Bangladesh on track for meeting all IMF terms but reserve threshold: Officials

Although Bangladesh is right on track on meeting almost all of the pledges made for the IMF loan package, reaching the net reserve threshold requirement of $24.46 billion by June remains the only concern for finance ministry officials as the global lender begins its first review today (Tuesday, 25 April). 

According to the Bangladesh Bank data, Bangladesh's gross foreign exchange reserves on 17 April was $31.18 billion. The central bank does not disclose the net reserve amount.

An official of the Finance Division, wishing to go unnamed, told The Business Standard on Monday, "Bangladesh's net reserves before Eid were slightly more than $20 billion. It will be very challenging to raise it to $24.46 billion by next June."

However, $500 million will be available from the World Bank by June. Besides, the government has asked the Asian Infrastructure Investment Bank for $400 million, $320 million from JICA and $100 million from Korea, which the Economic Relations Division (ERD) is trying to get by next June. These loans will add an additional $1.32 billion to reserves by June.

Several officials of the division pointed out that even if the Bangladesh Bank cannot meet the reserve threshold requirement for June, it would be possible to meet the threshold of $25.316 billion by September, when the lender will have its second review before releasing the second tranche in November.  

The floor of the net reserve for March was set at $22.947 billion, which Bangladesh could not meet. The lender set the floor at $24.462 billion dollars by next June, $25.316 billion by September and $26.411 billion by December.

The IMF's $4.7 billion loan comes with some 38 conditions and the lender's staff consultation team, visiting Dhaka on Tuesday, will review the progress of the conditions' implementation.  

With the IMF review looming after daybreak on Tuesday, several officials of the Finance Division, wishing to go unnamed, told The Business Standard on Monday that other than the IMF threshold on the foreign currency reserves, the government agencies stand ready with satisfactory progress in meeting the rest of the conditions.

Before they wrap up their visit on 2 May, they will hold a series of meetings with relevant ministries and departments of the government, including the Bangladesh Bank, the Ministry of Finance.

As the IMF team's first order of business, they are set to meet with officials of the central bank and finance ministry on Tuesday.

The central bank's gross reserves data includes the export development fund, loans to Sri Lanka, foreign currency-denominated funds for infrastructure development. Excluding these funds, the amount of foreign currency that Bangladesh Bank has to spend on immediate needs, is identified as net reserves by the IMF.

According to the official, the Bangladesh Bank has already reduced the size of EDF from $7 billion to $5.2 billion to increase the reserves. New loan disbursements from EDF are also being reduced.

A finance division official said generally remittances come in good numbers during the month of Eid-ul-Azha, which contributes to increasing the foreign exchange reserves.

This year the Eid-ul-Azha is likely to fall at the end of June. However, it is not possible to say for sure how much it will play a role in filling the IMF-set reserve threshold, said the official.

The visiting IMF team will advise on improving on any weaknesses they may identify in their review.

However, based on the second review report to be held in September, IMF will release the 2nd instalment in November.

The former chief economist of the World Bank in Dhaka Zahid Hussain told TBS, "According to my estimates, there are $19-20 billion in net reserves. In that case, an additional $4 billion must be added by June. The IMF would be satisfied if it can be met. If not, the IMF will advise to revise the issues considered in formulating the outlook of Bangladesh's foreign exchange reserves."

Another tough task among the IMF's conditions is to increase revenue collection by 0.5% of GDP next fiscal year. The National Board of Revenue has calculated that to achieve this, an additional Tk15,000 crore in revenue collection from value added tax (VAT), income tax and customs duties will be needed. The NBR has prepared an action plan on how to collect this additional revenue, which will be presented to the IMF team on Wednesday.

Among these, NBR has plans to collect Tk7,513 crore owed to Petrobangla till last February. When asked whether Petrobangla has the ability to pay this amount, Finance Division officials said Petrobangla has to pay this revenue to NBR. In case Petrobangla fails to pay the outstanding revenue, the NBR will seek allocation from the Finance Division if necessary.