Staff-level deal on IMF loan release to BD hits two snags

A much-cherished staff-level deal on IMF loan release to Bangladesh hit two main snags that Fund officials mentioned as lacking in greater exchange-rate flexibility and improvement in revenue mobilisation.

The disclosure came Thursday when the International Monetary Fund (IMF) unveiled its changed economic outlook for the region in particular in the context of the tariff war between China and the United States.

The Fund alerts that the trade and tariff spats between the two economic superpowers wouldn't bring any benefit for any country rather continuation of an open rules-based trading system will benefit everyone.

"I would highlight and our managing director has highlighted that for a long time there are no winners from trade war. It's bad for the global economy," said Thomas Helbling, Deputy Director for the IMF Asia and Pacific Department.

He was responding to a query of The Financial Express whether or not small economies like Bangladesh, Vietnam or Cambodia, who are China's competitors in apparel exports to the United States, will benefit from the China-US tariff war.

Speaking at a press conference held on the sidelines of the IMF-World Bank spring meetings in Washington, DC, on Regional Economic Outlook for Asia and the Pacific, the IMF official, however, said in the current context, if there is a resetting of the global system and working towards new rules, "we think that will benefit everybody also in Asia".

He sees two factors at work: greater efficiency overall and negative spillovers from higher tariffs on China.

"…with structural reform, greater regional trade integration, there will be opportunities for all and that should be the base of growth," says Mr Helbling.

Replying to another query as to why the IMF could not reach a staff-level agreement this month with Bangladesh on stalled loan release, Krishna Srinivasan, Director for the IMF Asia and Pacific Department, mentioned two issues where more discussions are needed. One is greater exchange-rate flexibility and the other one improvement in revenue collection.

Mr Srinivasan also said discussion was ongoing over financial-sector stability. But he wouldn't give any hint as to when the discussions could conclude.

In his opening remarks, he said the flurry of tariff announcements by the United States since the release of the January 2025 update and countermeasures by trading partners amount to a major trade shock for the global economy and the Asia-Pacific region.

"We have therefore downgraded the outlook for the region in tandem with that for the global economy," he says about the changes attuned to fallouts from the global trade turmoil.

Mr Srinivasan feels the region is both significantly exposed to the shock and faces a larger shock than other regions. Trade uncertainty has also increased in the region since January, which has further worsened the year-to-date outlook for the region.

Through the second half of 2024, he mentions, many countries were closing large output gaps that had emerged during the pandemic. Despite solid underlying drivers in various countries, growth on the scale underperformed expectations.

In China, an upside for the region, momentum exceeded expectations in late 2024 and in the first quarter of this year, supported by front-loading exports and targeted policy support.

In Japan, growth slowed early in 2024 due to supply disruptions, but recovered in the second half on the back of rebounding domestic demand. In India, growth was driven by pickup in exports and consumption in late 2024.

However, the overall outturns surprised slightly to the downside, reflecting a slow start to public investment post-elections and temporary factors. Private investment, however, remained weak.

In other emerging markets, the recovery generally held up with a shift from consumption to investment in many cases. On inflation, most Asian economies saw inflation return to or near target last year, a relatively better performance compared to other regions.

China and Thailand continue to experience persistently low inflation, while in Japan headline inflation has been above target for nearly three years. However, in Japan, both headline and underlying inflation are expected to converge to target in 2027.

He points out three reasons why Asia is particularly exposed to recent trade-policy shocks and increased trade-policy uncertainty.

First, many Asian economies are very open and oriented towards trade in goods. Second, emerging Asian economies benefited from the relatively earlier reopening from the pandemic compared to other regions, because of which recovery of exports was also very good. Third, Asian countries have continued to increase their participation in the global supply chain in recent years, with rising exposure to US demand.

He said a combination of greater exposure to the US market and significantly high global policy uncertainty presents vulnerability for the region.

Besides exposure, another factor shaping the outlook is that under the US tariff package announced on April 2, the Asia-Pacific region would face the sharpest increase in effective tariff rates globally.

"Although some of these measures have since been paused, trade tensions, particularly between the U.S. and China, have escalated further, contributing to a significant rise in trade-policy uncertainty," he said.

syful-islam@outlook.com