IMF, govt close in on a fresh 3-year deal

The government and the International Monetary Fund (IMF) have agreed to adopt a new three-year programme, replacing the existing $5.5 billion loan package, according to a statement from the finance ministry.

“Both sides agreed on a realistic and implementable new IMF programme, and to begin related activities without delay,” said the statement, which was issued yesterday.

The breakthrough came in a virtual meeting on May 21 between Amir Khosru Mahmud Chowdhury, the finance and planning minister, and Nigel Clarke, the deputy managing director of the IMF, it said.

The meeting discussed Bangladesh’s macroeconomic situation, progress under the ongoing IMF programme and prospects for future cooperation.

Reaffirming the government’s commitment to macroeconomic stability and structural reforms, Khosru said the current IMF programme had been adopted under a different economic and policy context.

Since then, domestic realities, political economy factors and global uncertainties have posed challenges to implementing many of those reforms.

He stressed that the government does not intend to retreat from reforms, but rather seeks to implement measures that are realistic, phased and aligned with the country’s circumstances.

Discussions therefore focused on a new IMF programme under the newly elected government, with priority reforms to be carried out within a practical three-year timeframe, it said.

The statement, however, did not clarify the status of the existing IMF programme.

As per procedure, the government must send a no-objection letter from the highest level to the IMF to formally exit the current programme, said a finance ministry official involved with the proceedings.

The IMF would then close the programme. Khosru would then have to submit a request letter for the new programme.

An IMF mission is expected to visit Bangladesh in July or August to discuss the reform agenda and determine the final size of the programme.

Once Bangladesh formally exits the current arrangement, any undisbursed amount will be returned to Bangladesh’s special drawing rights quota.

The size of the new package would depend on Bangladesh’s IMF quota and the facilities the government seeks to access, the official said.

In January 2023, the IMF approved $4.5 billion for Bangladesh under three facilities: the Extended Credit Facility (ECF), Extended Fund Facility (EFF) and Resilience and Sustainability Facility (RSF).

The package was expanded by $800 million in May last year under the interim government, taking the total to $5.5 billion.

Bangladesh has so far received $3.8 billion in five tranches.

The sixth tranche remained pending after the IMF suspended discussions in November last year and decided to resume talks with the new government following the election.

Under the previous schedule, the fifth and sixth tranches, together worth $1.3 billion, were due by June, while the final tranche was expected in December.

Discussions on a replacement programme began during the IMF-World Bank Spring Meetings in April.

The IMF signalled during the Spring Meetings that no further tranches would be released without visible progress on economic reforms.

Since then, virtual discussions have continued every week over the proposed loan amount and reform conditions.

The BNP-led government had reservations about continuing the programme from the outset, partly because it was initiated under the Awami League government and because many of its conditions are difficult to implement under current economic conditions, according to finance ministry officials involved with the proceedings.

Maintaining the programme would require Bangladesh to meet several stringent conditions within the next six months, a target the government considers unrealistic amid global and domestic economic pressures.

A new programme would allow reforms to be postponed to a later date.

The key areas of disagreement include introducing a single VAT rate, reducing tax exemptions, adopting a fully market-based exchange rate, cutting power and fertiliser subsidies, and implementing reforms in the banking sector and the National Board of Revenue.

But Bangladesh needs an active IMF programme because it serves as a “seal of approval” for international lenders and investors, helping unlock financing from other development partners.

According to finance ministry officials, the government will require $3 billion to $4 billion annually in budget support to finance large upcoming budgets and fulfil electoral commitments.

Securing at least $1 billion a year from the IMF would help attract further support from lenders such as the World Bank, the Asian Development Bank, the Asian Infrastructure Investment Bank and the Japan International Cooperation Agency.