Rahul Anand, Division Chief in the IMF’s Asia and Pacific Department, will lead the team during talks with the senior officials of the Finance Ministry, the central bank, the National Board of Revenue and the Economic Relations Division.
If everything proceeds smoothly, the loan deal could be finalized by October this year, said an official of the Finance Ministry yesterday.
The request for IMF support comes to shore up the precarious foreign currency reserves, which slipped to US$39.8 billion — the lowest since October 14, 2020. This is enough to cover about five months’ import bills.
Typically, the World Bank and the IMF prescribe an import cover of three months, but in times of economic uncertainty, they advise keeping sufficient reserves to meet 8-9 months’ imports.
Going forward, even though imports are slowly contracting, the elevated inflation levels around the world mean the odds of a slowdown in both remittance inflows and export orders, two sources of foreign currency for Bangladesh.
The IMF officials will look into the impacts of the Russia-Ukraine war and escalated global commodity prices on the Bangladesh economy, the status of recovery from the global coronavirus pandemic and the government’s large subsidy program.
They will see whether the subsidy spending is justified and compare it with the other countries. If it is deemed excessive, the IMF mission may suggest ways to trim it.
Subsidy spending in the just-concluded fiscal year is Tk 66,825 crore, 24.1% more than the original allocation thanks to the spiral in fuel and fertilizer prices in the global market.
In this fiscal year’s budget, Tk 82,745 crore has been earmarked for subsidy.
But considering the price trend of oil, gas, and fertilizer in the international market, the estimated spending can be 15-20% higher than the initial estimates, said Finance Minister AHM Mustafa Kamal in his budget speech in June.
The conditions could include measures to increase revenue, lower subsidy expenditure, market-based exchange rate and lending rate, and reforms in the banking sector and tax administration, the Finance Ministry official said.
Bangladesh has unveiled a relatively smaller budget for the current fiscal year, put on hold low-priority projects, suspended foreign tours of government officials, adjusted the prices of gas and diesel to some extent, and loosened the exchange rate policy.
The government has also signalled that it may raise the price of fuel oil and has proposed to the Bangladesh Energy Regulatory Commission to increase the electricity tariff to cut the subsidy burden.
Surjit Bhalla, Executive Director of the IMF for India, Bangladesh, Bhutan and Sri Lanka, who represented Bangladesh on the board of the Washington-based lender, is also set to visit Bangladesh separately.
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