Editorial
Loan from IMF
Will it bring desired relief?
In an attempt to ease the imbalances being experienced in the balance of payments, Bangladesh has opted to avail nearly $1billion from the International Monetary Fund (IMF) under the institution's extended credit facility (ECF). The exchequer will receive $141million upon signing of the contract and the rest in six equal instalments. Though the loan falls under IMF's concessional lending regime, there are tough conditions to be met for the government to avail the loan.
Conditions that require fulfilment include the raising of fuel prices at consumer level to match international fuel prices by December 2012 and withdrawal of lending caps for banks. Other conditions include the placement of new tax laws by June of this year in parliament for enactment, but this is already under process and in various stages of implementation by the government. Though the new loan is being touted as a saviour for the negative balance of payments, where "with steady but forceful action, the authorities' programme is expected to reduce imbalances and catalyse additional support from development partners, putting Bangladesh's balance of payments on a sustainable path over the medium term," doubts have been raised as to whether this particular loan was truly necessary.
Numerous tough conditions attached with each segment of the loan have to be met in a timely and satisfactory fashion to avail the fund. The quantitative conditions set forth in the new loan include setting benchmarks where certain reserves cannot go below or above limits, for instance, foreign reserve cannot be allowed to fall below $6,000 million. Such conditions invariably lessen the policy flexibility of the government. In the final analysis of things, the foremost question that comes to mind is precisely why the country needs to avail $1billion over the next three years from IMF in the first place, especially in light of the rigid conditions set forth at each segment of the loan whose fulfilment to the letter of the contract, will decide whether Bangladesh will ultimately avail the funds for which it has applied.
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