India has expressed interest in financing Bangladesh’s Teesta project, announced Foreign Minister Hasan Mahmud. Speaking to reporters after a meeting with Indian Foreign Secretary Vinay Mohan Kwatra, Mahmud stressed the importance of aligning the project with Bangladesh’s needs. He confirmed discussions on the Teesta issue during the meeting. Mahmud also affirmed Prime Minister Sheikh Hasina’s upcoming visit to New Delhi, indicating that the finalization of the date would depend on the formation of the new Indian government following ongoing elections.

Meanwhile, the IMF has approved a $1.15 billion staff-level loan for Bangladesh in its third tranche. Mahmud noted the ongoing elections in India and the subsequent formation of the new government as factors influencing the scheduling of PM Hasina’s visit.

When asked about the sequence of visits to India and China, Mahmud suggested Delhi’s geographical proximity to Bangladesh. Diplomatic sources suggest PM Hasina’s visit to India is planned for early July, following India’s elections.

Pre-election surveys indicate strong prospects for Indian Prime Minister Narendra Modi’s re-election. Modi previously congratulated PM Hasina on her electoral victory in January, expressing optimism about strengthening ties between the two nations.

The last bilateral engagement between the prime ministers occurred during the G-20 Leaders Summit in September 2023. Modi is expected to invite South Asian and BIMSTEC leaders to his swearing-in ceremony, fostering regional cooperation.

Addressing border killings, Mahmud emphasized the government’s commitment to ending such incidents and promoting the use of non-lethal weapons by border forces. Discussions also covered enhancing physical and people-to-people connectivity, including cooperation with India to import hydropower from Nepal and Bhutan through India. Mahmud highlighted the need to further ease visa restrictions to strengthen people-to-people relations.

The Bangladesh Bank has adjusted the dollar price to Tk117 from Tk110 by introducing the crawling peg exchange rate mechanism.

Under this new approach, the bank will buy and sell dollars with Tk117 as the mid rate.

This decision was reached during a meeting of the monetary policy committee on Wednesday, May 8th.

Additionally, the committee has opted to discontinue the SMART lending rate mechanism, allowing banks to set their lending rates based on dollar demand and supply, according to a circular issued after the meeting.

The crawling peg system permits a currency with a fixed exchange rate to fluctuate within a specified band of rates, combining features of both fixed and floating exchange rate regimes.

On May 5th, Bangladesh Bank Governor Abdur Rouf Talukder announced the adoption of a market-based interest rate and the implementation of a crawling peg system to stabilize the foreign exchange rate.

He stated that the central bank is collaborating with prominent economists and bankers to devise a contractionary monetary policy aimed at curbing inflation and restoring macroeconomic stability.

Earlier, on April 2nd, the World Bank stressed the importance of a crawling peg mechanism aligned with market-clearing exchange rates to narrow the gap between formal and informal exchange rates, as outlined in the latest Bangladesh Development Update report.

Meanwhile, the International Monetary Fund (IMF) has advocated for a market-based dollar rate. In January 2023, the IMF attached several conditions to a $4.7 billion loan facility over a three-and-a-half-year period. Bangladesh has received two installments of the loan by fulfilling nearly all conditions, except for the reserve requirement.

The International Monetary Fund has finally given Bangladesh the green signal for $681 million as the third instalment of the lender’s $4.7 billion loan package.

The visiting delegation of the lender has confirmed that the instalment will be released in June, several top finance ministry officials told the news reporter following a meeting with the IMF team yesterday.

They said various aspects of an agreement for securing the third instalment were finalised in a series of meetings with the IMF and different wings of the finance ministry yesterday.

The lender is likely to reduce the requirement for June’s net foreign exchange reserve from $20.10 billion to $17-$18 billion, they added.

The IMF had a condition for Bangladesh to have reserves of $19.26 billion by March-end and $20.10 billion by June’s end for the third instalment.

An official from the finance division told the news reporter that despite current reserves now around $15 billion, receiving the third instalment is assured even if this condition is not met.

Bangladesh and the IMF do not have much disagreement on most issues, said the official, adding that the government is working to implement the conditions imposed by the IMF including reducing subsidies, increasing revenue and reserves.

He said a new reserves requirement will be finalised in a meeting with the central bank on Tuesday. The IMF will also determine the net reserve target for October and December for the fourth instalment.

Bangladesh also failed to meet the net reserve requirement and revenue target before receiving the second instalment. Back then, the IMF signed the MoU by reducing the targets for next March and June.

Another official said the government also has doubts about achieving the lender’s condition for revenue target for June.

“Therefore, the finance ministry has also sought concessions from the IMF’s targets for June revenue collection. In the new MoU, the IMF is also likely to make concessions in this regard,” said the official.

The government has collected Tk1,62,164 crore against the revised target of Tk1,43,640 crore till last December, according to the finance ministry. However, revenue of Tk3,94,530 crore has to be collected at the end of the financial year.

Assessing revenue collection growth over the current fiscal year’s nine months, the revenue board predicts falling short of the target by at least Tk10,000 crore by June’s end.

Govt actively following IMF’s directives

Ahsan H Mansur, executive director of the Policy Research Institute, told the news reporter that the IMF’s current focus includes transitioning to a market-based exchange rate, leaving interest rates to the market, enhancing revenue collection, and reducing government subsidies.

He said the government is actively aligning policies with the IMF’s directives.

“The IMF may reduce the June net reserve requirement from $20.10 billion to $17-$18 billion. But it will be difficult to achieve before June,” said the economist.

Ramifications of not meeting conditions

Mahbub Ahmed, former senior secretary of the Finance Division, told the new reporter that the government is working to meet IMF conditions to secure the third loan instalment.

He said, “Despite not meeting conditions on foreign exchange reserves or revenue, we remain optimistic about receiving the third tranche.”

He said failing to meet the conditions satisfactorily may hinder receiving the two instalments scheduled for the next fiscal year.

“As the government has until the next fiscal year to fulfil the conditions, the IMF may get strict for the next instalments,” said the former secretary.

He further mentioned that Bangladesh has never received the last instalment of the IMF loan except once due to not being able to fulfil the conditions.

“In 2016, when I was finance secretary, I received the last instalment of the IMF’s $1 billion loan. Before this, Bangladesh could never take the final instalment of the loan,” he added.

Meeting with BB today

The IMF officials will meet with central bank officials on Tuesday morning to adjust banking sector conditions for securing the third and fourth loan instalments.

Later in the day, they will finalise the MoU with State Minister for Finance Waseqa Ayesha Khan and Finance Division Secretary Khairuzzaman Mozumder, attaching the revised terms for releasing the instalments.

The delegation, led by Chris Papageorgiou, head of IMF’s Development Macroeconomics Division, will leave Dhaka after a press briefing on 8 May. The team arrived on 24 April to review the loan programme.

In January last year, Bangladesh signed a $4.7 billion loan agreement with the IMF due to dwindling foreign exchange reserves. The loan is being distributed in seven instalments by 2026. The lender cleared $447.8 million of the first instalment in February last year, and $681 million of the second instalment in December