IMF Recommends Bangladesh Government to Phase Out Remittance Incentives

The International Monetary Fund (IMF) has advised the Bangladesh government against incentivizing remittances, citing recent exchange rate reforms that make such incentives unnecessary. According to a staff report released yesterday, the IMF also recommended establishing asset management companies in the private sector to handle defaulted loans.

Despite falling short of the net international reserves ceiling and revenue targets, the IMF approved the release of $1.15 billion as the third tranche of a $4.7 billion loan package for Bangladesh on June 24. This decision was disclosed in the report, highlighting the IMF’s approval of the loan’s third installment.

The government had introduced a 2% subsidy on remittances in August 2019 to encourage remittance inflows through official banking channels, later increasing it to 2.5% in January 2022. However, the IMF now advises reducing this subsidy below 2% and eventually phasing it out, following recent exchange rate adjustments that obviate the need for such incentives.

The IMF clarified that while the remittance subsidy did not violate the continuous performance criterion on multiple currency practice when introduced, it now triggers concerns under the new IMF guidelines effective from February 2024.

Previously, the IMF mandated maintaining net foreign exchange reserves at $14.9 billion by September and $15.3 billion by December to qualify for the fourth loan installment scheduled for December.

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