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Major conditions for $4.5b loan worked out - EN-vinnabarta

Major conditions for $4.5b loan worked out

Vinnabarta Desk
  • Update Time : Wednesday, November 9, 2022
  • 113 Time View

The visiting International Monetary Fund is going to conclude its mission on the proposed $4.5-billion loan after a meeting with finance minister AHM Mustafa Kamal today (Wednesday).

Finance ministry officials said that the meeting would be a courtesy one since major terms and condition of the proposed loans had already been worked out by both parties since the negotiation began on October 26.

The government has already increased fuel oil prices by some 50 per cent after seeking the biggest ever loan from the Washington-based lender in July to tide over the current economic crisis.

It has also increased the price of urea, a major ingredient among the agricultural inputs as the IMF has been recommending a cut in the amount of subsidy for prudent management of the national budget.

According to the finance ministry officials, they expect the first tranche of the proposed loan to be approved by the IMF by February.

The tranche worth about $1.5 billion will be utilised to maintain budget deficit in the current financial year that will come to an end in June.

Former Bangladesh Bank governor Saleh Uddin Ahmed noted that the availability of IMF loan would give some support to tackle the recent economic crisis aggravated by dollar shortage.

But the county needs to curb capital flights in the form of over-invoicing to address the acute shortage of dollar and check the falling forex reserve, he noted.

From a healthy $48 billion in August 2021 the country’s forex reserves fell below $35 billion on November 7, 2022.

On Tuesday, prime minister Sheikh Hasina urged all concerned to become frugal, avoid purchase of luxurious items, control expenditure and stop wastage as well as misuse of funds in the wake of global economic condition, according to the state-owned news agency BSS.

She gave the directives while chairing a meeting of the executive committee of National Economic Council in person.

The prime minister has put utmost importance on boosting agricultural production to tackle global food shortage predicted by a number of international bodies in the wake of war between Russia and Ukraine.

Finance ministry officials said that reserves would fall further as the central bank had already agreed to follow the international standard to calculate the country’s foreign exchange reserves sustaining a heavy pressure due to high import costs against falling export income and remittance since early of this calendar year.

The Bangladesh Bank, according to its officials, will wait for a suitable occasion to exclude over $7-billion loan extended to the exporters under the export development fund from the reserved.

Besides, the BB has initiated a move to hike interest rate as part of its negotiation with the IMF mission led by its chief Rahul Anand.

Policy Research Institute executive director Ahsan Mansur said that the interest rate cap at nine per cent on lending was increasing the flow of cheap money in the economy and pushing up inflation to a double digit.

The IMF has suggested bringing about changes to calculation of inflation and gross domestic product and also reforms to the banking sector for curbing bad loans that soared to Tk 1,25,257 crore in financial year 2021-22 against Tk 99,205 crore in FY21, of which state-owned commercial banks accounted for about 50 per cent of the total.

Ashan H Mansur lamented that the very suggestions had long been suggested by the economists and local think-tanks, but the government did not pay any heed to them.

The neighbouring country Sri Lanka facing bankruptcy due to over exposure to the international money market has also sought loans from the IMF.

Under a preliminary consensus the IMF has agreed to lend about $2.9 billion in loans to the cash-starved nation.

On October 29, the IMF said that the proposed loan would strengthen Bangladesh’s ability to deal with future shocks in its report on the ‘Regional Economic Outlook’.

The IMF in its report said that the war in Ukraine had dampened Bangladesh’s robust recovery from the pandemic and put pressure on its balance of payments.

Both the IMF and the World Bank have already predicted that the global financial uncertainty would persist throughout 2023.

The government has also sought $1.5 billion for balance of payments and another $1.5 billion from the IMF’s newly created Resilience and Sustainability Trust fund.

The IMF called the government decision to seek loans from it as a preemptive action.

It recommended that the government reduce tax waiver, rationalise duty structure and implement new customs and income tax acts to increase revenue.

It also wanted the revenue authority to become more tax compliant and increase the tax-GDP ratio that fell below double digit.

The IMF has also once again asked the government to introduce automatic price adjustment formula on power and energy.

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