Bangladesh has reached a pact with the International Monetary Fund that would allow the country to receive further funds under a $4.7 billion loan package.
(Bloomberg) — Bangladesh has reached a pact with the International Monetary Fund that would allow the country to receive further funds under a $4.7 billion loan package.
A team from the IMF reached a staff-level agreement on the policies needed to complete the first review of the loan program, the Washington-based lender said in a statement after concluding a visit to the country Thursday. The pact is subject to approval from the IMF board and will pave the way for release of $681 million worth of loans.
The funds will be key to cushioning Bangladesh’s economy from headwinds amid a global slowdown and elevated commodity prices. Rating agencies, including Moody’s, had slashed Bangladesh’s credit rating deeper into junk territory, citing a deteriorating external position.
The South Asian nation has made substantial progress on structural reforms, but global financial tightening, coupled with existing vulnerabilities, is making “macroeconomic management challenging, putting pressures on the taka and FX reserves,” IMF’s Bangladesh mission chief Rahul Anand said.
To tackle the challenges and restore economic stability, Bangladesh will need further monetary tightening, a neutral fiscal policy, and greater exchange rate flexibility, he said.
Bangladesh expects approval for the disbursement of the funds at an IMF board meeting in December, central bank spokesman Mezbaul Haque told reporters at a media briefing in Dhaka.
Authorities have hiked taxes, removed subsidies and allowed the taka to float freely to meet the key prescriptions from the IMF to unlock more money. However, the nation missed key targets on foreign currency reserves and revenue collection.
Bangladesh’s forex stockpile dropped to $21.1 billion as of Oct. 11, covering about 4 months of imports and way below the IMF target of $25.3 billion. Its tax revenues fell 150 billion taka ($1.36 billion) short of the target set for the fiscal year ended June.
“Raising revenue is critical to create additional space for social spending and investment,” Anand said, adding that a concerted tax policy and administrative measures will be needed to raise Bangladesh’s low tax-to-GDP ratio in a sustainable manner.
The funds will also ease pressures on Prime Minister Sheikh Hasina, who is facing calls to resign and give way to a caretaker government to ensure free and fair polls. The largest opposition group, the Bangladesh Nationalist Party, will hold a street rally in Dhaka on Oct. 28 to expand protests against the government. Bangladesh is set to hold elections in January next year.
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