Time Digital News: Bangladesh has secured a loan deal worth $4.5 billion from the International Monetary Fund but according to economists it alone cannot help overcome the current economic crises.
Stopping capital flight, containing revenue leakage, shunning unnecessary development projects and closing down costly rental power plants are necessary to tackle the current pressure on macro-economy, economists said while talking on Thursday, one day after the preliminary loan agreement between the two sides.
The economists, however, stated that the IMF loan to be disbursed in seven tranches over the period of next three years would give some assistance to the country’s balance of payments now under pressure due to shortage of foreign currencies, mainly the US dollar.
Former Bangladesh Bank governor Salehuddin Ahmed noted that the government must stop capital flight in the form of over-invoicing.
A comprehensive action plan along with implementation of the IMF loan programme is also imperative to bring back the economy on track, he added.
The macro-economy has been facing pressure due to shortage of foreign currency reserves which is getting worse with unabated capital flight against the backdrop of price hike of essentials like fuel oil, fertiliser and food in the global market in the wake of war between Russia and Ukraine since February.
The central bank has injected about $5.47 billion to banks since July of the current financial year to mitigate the shortage of foreign currency, but there are no signs of stability in the forex market.
Bangladesh suffered ‘value gap’ to the tune of $7.53 billion on average annually from 2008 to 2017 in its exports and imports due to misinvoicing, a major way of capital flight and duty evasion, according to the report ‘Trade-Related Illicit Financial Flows from 135 Developing Countries: 2008-2017’ released by the Washington-based think tank Global Financial Integrity in March 2020.
Economists said that although no specific conditions were yet to be made public, the IMF looked reasonable in underlining the essential tasks in the county’s banking sector for containing non-performing loans.
The IMF also wanted the Bangladesh Bank to strengthen the capital base of commercial banks, in troduce net-based method to calculate the foreign exchange reserves and remove interest cap to contain the flow of cheap money pushing up the inflation.
Many of the IMF recommendations had been suggested by leading economists of the country even before the pandemic in 2020 against the backdrop of clear signs of deterioration of the country’s macroeconomic indicators.
But the government did not pay much attention to those suggestions, said Policy Research Institute executive director Ahsan H Mansur.
He added that suggestions for maintaining accuracy of vital data like GDP, inflation and forex reserves had been overlooked by the government, but now the government had to agree with the IMF condition of correcting the forex reserve calculation by introducing the net-based disclosure.
The country’s revenue-GDP ratio is one of the lowest in the region a fact that needs to be changed for enhancing the government capacity to tackle crises generated internally and externally.
The IMF wanted higher tax mobilisation along with rationalisation of subsidy under the national budget.
The IMF mission chief, Rahul Ananad, at a press conference on the concluding day of the fortnight-long negotiation said that they were not against providing subsidy but it should be target-based.
Dhaka University economics department chairman professor Mahbubul Mokaddem Akash made cautious observations regarding the IMF loan, saying that conditions under the loan should be examined properly for the interest of the country.
He said that the first tranche worth about $447.48 million to be available in February would hardly meet the country’s requirement.
Professor Akash added that conditions under the six other installments would surface in future.
He noted that the countrymen should be watchful as the IMF was always against the agricultural subsidy on the pretext of subsidy rationalisation.
On Wednesday, the IMF said that it would support the country’s economic policies with a 42-month arrangement of about $3.2 billion in loans under the Extended Credit Facility and the Extended Fund Facility as well as about $1.3-billion loan under the Resilience and Sustainability Facility.
The loan would bear over two per cent interest rate on average and it would be repaid within 20 years while first 10 years would be a grace.
The interest rate of the current IMF loan is higher than 0.75 per cent charged by the World Bank on its IDA credits but still lower than the rate charged by commercial banks.
Centre for Policy Dialogue distinguished fellow Mustafizur Rahman said that the IMF loan should be utilised properly so that the county could pay back the loan timely with the high interest rate.
The researcher added that the government should not entertain any prescription from the IMF for reducing agricultural subsidy which would be crucial to maintain the country’s food security.
Mustafizur Rahman, however, said that the IMF loan would help the country receive loans from other multilateral lenders without much effort.
SK
