IMF to provide $4.5 bn loan for Bangladesh to combat economic crisis

Bangladesh and the IMF on Wednesday reached a preliminary agreement under which the global lender will provide a USD 4.5 billion support package to stabilise its economy and protect the vulnerable people.

The IMF agreement came months after discussions between the global lender and Bangladesh officials.

Bangladesh is the third South Asian nation after Sri Lanka and Pakistan to secure a bailout package from the IMF to tide over the sharp rise in food and energy prices caused by the coronavirus pandemic and the global inflation due to the Russia-Ukraine war.

The amount will be disbursed in seven installments till December 2026. The first installment of USD 447.48 million will be cleared in February next year, while the loan’s interest rate would depend on the market rate at the time of maturity, Finance Minister A H M Mustafa Kamal told a news briefing after the signing of the agreement in Dhaka.

Finance ministry officials calculated the interest rate to be around 2.2 per cent.

“We are getting the loan just the way we wanted. The International Monetary Fund will lend us a total of USD 4.5 billion,” Kamal said.

The deal is subject to approval by the IMF’s executive board, which is expected within weeks.

Meanwhile, the IMF in a statement said it has “reached a staff-level agreement with Bangladesh to “preserve macroeconomic stability and support strong, inclusive, and green growth, while protecting the vulnerable”.

Rahul Anand, who led a visiting IMF delegation to Bangladesh, said the Ukraine war has interrupted the country’s robust economic recovery from the pandemic, leading to a sharp widening of the current account deficit, rapid decline of foreign exchange reserves, rising inflation and slowing growth.

“Even as Bangladesh tackles these immediate challenges, addressing long-standing structural issues remains critical, including threats to macroeconomic stability from climate change, he said.

Anand said it is important for Bangladesh to build on past successes and address structural issues to accelerate growth, attract private investment, enhance productivity, and build climate resilience to successfully graduate from Least Developed Country status and achieve middle-income status by 2031.

The dwindling foreign reserves and inflation minimised Bangladesh’s capacity to import sufficient fossil fuels, prices of which soared because of the Russia-Ukraine war.

The situation forced the government to close diesel plants, leave some gas-run power plants idle and enforce a power rationing system through electricity cuts for long hours.

The IMF had asked to see Bangladesh’s net reserve, as opposed to the country’s gross reserve.

According to Bangladesh Bank, the country’s gross reserve currently stands at USD 34.4 billion, while financial analysts said the net reserve could be approximately USD 26 billion.

Bangladesh has agreed to show the IMF the net reserve.

Bangladesh Bank Governor Abdur Rouf Talukder said the IMF agreed to provide the loan under some conditions. It asked the authorities to adjust fuel prices periodically, as per the international market price.

The IMF argued that if the oil price fell in the international market in the future, it could be reduced in the same way in the country and fill the gap of capital shortfalls in banks and comply with Basel III.

“The IMF had also recommended withdrawal of subsidy on fertilisers but we have convinced them that the country needs to pay the subsidy as we need fertilisers to ensure food security,” Talukder said.

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)