A delegation from the International Monetary Fund (IMF) is scheduled to arrive in Dhaka on 5 April to assess progress on various conditions before the disbursement of the fourth and fifth instalments of the loan. According to sources from the Finance Division of the Ministry of Finance, the team will engage in continuous discussions with various government departments from 6 April for a two-week period.
During this visit, the IMF delegation is expected to hold meetings with the Finance Division, the National Board of Revenue (NBR), the Power Division, the Power Development Board, the Bangladesh Energy Regulatory Commission (BERC), and the Energy and Mineral Resources Division.
The visit will conclude with a press briefing on 17 April. Additionally, the team will meet Economic Adviser Salehuddin Ahmed on both the first and final days of the discussions, on 6 April and 17 April, respectively.
Since the inception of the loan programme on 30 January 2023, Bangladesh has received $2.31 billion from the IMF in three instalments, with a remaining $2.39 billion yet to be disbursed. Difficulties have emerged regarding the release of the fourth instalment; however, the government remains optimistic that both the fourth and fifth instalments will be received together in June.
During a recent pre-budget discussion with the Economic Reporters Forum (ERF), Economic Adviser Salehuddin Ahmed emphasised that the IMF loan is required to support the budget. This necessity led to an agreement between the Bangladesh government and the IMF to combine the two instalments for the 2024–25 fiscal year.
Experts have identified three principal challenges Bangladesh must overcome to secure these instalments. Failure to address these issues could jeopardise the disbursement. The key conditions include the implementation of a market-based exchange rate, an increase in revenue collection by 0.5% of GDP, and the separation of tax policy from tax administration under the NBR.
While Bangladesh has assured the IMF that these conditions will be met, sources within Bangladesh Bank and the Finance Ministry indicate that, apart from progress on separating tax policy from tax administration, little advancement has been made on the other two requirements.
When questioned about the implementation of a market-based exchange rate by June, Economic Adviser Salehuddin Ahmed recently stated during a pre-budget discussion: “I will not comment on that now. We need to observe how long inflation persists. If we abruptly allow the exchange rate to be determined by the market, we might face a situation similar to Pakistan or Sri Lanka.”
Currently, the exchange rate is regulated under the crawling peg system, which prevents sudden fluctuations in the price of the US dollar. Under this framework, the dollar remains stable at 122 taka. While Bangladesh has encountered its first significant challenge in receiving the IMF loan instalments under the ongoing $4.7 billion programme, a resolution remains possible. However, to meet the conditions, the government may need to adopt unpopular measures such as reducing subsidies, increasing electricity prices, and allowing a market-determined exchange rate.
If both Bangladesh and the IMF maintain rigid stances regarding these conditions, further instalments may not be disbursed. Such an outcome could lead to additional complications for Bangladesh, as other development partners might also become more cautious in extending financial assistance. Economic Adviser Salehuddin Ahmed has expressed similar concerns.
Dr Zahid Hossain, former lead economist at the World Bank’s Dhaka office, remarked: “Unless these three key challenges are addressed, the future of the IMF loan instalments remains uncertain. The IMF expects Bangladesh to fully transition away from the crawling peg system. However, the Economic Adviser fears that an abrupt shift to a market-based exchange rate could trigger economic instability akin to that seen in Pakistan or Sri Lanka. My question is: if record-high remittances and strong export growth are insufficient to justify such a transition now, then when will it be feasible?”
Dr Hossain further noted that revenue collection targets remain unmet. At least an additional 570 billion taka must be generated, yet efforts to enhance revenue collection appear limited. Nevertheless, the IMF’s condition to separate tax policy from tax administration is progressing. Additionally, discussions are underway to reduce tax exemptions; however, strong opposition from business leaders could pose a challenge for the government.
As part of subsidy reduction efforts, the IMF may advocate for an increase in electricity prices. Dr Hossain warned that such measures should be approached cautiously, stating: “Inflation has shown a slight decline but has not yet stabilised. Raising electricity prices could further drive up inflation. The government must carefully evaluate its decisions, while the IMF should also take Bangladesh’s economic realities into account. I believe both parties should make necessary compromises to ensure the continuation of the loan programme.”
With the upcoming IMF delegation visit, the discussions will be crucial in determining whether Bangladesh can meet the stipulated conditions and secure the much-needed loan instalments.
