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The government has successfully convinced the International Monetary Fund (IMF) to relax its ambitious tax revenue mobilization target for the National Board of Revenue (NBR).
The IMF has agreed to cut down the additional tax revenue collection target by Tk 170 billion for the next fiscal year taking into consideration the current economic perspective that cannot bear the burden of higher taxation in the upcoming budget.
A top government official in Washington confirmed the development to the FE on Saturday.
Earlier, during a visit to Bangladesh during the first half of April, the IMF mission set a target for the NBR to mobilize an additional Tk 570 billion in tax revenue in the upcoming fiscal year (FY). Achieving that target would have increased the country's tax-to-GDP ratio by 0.9 per cent next fiscal year alone.
A Bangladesh delegation, comprising Finance Adviser Dr Salehuddin Ahmed, Bangladesh Bank Governor Dr Ahsan H Mansur, NBR Chairman Abdur Rahman Khan, is now engaged in negotiation on IMF loan issues on the sidelines of IMF-WB Spring Meeting in Washington.
"The IMF has agreed to our proposal to collect additional Tk 400 billion revenue instead of Tk 570 billion in next fiscal year," said the official.
Initially, the IMF imposed conditions requiring the NBR to collect the additional revenue through policy measures, but this condition, too, was relaxed following negotiation, he said.
"We have convinced the IMF that the tax authorities would try to collect Tk 300 billion through policy measures in the next budget, scheduled for June 2, 2025 while the remaining Tk 100 billion through administrative measures," he added.
The IMF team left Bangladesh on April 17 without signing the Staff-Level Agreement to disburse the fourth and fifth tranches of the $4.7 billion loan in June.
Officials were expected to sign the agreement in the spring meeting in Washington. The agreement, however, is unlikely to be signed in this meeting, said the official.
Another mission of IMF is due in Bangladesh in May, during which there is a good chance the agreement will be signed.
Currently, exchange rate issues remain the main hurdle to the loan disbursement.
Failure to meet four loan conditions by the end of December 2024 disappointed the IMF visiting mission leading to the postponement of the Staff-Level Agreement.
The conditions missed include the Tk 2,151 billion tax revenue floor, finalizing a Medium- and Long-term Revenue Strategy covering indirect and direct tax and an accompanying implementation framework, implementation of simplified organogram related to RBS functions, issuance of an updated regulation to align the definition of non-performing exposures and forbearance in line with the BCBS guidelines.
As per the latest target, the NBR will have to collect Tk 200 billion from income tax, Tk 180 billion from VAT, and Tk 20 billion from customs through fiscal policy and administrative measures.
"We have explained our position and have been able to convince the last visiting mission to clear the NBR's part related to disbursement of the fourth and fifth tranches," said a senior official of the NBR.
Following the end of the review, the IMF team has agreed to consider the NBR's proposals, he added.
NBR officials said the tax hike on 100 items in January put pressure on the government, but it took the decision to get IMF loan, that was scheduled for disbursement in February.
"We did not get the fourth and fifth tranches despite increasing VAT in January which sparked widespread criticism across the country," he said.
About the latest target, the official said the NBR will have to take some unpopular decisions to increase the tax-to-GDP ratio, but still the government is not certain whether it would receive the loan package, he said.
NBR officials said the IMF target to increase tax-to-GDP ratio by 1.1 per cent next FY would be met under revised collection targets.
The NBR will have to pursue a Tk 4.99 trillion target for the next financial year. The finance adviser is set to finalize the target while placing the national budget for fiscal year 2025-26. The Ministry of Finance has sent the final target to the NBR, instructing it to allocate the amounts across income tax, customs and VAT.
According to an earlier report, Bangladesh Bank Governor Dr. Ahsan H. Mansur said that regardless of IMF suggestions, Bangladesh would continue to pursue tight monetary and fiscal policies.
He expressed optimism that the country wwould achieve double-digit export growth this year, as exporters already have large volumes of orders secured through the next Christmas season.
He came up with the statements in an interview in Washington DC with Bangladesh's press minister.
So far, Bangladesh has received US$2.31 billion under the loan programme, with $2.39 billion still pending. It is expected that Bangladesh may receive the fourth and fifth tranches together in June if the conditions are met. It would not be accurate to say that “we are very far from an agreement”, Dr. Mansur said in an interview with Golam Mortuza, Press Minister at the Bangladesh Mission in Washington, D.C., during his visit to the US for the IMF Annual Meeting.
The interview was posted on Mr. Mortuza's Facebook profile at 8:22 AM on Saturday.
Dr. Mansur emphasised that even if a consensus is not reached, it would not significantly impact Bangladesh's economy.
"We are not fragile under any circumstances. The country will continue to advance," he mentioned. He said that the IMF loan is no longer a "compulsion" for Bangladesh.
"Even six months ago, it might have been. But now, we are not Sri Lanka... We are not in a position where we must compromise at any cost," the BB governor told the Bangladesh press minister.
At one point during the interview, he acknowledged that there is consensus on the issue of resource mobilisation.
However, no agreement has been reached yet regarding a fully market-determined exchange rate.
"We are not selling dollars, and therefore, we do not believe we are destabilising the market," he said.
He warned that if the exchange rate is allowed to float freely right now, the local currency -taka-could depreciate sharply to Tk 135-140 per dollar, which would hurt the economy, particularly the power sector and other key areas.
Dr. Mansur also emphasised that financial sector reforms must be undertaken by Bangladesh itself.
"We must restructure and reform our banking sector, stabilise the exchange rate, and maintain macroeconomic stability on our own. The IMF only plays a supporting role," he said.
He said: "We will accept the recommendations we believe are beneficial for our economy, and reject those that are not."
Speaking about balance of payments (BoP) support by IMF, Dr. Mansur said, "Actually, the BoP support from the IMF is like a sweetener - we already have enough sweetness. Our reserves are in good shape, and there is no crisis."
He pointed out that remittance inflows remain strong, registering 28.6% per cent growth as of Thursday.
Export earnings are also expected to post double-digit growth this year.
He said: "Our discussions with the IMF have two aspects - the funding is secondary. The primary focus is on reforms: financial sector reforms, tax system reforms. In these areas, the IMF plays a significant and ongoing role," he told the press minister.
Dr. Mansur described the IMF talks as a "policy discussion" rather than strict negotiations. On the subject of other donor agencies, he said that project loans usually do not have cross-conditions, unlike non-project loans such as budget support, which require additional approvals.
"I believe we should no longer rely on budget support because, ultimately, it must be repaid. Budget support is not an investment," he argued.
He opined that project loans, on the other hand, generate financial or social returns, while budget support merely sustains government expenditures without creating future value.
"We must move beyond that," he continued.
He said this time IMF and World Bank meetings are beyond the loans issue rather grater stakeholder meeting as the delegations met with many stakeholders here with investors and, business community and banks.
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