Bank-Insurance
IMF Approves $689m for Bangladesh in Second Tranche of $4.7bn Loan
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.
In light of the current situation, Bangladesh Bank has mandated that all banks and financial institutions refrain from charging additional fees for late payments of credit card bills and loan installments.
The central bank issued this directive through two separate notifications on Wednesday, providing a significant relief measure to the financially burdened.
Borrowers and credit card holders who were required to make payments during the curfew and public holidays now have until July 31 to settle their dues. Bangladesh Bank has explicitly stated that banks and financial institutions are prohibited from imposing any extra interest, penalties, or late fees for installments or credit card bills due between July 18 and 25. Furthermore, no savings schemes shall be canceled for non-payment of installments during this period.
The central bank’s notification acknowledges that many borrowers and credit card users have struggled to meet their payment deadlines due to the prevailing circumstances.
Additionally, numerous depositors have been unable to make timely deposits into various savings schemes, including the Deposit Pension Scheme (DPS). To address these challenges, the new guidelines will be in effect from July 18 to 25, covering dues on loans, credit card bills, and savings scheme installments.
According to the directive, if the outstanding loan and credit card payments are settled by July 31, any accrued interest, penalty interest, additional interest, excess profit, or late fees will be waived. Similarly, if savings scheme installments are paid by July 31, no late fees or penalties will be imposed.
Moreover, any interest, penalty, or late fee already collected on loans, credit cards, or savings schemes must be refunded or adjusted, as per the Bangladesh Bank directive.
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.
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.
