Is IMF loan crucial for Bangladesh?

Syed Fattahul Alim | Friday, 19 August 2022

How is Bangladesh's economy faring recently? The rampant inflation, essential commodities price spiral and especially, the declining foreign exchange reserve situation has caused a lot of anxiety among economists as well as others concerned within and outside the government. The central bank has been adopting measures like import control, disciplining the operators in the money exchange market as well as bank officials found making illegal profits from trade in dollar. The government for its part is practising austerity by curtailing non-urgent foreign tours to save dollar, reducing use of electricity through load-shedding and so on. Fuel oil prices have also been hiked up triggering a further rise in the cost of living to the chagrin of the populations in the fixed income and low-income bracket whose incomes have remained stagnant since long.

Meanwhile, economists and financial experts have been warning of flight of dollars through illicit channels like money laundering and suggesting strict measures that should be taken by the government to arrest the trend.

Amid the various measures that the government has been taking to arrest the slide in dollar reserve, has also sought a loan from the International Monetary Fund (IMF), the global financial agency.

What is reassuring is the fact that an official of the IMF has dispelled many of the fears and speculations doing the rounds over the country's financial health.

At the same time, he has also dismissed the widely-held view if the raise in the fuel oil prices effected recently has any connection whatsoever with the conditionalities for having an IMF loan. This clarification from the IMF has come at a time when even the government's ministers were making confusing statements about whether or not fuel price hike had any relation to the loan sought from the IMF.

Interestingly, among some of the remarks Rahul Anand, chief of IMF's Asia and Pacific Division, made about the present economic situation of Bangladesh was one that has assured us greatly.

It is that Bangladesh had a low risk of debt distress and that the situation here was very different from Sri Lanka's. Though Bangladesh's foreign exchange reserve has come down, what is still in stock is enough to finance four to five months' prospective import, IMF official argued.

As it came out from its latest assessment, the IMF also viewed that the country's overall debt outlook is expected to remain at a sustainable level. For as its expert noted, the debt-to-GDP ratio of the country was around six per cent, while the external debt-to-GDP ratio stood at 14 per cent.

Since it is coming from an expert involved with a prestigious global financial institution like the IMF, there are reasons to take it seriously.

What is of further significance, as made clear from the IMF official's comments, is that Bangladesh has rather asked for a loan the need for which is yet to be created.

Definitely, the global financial agency has appreciated the government move seeing that Bangladesh is eminently qualified to get the asked-for loan.

Visibly amused by Bangladesh government's anxieties and, what Mr Anand further noted, it was a 'preemptive' appeal to seek the loan worth US$4.5 billion from IMF, the latter has readily agreed to extend the credit to address any economic risk the country might be facing.

In that case, the government should also be prepared for measures including reforming and restructuring the country's financial sector, cutting government subsidies provided to different sectors of the economy and suchlike. These are always included among the conditions set by the international financier for a country that wants to obtain its loans.

The entire development in connection with government's asking for IMF loan has definitely placed Bangladesh, so far as its economy is concerned, in a positive light before the donor community. That is most welcome at a time when the country has moved into uncharted waters under the post-pandemic dispensation globally as well as in consequence of the disruptions caused in the world's food, energy and agriculture inputs market in the wake of the Ukraine war.

However, it would also be important to keep in mind that the IMF is essentially a lending agency. And as it is the case with any lender big or small, the money comes with strings attached. What is more, the lender has no reason to be sympathetic towards the common people who might be under further financial stress due to the cuts in various public expenditures some of which may be essential to cushion some economic sectors from the negative impact of inflation. For example, subsidies may be essential for fertilisers and other agricultural inputs, or for those involving utility tariffs for common consumer or those on certain loss-making sectors. But the international lender may not agree to retain those subsidies.

In fact, a lender's prime concern is to ensure that the loan it is going to advance could be returned with interests within the stipulated recovery period. The public sufferings to be caused during the implementation of the various restrictive measure as part of the IMF loan's conditions, will not be issues of concern for the lender. So, the government will be required to consider all the pros and cons before applying for an IMF loan.

In fact, countries like Sri Lanka, the economy of which has already collapsed, or Pakistan whose economy is in crisis has long been pleading for IMF's financial support.

But unlike in Bangladesh's case, that is not forthcoming readily. The reason is too obvious -- the financial situations of those countries are problematic so far as recovery of the sought-after loans are concerned.

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