billion to the market to support the exchange rate, while the import bill averages $6 billion a month, so the loan amount, which would come over a three-year period, would not ease the pressure on the foreign exchange reserves.
Creditors — whether commercial banks or foreign governments — often consider a prior arrangement with the IMF as a sign of a country’s creditworthiness.
The reforms will shore up the foreign currency reserves in the short-term and create the fiscal space for higher social spending and mitigate the effects of climate change in the medium- to long-term.
Alongside, there are 16 SPCs, which are reform measures that often are non-quantifiable but are critical for achieving programme goals and are intended as markers to assess programme implementation.
One of the SPCs is the passage and implementation of the draft Income Tax Act, 2017, which was approved in the cabinet in 2017.
The draft, formulated to make the income tax law easier and more effective, is yet to be sent to the parliament to make it a law.
There is a possibility to send the draft law to the ongoing parliament session, said finance ministry officials.
The government allows a lot of tax exemptions to different sectors.
However, the IMF wanted a study of how many tax exemptions the government allows before the next budget. And over the course of the loan programme, the tax exemptions would be pared back, officials said.
The government should set a floor on how much it would spend from the total budget on social spending: education, health and social safety net. And, government staff’s pension and interest on savings certificates must be left out of the social safety net budget.
A pricing formula linking the local prices to those prevailing in the global market should be implemented in the energy sector, including for fuel.
The government has taken an initiative to amend the Bank Company Act and it was approved in the cabinet in 2021. The draft defined the wilful loan defaulters. The IMF set a timeline to pass the bill in parliament and its implementation.
Financial ministry officials said the draft is now in the law ministry for its vetting.
The formation of an asset management company to manage bad loans is another condition that the IMF laid out in the loan proposal. It has also outlined a timeline for the government to gradually reduce the bad loan and introduce a market-based bank interest rate and exchange rate, said officials.
https://www.thedailystar.net/news/bangladesh/news/45-billion-loan-programme-dhaka-agrees-30-conditions-imf-3214361
