Shawdesh Desk:

The International Monetary Fund on Wednesday said that it would provide $4.5-billion loan in next three years, and observed that reserves would fall further as the government agreed to follow the international calculation standard to borrow the loan.

The Washington-based multilateral lender calculated that the actual forex reserves would be able to meet the import coverage of only three and a half months following introduction of a net calculation method instead of the gross one by the Bangladesh Bank.

This was revealed by IMF mission chief Rahul Anand at a press conference on the concluding day of a fortnight-long negotiation over the loan sought by the government of Bangladesh to tackle the prolonged crisis of greenbacks.

‘The country needs to rebuild its forex reserves,’ Rahul said.

The IMF advices its member countries to maintain forex reserves equivalent to a five-month import payment for staying in comfort zone.

The lender, meanwhile, has agreed to support the country’s economic policies with a 42-month arrangement of about $3.2 billion in loans under the Extended Credit Facility and the Extended Fund Facility as well as about $1.3-billion loan under the Resilience and Sustainability Facility.

Under the agreed policies, the Bangladesh Bank needed to follow the net calculation method instead of the present gross one to determine the county’s forex reserves.

The central bank has to exclude about $8 billion from the reserve fund, said BB governor Abdur Rouf Talukder at another briefing on the same day.

Under the new calculation, the country’s forex reserves will stand at about $26 billion as it now hovers about $34 billion from $48 billion recorded in August 2021.

The IMF mission chief called the build-up of reserves during the Covid-19 pandemic an artificial one against the backdrop of high inflow of remittance and low import payment.

A surge in demand for import after Covid-19 and the price hike of essentials due to the Russia-Ukraine war have led to a sharp widening of the current account deficit, rapid decline of foreign exchange reserves, rising inflation and slow growth, he added.

Rahul hoped that the IMF loan would act as a catalyst for Bangladesh to borrow loans from other lenders on its way to graduate from the least developed country status and achieve a middle-income status by 2031.

The BB governor told reporters that they expected first of the seven tranches of IMF loan in February, and the amount would be $447.48 million.

The remaining six tranches each with $659.18 million will be disbursed in an interval of six months, he said.

Abdur Rouf Talukder argued that the loan would bear less than two per cent interest rate on average and it would be repaid within 20 years while first 10 years would be a grace.

Answering a question to the conditions agreed with the IMF for the loans, he said that the government had already made upward adjustment of fuel oil as per the international market.

He added that providing subsidy on agriculture would continue.

Finance minister AHM Mustafa Kamal who was present at the briefing claimed that the IMF had tagged no conditions on the loans.

Recommendations given by the IMF mission on revenue and other areas have already been identified by the government, he said.

Rahul Anand, however, stated that the IMF always suggested providing subsidy on right and target areas.

He added that the IMF executive board would take decision on loan disbursement depending on implementation of the reform policies agreed in negotiation over the past two weeks.

According to an IMF press release, the agreed policies include creation of additional fiscal space by mobilising higher revenue through rationalisation of expenditures.

Containing inflation and modernising the monetary framework are other major policies to stabilise macro-economy and buffer external shocks.

The IMF wants the government strengthen the financial sector by reducing its vulnerabilities, strengthening oversight, enhancing governance and regulatory framework.

It also wants development of capital markets to mobilise financing instead of banks.

Creation of a conducive environment to expand trade and foreign direct investment, consolidating financial sector, developing human capital, and improving governance to enhance business climate have been included into the policy.

The IMF policy also includes strengthening institutions and creation of an enabling environment to meet climate objectives and support large-scale climate investments.

The last loan agreement between Bangladesh and the IMF expired in 2012.