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On striking a delayed fund-release deal with Bangladesh, the International Monetary Fund (IMF) wants quicker implementation of an agreed new exchange-rate regime and tax reforms for boosting revenue generation.
As the IMF desire for dos was made known Wednesday, the interim government here had already dissolved the revenue board to create two divisions as part of tax reforms early Tuesday and repealed the rules for forex for market-driven dollar-taka exchange rate.
"…steadfast implementation of the new exchange-rate regime will remain critical," said the IMF in a statement after reaching staff-level agreement with the Bangladesh authorities on the policies needed to complete the combined third and fourth reviews of the US$4.7-billion credit programme.
The staff-level agreement is subject to approval by the Executive Board of the International Monetary Fund, contingent on the completion of prior actions related to tax- revenue mobilisation and full implementation of exchange-rate reforms, it adds.
The two sides reached agreement following "constructive" discussions with Bangladesh authorities in Dhaka, continued engagement during the IMF and World Bank Spring+ Meetings in Washington, DC, and subsequent virtual follow-up meetings, it notes.
Chris Papageorgiou, the IMF Mission Chief for Bangladesh, in the statement said amid significant macroeconomic challenges, the authorities requested an augmentation of approximately US$762 million in IMF financial support under the Extended Credit Facility (ECF) and Extended Fund Facility (EFF) arrangements.
This increase would bring the total financial assistance under the ECF and EFF arrangements to $4.1 billion, alongside concurrent Resilience and Sustainability Facility (RSF) arrangements of $1.3 billion.
Upon completion of the combined third and fourth reviews, $1.3 billion will be made available, comprising $874 million under the ECF and EFF and $448 million under the RSF.
The IMF said impacted by disruptions from the popular uprising, Bangladesh's real GDP growth slowed to 3.3 per cent year on year in the first half of FY25. However, it is projected to rebound in the second half, reaching 3.8 per cent for the full fiscal year.
Inflation, which has approached double digits, has begun to decline and is projected to be around 8.5 per cent year on year by end of FY25. "Nonetheless, domestic factors such as stress in the banking sector and elevated global uncertainty tilt risks to the downside.
"To address the emerging external financing gap and support a continued decline in inflation, near-term policy tightening is essential," the IMF suggests.
Fiscal consolidation should focus on the prompt implementation of additional revenue measures-such as streamlining of tax exemptions-while containing non-essential expenditures.
Alongside monetary tightening, enhanced exchange-rate flexibility and reinforced foreign-exchange-reserve buffers will bolster the economy's resilience to external shocks. In this regard, steadfast implementation of the new exchange regime will remain critical, the Fund notes.
It further says Bangladesh's low tax-to-GDP ratio underscores the urgent need for tax reforms to build a fairer, more transparent, and simpler system while sustainably boosting revenues.
Key priorities suggested include streamlining exemptions, enhancing compliance, and delineating tax policy from administration. In parallel, a comprehensive approach is required to rein in subsidy expenditures in the electricity sector. Increased revenues will also provide more fiscal resources to support the most vulnerable.
"A carefully designed strategy for dealing with weak banks is essential to ensuring stability. Swift action is needed to operationalise new legal frameworks that facilitate orderly bank restructuring while safeguarding small depositors," the IMF underscored.
Robust asset-quality reviews for all large and systemic banks, bank restructuring aimed at forward-looking viability, strengthened risk-based supervision, and enhanced governance and transparency will be the key to rebuilding trust and supporting the sector's soundness.
At the same time, the Fund goes on suggesting the dos, institutional reforms to bolster the independence and governance of Bangladesh Bank will be essential for ensuring long-term macroeconomic and financial stability and for the effective implementation of broader financial-sector reforms.
"Strengthening governance and promoting greater transparency are essential to improving the business environment, attracting foreign direct investment, and broadening the export base beyond the ready-made garment sector." Meanwhile, the Ministry of Finance also announced on the day the conclusion of the fourth review of the $4.7-billion loan package of the International Monetary Fund.
The government is expecting that the IMF will release $1.3 billion under the fourth and fifth tranches of the loan by this June as the staff-level agreement of fourth review has been signed.
A press release issued by the ministry said the two sides agreed on revenue management, currency exchange rate, and other reform issues after "carefully reviewing them for the sake of maintaining macroeconomic stability of the country".
Bangladesh is also expecting another $2.0 billion in budget support by June from various development partners, including the World Bank, the Asian Development Bank, AIIB, Japan, and the OPEC Fund for International Development.
The finance ministry hopes getting money from the development partners will further strengthen the country's foreign-exchange reserves, which will facilitate maintaining the stability of the currency-exchange rate.
Also, the ministry says, the reform programmes being undertaken against receiving budget support from various development partners are "completely planned at the discretion of the government and adopted in national interest".
In the case of all these reform programmes, the activities of development partners are limited to providing technical assistance only, the ministry claims.
syful-islam@outlook.com