IMF mission to visit Dhaka early Dec to assess economy

With the country facing numerous economic challenges – including high inflation, sluggish revenue collection, a fragile banking sector, and a lack of investment – there is fresh optimism as an International Monetary Fund (IMF) mission prepares to visit Bangladesh.

The mission will evaluate the country’s economic conditions before releasing the fourth tranche of the US$4.7 billion loan, finalised under multiple stipulated conditions.

A 10-member team from the IMF is scheduled to visit Dhaka in the first week of December to hold meetings with the Ministry of Finance, Bangladesh Bank, the National Board of Revenue, and the Planning Commission, aiming to review loan compliance and various aspects of the financial sector.

The visit, first one since the interim government assumed office on 8 August, will be led by Chris Papageorgiou, chief of the Development Macroeconomics Division at the IMF’s Research Department.

In October this year, Finance Adviser Dr Salehuddin Ahmed and Bangladesh Bank Governor Dr Ahsan H Mansur attended the IMF’s annual general meeting, where a request for an additional $3 billion was made to cope with the pressures of changing times. They remain hopeful of securing $1 billion from this request.

How Bangladesh fared with IMF conditions

Among IMF’s several conditions in releasing loans, two major requirements are increased revenue collection and maintaining a specific level of reserves—both of which Bangladesh has failed to meet.

As per the IMF target, the government was supposed to collect Tk394,530 crore in taxes by June this year. According to the Finance Division data, the government’s revenue collection stood at Tk369,209 crore—falling short of the target by Tk25,321 crore.

Secondly, as per the initial condition by the IMF, Bangladesh was supposed to maintain a net international reserve (NIR) of $20.11 billion by 30 June. Later, the lender revised the target, lowering it to $14.79 billion. As of 30 June, Bangladesh reported an NIR of $16.7 billion.

Despite not fulfilling all the conditions, Bangladesh has received three tranches of the IMF loan. The fourth tranche will be released based on an evaluation of the country’s compliance with the IMF’s conditions up to June.

What experts say

Dr Zahid Hussain, former lead economist of the World Bank’s Dhaka office, told the Daily Sun that Quantitative Performance Criteria (QPC) is very important for the loan.

“The fourth instalment will be released based on the performance of June. Because the IMF had reduced the target, the reserves stayed above the target on 30 June. Although the minimum revenue target has been achieved, the target of increasing revenue has not been met.”

“In the banking sector reform, the central bank has issued a master circular changing the composition of defaulted loans. Other targets have been achieved fairly. The IMF will review these. So far, I do not see any major obstacles in releasing the fourth instalment,” he added.

Dr Mustafa K Mujeri, former chief economist of Bangladesh Bank and executive director of Institute for Inclusive Finance and Development told the Daily Sun that, in most cases, the progress cannot be deemed good as per the criteria set for the fourth instalment.

“Here, defaulted loans are a big issue as NPLs have increased a lot. There has been no success in the area of inflation either, and also no progress in the reform of weak banks. In other words, we have not achieved much success in fulfilling the conditions given by the IMF.”

However, the initiatives taken to solve these problems as well as what other initiatives need to be taken must be communicated to the IMF team. It must be explained that the government and Bangladesh Bank are taking various steps to fulfil the IMF conditions, Dr Mustafa added.

The IMF approved the $4.7 billion loan in January 2023 to help Bangladesh address a foreign currency crunch.

Bangladesh received the first instalment of $476 million in February 2023, followed by $681 million in December and $1.15 billion in June this year.

If everything goes well, the fourth tranche of the loan will be disbursed and it will be crucial to highlight the changed circumstances and limitations, according to analysts.