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IMF notes some progresses on BD economic front

Govt expects two loan tranches' release by June

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Some positive notes in the latest IMF review of Bangladesh's economic situation raise hope in government high-ups for release of a stalled loan tranche together with the next one by June.          

 "We are optimistic," Finance Adviser Dr Salehuddin Ahmed told reporters when asked whether he remains hopeful about receiving the fourth installment of the US$4.7-billion credit after he had a meeting with the visiting IMF team members Sunday at the secretariat. 

He said the International Monetary Fund (IMF) is primarily concerned about Bangladesh's low revenue generation.

"The main focus of today's (Sunday) discussion was on how much revenue can be generated, the size of the upcoming budget, and the expected deficit," he told the reporters.

He said making a law to deal with non-performing loans and related issues also came up for consultation.

Dr Ahmed stressed the need for continuing improving governance in the banking sector.

Asked wherein the IMF's emphasis lies regarding the disbursement of the fourth and fifth tranches of its conditional package loan, the finance adviser said, "The key issues are increasing tax revenue, stabilising the foreign-exchange rate, and reducing the budget deficit."

To another question, he said both the exchange rate and foreign-exchange reserves were discussed under the review of the country's macroeconomic health.

 The adviser quoted the IMF team as saying that they would return to Washington, review the situation, and then give their opinion.

"We are scheduled to meet again on April 19, and a review meeting is expected around May-June," Dr Ahmed told the reporters.

He said the final decision regarding the loan would be made after that review. "They will provide recommendations based on their assessment."

In response to a question about IMF views on the country's economic situation under the current interim government, Dr Ahmed said Bangladesh's economy is currently stable and heading in the right direction.

Asked whether the IMF was demanding sacrifices or offering flexibility, he said, "We are doing what is necessary for us. We have already shown our good intentions. Now, it's their turn to demonstrate goodwill."

The custodian of exchequer feels reforms are essential regardless of IMF support.

 "We must take action-not because the IMF says so-but because it's vital for our economy. We need to reform the banking sector, address bad loans, and boost revenue generation. These are fundamental things we have to do anyway."

On the revenue sector, Dr Ahmed said there are revenue leakages that need to be addressed. "The tax-to-GDP ratio must improve. The tax net has to be expanded. Many people file returns declaring zero income, despite having earnings. This practice must be curtailed."

Quoting the visiting team he said Nepal and Sri Lanka perform better than Bangladesh does in terms of tax-to-GDP ratios.

To a query on introduction of a single VAT rate, the finance adviser said, "We will try to move toward a single rate, but it cannot be implemented right this moment."

Meanwhile, the International Monetary Fund team, in another meeting on the day with the central bank of Bangladesh, noted that the existing managed floating exchange rate still remained a concern to the IMF and suggested that the regulator go for market-driven exchange system, meeting sources said.

Seeking anonymity, a Bangladesh Bank (BB) official said the IMF representatives in the meeting hailed various macroeconomic progresses in terms of boosting NIR or net international reserves and modernisation of monetary-policy framework.

The central banker, who was present at the parleys, said the exchange rate is still managed floating one which needs to be flexible and market-centric--one of the major lending conditions set by the global lender. The BB official said the IMF representatives observed that the economic growth started rebounding and the inflationary pressure easing. Under such circumstances, they said, the banking regulator can consider further flexibility in exchange rate and cutting down the policy rate (now 10 per cent).

In response, the sources said, BB Governor Dr Ahsan H. Mansur said the inflationary burden keeps dropping because of various prudent policy interventions and the exchange rate remains stable for the last few months.

"Once the inflation comes down to our projected level in the coming months, we would probably consider more exchange-rate flexibility and adjustment of the policy rate," the governor was quoted as saying.

Simultaneously, the IMF team members enquired about the current state of the liquidity crisis-hit commercial banks and their revival strategy.

Earlier, the IMF had deferred the release of the fourth tranche of the loan until June instead of March as Bangladesh could not meet some preconditions.

As per the latest developments, the IMF might release both the fourth and fifth together in June, which could amount to more than $1.0 billion, upon fulfilling conditions.

jasimharoon@yahoo.com

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