Bangladesh is looking to a large package of loans from its development partners to cope with pressure on the economy. Amid strain on foreign exchange, weak revenue collection, a crisis in the banking sector and extra budget spending, the government has stepped up efforts to secure new financing from the International Monetary Fund (IMF) and the World Bank.
As part of that, talks on a new $4.5 billion loan from the IMF are close to final. An IMF delegation is due to visit Dhaka before then.
Finance Division sources said a high-level IMF delegation will arrive in Dhaka in the last week of October on a 15-day visit. It will hold separate meetings with the Finance Division, the Financial Institutions Division, Bangladesh Bank, the National Board of Revenue (NBR), the Bangladesh Securities and Exchange Commission (BSEC), the Insurance Development and Regulatory Authority (IDRA), the Power Division and the Energy and Mineral Resources Division. The series of meetings will review Bangladesh’s economy and the new loan programme.
The IMF is also keeping watch on Bangladesh’s reform programme. After reviewing the revenue plan sent by the NBR, it said there were gaps in the strategy and action plan for raising revenue in the next fiscal year.
The NBR’s report reportedly has no specific outline of which sectors additional revenue will be collected from next fiscal year, how the tax net will be widened or what steps will be taken to automate revenue administration. For that reason the IMF did not accept the report as a complete plan. Efforts are now under way to revise the revenue plan and draw up a realistic action plan before the mission arrives, and the Finance Division has moved to hold an urgent meeting with the NBR.
Finance ministry sources said the IMF had asked for a specific plan on how Bangladesh would raise revenue collection as part of the proposed loan programme. In response, the NBR sent the fund a review report. While it detailed various initiatives taken to raise revenue in the current fiscal year, it did not give enough weight to the revenue strategy for the next one.
The report gave no detailed plan for identifying possible new sources of revenue, identifying new taxpayers, making the legal and administrative changes needed to widen the tax net, or a timeline for digital automation. With no clear roadmap for meeting revenue targets, the IMF expressed dissatisfaction with the report and conveyed its views to the finance ministry by email.
Filling the gaps in the revenue plan before the mission arrives has therefore become one of the main tasks of the Finance Division and the NBR. The Finance Division’s upcoming meeting may discuss adding the identification of new taxpayers, reducing tax evasion, widening the tax net and automating revenue administration to the plan. The IMF has not expressed any dissatisfaction with the plan sent by Bangladesh Bank, the sources said.
The banking sector will also get special attention in this round of talks. The IMF’s earlier position on defaulted loans, restructuring weak banks, banks’ capital shortfalls and ensuring good governance in the financial sector remains unchanged. After its visit to Dhaka in July, the IMF said stress in Bangladesh’s banking sector was still high and that a credible, coordinated strategy was needed to restructure it. The fund also stressed raising revenue and reforming subsidy management.
The war in the Middle East and volatile fuel prices on the international market have increased Bangladesh’s import costs and subsidy pressure. How to bring subsidies in the power and energy sector under control may therefore also be discussed with the IMF. The fund’s July assessment said high commodity prices and supply disruptions had added to inflationary pressure and raised the government’s subsidy spending, and it stressed rationalising subsidies to create fiscal space.
Preparations are under way to ask the IMF for a new loan of $4.5 billion to $5 billion ahead of the IMF-World Bank annual meetings in Bangkok, Thailand, on 12 to 18 October. The World Bank will be asked for budget support as well as financing for energy, food, banking and social protection. To open the door to the loans, the government has already raised fuel oil prices. Decisions such as adjusting gas and electricity prices, raising revenue collection and cutting subsidies may also come up for discussion.
The government aims to finalise a new agreement with the IMF by December. Once the formalities are complete, the first instalment could be received early next year.
The Finance Division’s macroeconomic wing is working on preparations for the new programme. The division will finalise Bangladesh’s agenda for the Bangkok meeting within the next week, providing data on revenue collection, the budget deficit, government debt, foreign exchange reserves, subsidies and the state of the banking sector.
Preparations are also being made for new financing from the World Bank. Besides budget support, money may be sought for energy security, food and fertiliser imports, restructuring the banking sector, social protection, employment and tackling climate change. The World Bank has already approved large sums for banking sector reform and energy security in Bangladesh.
In the new programme the government is reportedly not looking only at a large loan; the framework for economic reform is also under discussion. The Bangkok meeting will mainly take forward talks on the size of the loan, the outline of reforms and a possible schedule for releasing the money.
Dr Zahid Hussain, former lead economist at the World Bank’s Bangladesh office, told the daily Amar Desh that the IMF would take its next decision on new financing after looking at the government’s reform activities. Noting that the government’s reforms had little momentum, he said there had been no progress on separating the NBR. A loan alone will not remove the structural weaknesses of Bangladesh’s economy, and raising revenue collection is essential, he said.
He also said the government needs a clear plan for which sectors the new loan money will be used in and how the revenue-to-GDP ratio will be raised.
বাংলায় মূল প্রতিবেদন পড়ুন · Read the original Bengali report