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IMF Approves $689m for Bangladesh in Second Tranche of $4.7bn Loan

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In a significant development, the International Monetary Fund (IMF) has given the green light for the disbursement of $689 million in the second tranche of a $4.7 billion loan package earmarked for Bangladesh. This announcement comes after Finance Minister AHM Mustafa Kamal confirmed the approval, which was granted during a recent meeting of the multilateral lender’s board.

Officials from the Bangladesh Bank and the finance ministry anticipate that the second instalment will be made available on Wednesday. The approval follows the completion of the first review by the IMF Executive Board, covering the Extended Credit Facility (ECF), Extended Fund Facility (EFF), and Bangladesh’s Resilience and Sustainability Facility (RSF) arrangements.

With this approval, the total disbursements under the ECF/EFF amount to approximately $936.6 million, while disbursements under the RSF reach around $221.5 million. Additionally, the Executive Board concluded the 2023 Article IV consultation with Bangladesh.

The approval addresses a period of uncertainty arising from Bangladesh’s non-compliance with specific IMF directives tied to the loan. These directives included measures such as increasing foreign exchange reserves, a 0.5% uptick in the tax-GDP ratio by June, and the adoption of a formula-based price adjustment mechanism for fuel oils by December. However, these actions were not implemented within the stipulated timeframe.

Ahsan H Mansur, Executive Director of the Policy Research Institute of Bangladesh, acknowledged the government’s effective communication with the IMF regarding the challenges faced in meeting these requirements. However, he expressed concerns about the difficulty in securing the third instalment of the loan in June, emphasizing the need for the government to enact specific policies to avoid the IMF withholding the loan, especially after the elections.

The IMF had previously approved the first tranche of the loan package on January 30, with Bangladesh receiving $447.8 million on February 2. The entire $4.7 billion IMF loan is set to be released to Bangladesh in seven instalments over three and a half years, concluding in 2026.

Zahid Hussain, former lead economist of the World Bank’s Dhaka office, noted that the IMF recognized the challenges posed by the conditions related to foreign exchange reserves, leading to revisions. While acknowledging the satisfaction of IMF staff with the government’s steps to increase revenue collection in the budget, he refrained from commenting on the possibility of receiving the third instalment, citing potential changes in the loan agreement.

In October, an IMF delegation visited Bangladesh for a two-week review of the loan program, providing a positive assessment at the staff level. After concluding the review, the mission stated that the IMF staff and Bangladesh authorities had reached a staff-level agreement on the policies required to complete the first review. The IMF staff commended the progress in reform implementation and the authorities’ continued commitment to decisive policy actions amid a challenging economic environment.

Among the IMF conditions, six quantitative targets were set for the first half of 2023. Notably, one of the unmet preconditions was the maintenance of a minimum net international reserve (NIR) of $24.46 billion by the end of June. The NIR target was missed by approximately $3 billion, attributed to the government dipping into reserves to cover essential imports of fuel, fertilizer, and foodstuff. Similarly, the minimum tax revenue target was not achieved, with the government falling short by Tk17,946 crore, collecting Tk3,27,664 crore against the goal of Tk3,45,630 crore in tax revenue for FY23, as per a Finance Division report.

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Cenbank Prolongs Import Payment Terms for Raw Materials Until Dec 2024

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The Bangladesh Bank (BB) has announced an extension for the payment period against imports of industrial raw materials from 180 to 360 days, a measure now set to remain in place until December 2024. This policy, initially scheduled to end in June of this year, has been prolonged to facilitate trade transactions, according to a BB circular issued today.

“To support trade transactions, it has been decided to extend the policy support until December 31, 2024. The extended usance period will not apply to imports under EDF loans, as previously stipulated. All other relevant instructions remain unchanged,” the circular stated.

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Banks in Industrial Areas to Open June 14-16 for Eid Payments

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To ensure timely payment of salaries and bonuses to garment industry workers before Eid-ul-Azha, the branches of banks in key industrial areas will remain open on a limited basis on June 14, 15, and 16.

The Bangladesh Bank (BB) issued a notification stating that bank branches in Dhaka metropolitan, Ashulia, Tongi, Gazipur, Savar, Bhaluka, and Narayanganj will operate on these days to facilitate financial transactions for garment sector employees.

Typically, Friday and Saturday (June 14 and 15) are weekly holidays, and Sunday (June 16) will be closed for Eid. Despite these closures, the BB has mandated that banks in industrial regions stay open to manage the disbursement of wages and bonuses and facilitate the sale of export bills.

Additionally, bank branches in Chattogram metropolitan and industrial areas will also be open to support garment workers’ payments and the processing of export bills.

The BB has instructed banks to coordinate with local authorities to ensure adequate security at the branches during this period.

Eid-ul-Azha, one of the most significant religious festivals for Muslims, will be celebrated in Bangladesh on June 17.

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Cenbank Mandates Real-Time Reporting of Willful Defaulters

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The Bangladesh Bank (BB) has issued new instructions to banks to submit data on willful defaulters to the Credit Information Bureau (CIB) database. This directive was issued on Tuesday, requiring immediate compliance from commercial banks and non-banking financial institutions (NBFIs).

In a circular released by the CIB of the central bank, banks have been instructed to report their June data in real-time starting July 1. The circular has been sent to top executives of banks for prompt execution.

This move follows an earlier initiative by the BB, outlined in a circular on March 12, aimed at identifying willful defaulters within the banking sector. The central bank also detailed actions to be taken against such defaulters.

According to the circular, any client who takes a loan anonymously and misuses it will be classified as a willful defaulter. Banks were directed to establish a ‘willful defaulter identification unit’ by April 9 to facilitate this identification process.

The circular further stipulates penalties for non-compliance. Banks that violate these conditions will face fines ranging from Tk 50 lakhs to Tk 1 crore. Continued violations will incur additional fines of Tk 1 lakh per day.

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