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.
