Fresh IMF funding instead of earlier package

Ever since his assumption of the office of the Ministry of Finance, Amir Khosru Mahmud Chowdhury has been expressing his opposition to the $4.5 billion IMF (International Monetary Fund) loan negotiated in January 2023. During the IMF-World Bank (WB) Spring meetings in April last, the Bangladesh delegation led by the finance minister informed the IMF that his government would pull out of the $4.5 billion programme and instead like to negotiate a three-year fresh programme worth $5.0-6.0 billion. After a virtual meeting, the IMF has agreed to work out an arrangement for fresh loans for Bangladesh. The important point is if the conditions for loan repayment will favour the country more than those agreed in 2023. That loan sanction was made under three facilities-1) the extended credit facility (ECF), 2) extended fund facility (EFF) and resilience and sustainability facility (RSF). Also, the loan amount was further expanded to $5.5 billion in May, 2024 during the interim government.

The finance minister's stand is clear: a completely different economic and policy context prevailed in 2023. Domestic developments, changing global trade and economic conditions and external uncertainties have made implementation of reforms well-nigh impossible. The IMF seems to have lent a sympathetic ear to the arguments put forward by the Bangladesh side. Bangladesh made it clear that it is not backing out of structural reforms. But the testing time has forced it to adopt policies that would help carry out the reforms gradually. Realistic and phased reform agendas aligning with the prevailing realities of the country will be pursued. The BNP government and the IMF have disagreements on issues like single VAT rate, reduction of tax exemptions, adoption of a fully market-based exchange rate, cut on power and fertiliser subsidies and reforms to the banking sector and the National Board of Revenue (NBR). No one denies that there are merits in the IMF prescriptions involving all these issues but it cannot be done in one go.

A political government has obligations to the people that do not allow it to take decisions on drastic reform. But there are certain areas where reforms should not wait. For example, reform to the banking sector and the NBR can be carried out without much delay. Such reforms should be carried out to curb undue facilities enjoyed by the privileged and the opportunists of dubious character. Involved here are measures to improve governance of banks and ensure transparency and recovery of non-performing loans. So far as subsidies for power and fertilisers are concerned, such measures benefit the poorer segments of society now reeling from inflation and hostile climate change.

Last but not least is the fate of the money the country received under the 2023 package. Bangladesh has received $3.8 billion in five tranches and the sixth tranche remains pending after the IMF suspended negotiations in November last. The unspent part can be returned but what will happen to the amount already spent? Here a decision on the modalities of repayment has to be arrived at before the fresh funding is negotiated. Since the IMF has indicated it is ready to help Bangladesh tide over its economic crisis, hopefully the conditions will be less stringent this time than before.