The International Monetary Fund (IMF) is considering lending an additional $3 billion to Bangladesh, but the multilateral lender is keen to understand the reforms the interim government plans to implement. This topic surfaced during Finance Adviser Salehuddin Ahmed’s first meeting with the Washington-based lender on Thursday.
Chris Papageorgiou, leading the IMF mission overseeing Bangladesh’s $4.7 billion loan programme, inquired about the government’s reform strategies, particularly regarding the tax-to-GDP ratio. Salehuddin reassured the IMF, stating that increasing the tax-to-GDP ratio is a priority.
The Bangladesh Bank has already initiated discussions on the $3 billion loan proposal. Detailed negotiations are expected during an IMF mission visit to Bangladesh later this month. The loan arrangement may also be a topic at the World Bank-IMF annual meeting in Washington in October, where Bangladesh’s finance adviser and central bank governor are expected to participate.
Bangladesh’s economic challenges are significant. Inflation hit 11.66% in July, with food inflation surpassing 14%, the highest in 13 years. Meanwhile, the country’s foreign exchange reserves have dwindled from over $40 billion in July 2022 to $20.5 billion in August 2023. The interim government has implemented several measures, including hiking the policy rate and tightening banking sector regulations, to address these issues.
The IMF has emphasized the need for sustainable revenue generation, urging Bangladesh to prioritize tax reforms in the FY25 budget. It also recommended reducing subsidies, improving expenditure efficiency, and managing fiscal risks to allow for more spending on social safety nets and growth-enhancing investments. Strengthening the banking sector and developing the domestic capital market were also highlighted as critical areas for reform.
In related news, Russia is reportedly open to extending the loan repayment period for the Rooppur Nuclear Power Plant project, although a final decision will be made once the plant begins operations. Bangladesh currently pays $110 million annually in two instalments, with a larger repayment schedule set to begin in 2027. Bangladesh has proposed delaying this until 2029.