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IMF happy with policy steps taken on reforms, stresses attaining targets


Jun 14, 2016
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Lender happy with policy steps taken on reforms, stresses attaining targets

Inflation, global financial volatility among headwinds

Persistent pressures weighing on BD economy: IMF mission

FE REPORT Published :

May 08, 2023 11:10 AM

Bangladesh's economy is among the fastest-growing ones in the Asia-Pacific region but remains under severe internal and external pressures from factors like inflation and global financial volatility, says an IMF mission.

The International Monetary Fund (IMF) spot inspection team Sunday drew such a conclusion while wrapping up its mission in connection with a major loan, striking a note of forewarning that the country's economic growth and forex reserves could face headwinds from both directions.

"…persistent inflationary pressures, elevated volatility of global financial conditions, and a slowdown in major advanced trading partners continue to weigh on growth, foreign-currency reserves, and the Taka," said the staff-level mission on the implementation progress of the $4.7-billion loan package.

During the two-week-long mission, they discussed recent macroeconomic-and financial-sector developments in Bangladesh, the IMF said in a statement. "We also took stock of the progress made toward meeting key commitments under the Fund-supported program."

The progresses will be formally assessed in the first review of the Extended Credit Facility (ECF) / Extended Fund Facility (EFF) / Resilience and Sustainability Facility (RSF) arrangements in October, says the lender, pending the release of a second tranche of the credit.

Officials said the IMF team met in a wrap-up meeting Sunday with finance ministry's officials where they expressed "satisfaction" over the policy measures taken so far as committed in the loan program extended in February this year.

At the same time, the IMF mission emphasized achieving targets like maintaining requisite foreign-currency reserves as per the bottom line set by the lender, raising revenue collection by 0.5 percent of GDP annually from the next fiscal year, cutting down subsidy spending, and automatic adjustment of fuel prices, among others.

According to IMF's floor, Bangladesh will have to maintain net international reserves of at least US$24.46 billion in June and $26.81 billion in December.

The IMF team members were not certain whether Bangladesh will be able to maintain the reserve position according to the set target, the source said. In this regard, the IMF mission suggested that finance officials to take appropriate measures to narrow the gap in the balance of payments.

However, the finance officials informed the IMF mission that they were hopeful about getting to the goals, although did not elaborate on where the reserves will build up when export and remittance are falling while import is rising.

A senior finance official told the FE the IMF released the first tranche of $476.2 million initially but the lender would be very strict in assessing the progress in October before releasing the second installment.

The visiting IMF team also held a wrapping-up meeting with Bangladesh Bank (BB) officials on Sunday morning. Central Bank's spokesperson Dr. Mezbaul Hoque, after the meeting, said the IMF team seemed to be satisfied with the progress the Bangladesh Bank made in terms of meeting its conditions as part of the loan program.

Citing some of the policy-reform areas that the Bretton Woods institution highlighted under the loan package, he said they informed the IMF that the BB decided to introduce an interest-rate corridor (IRC), single exchange rate, and calculation of net foreign-exchange reserves in accordance with the sixth edition of the IMF's Balance of Payments and International Investment Position Manual (BPM6).

During the discussion, Mr Hoque said in the press briefing, they informed the IMF officials that details regarding these policy reforms would clearly be mentioned in the upcoming monetary policy statement (MPS) which is due next month.

"We know that they are satisfied with the progress BB has achieved so far. Certainly, there are a few challenges. But we still have some time to meet them, and we are taking measures accordingly," he said.

Responding to a question, Mr. Hoque, also an executive director of the central bank, said there is a challenge in meeting the target of net reserve threshold by June next. Citing ongoing trip by Prime Minister Sheikh Hasina to Japan, the USA and the UK, he said some important loan agreements were signed over there.

Once the funds under the loan agreements start to be released, it will not only strengthen the country's financial account but also help them overcome such challenges, he said.
"They (the IMF officials) are satisfied with the progress on our part and they expressed it," he told reporters.

Responding to another query, the central bank spokesperson said the country's unrealized export proceeds now stood at $1.4 billion in accordance with the BB data, not the US$ 3.0 billion as reported in a section of media outlets.

Of the accounts receivables, $255 million is in short shipment, $68 million in the category of bankruptcy of exporters and importers, fake exports amounting to $125 million, and $251 million is in the litigation stage, said Mr. Hoque.

To another query, he said due to payments made through the Asian Clearing Union (ACU) the volume of forex reserves decreased. "It is true that reserve has decreased. But will also increase when more money comes," he said.

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