IMF satisfaction: Respite or disquiet for Bangladesh?

The post-Covid global recession and spiralling costs of fuel import triggered by the Russia-Ukraine war, put considerable strain on Bangladesh’s foreign currency reserves. Having no other alternative, Bangladesh turned to the International Monetary Fund (IMF), seeking a loan.

In January 2023 IMF pledged to lend Bangladesh USD 4.7 billion on certain conditions, including that subsidy on the energy sector be lifted.

IMF gave Bangladesh directives to increase the foreign currency reserves, to increase the tax-GDP ratio by 0.5 per cent within June 2023, and to move to a formula-based price adjustment mechanism by December 2023 to fix the cost of fuel oil.

Also, in its first review in December 2023, IMF advised Bangladesh to take up a contractionary monetary policy to control the prevailing high inflation rate in the country and to follow a flexible exchange rate policy.

With the January 2024 election ahead, the government refrained from fulfilling those conditions. However, in order to avail the next tranche of the loan, this month it has left the interest rate entirely to the market and so increased the policy interest rate by 50 basis points to 8.5 per cent.

After taking up a flexible exchange rate policy, the exchange rate of the dollar was hiked by Tk 7 to the highest the country has ever seen, at Tk 117, under the crawling peg exchange rate system.

Also, a formula-based energy price adjustment mechanism was implemented for petroleum products. The donor agency IMF is satisfied with these financial reforms carried out by the government.

And the end of the second review this month, the IMF mission chief Chris Papageorgiou apprised the media of its satisfaction, saying there needs to be more reforms in the banking sector and emphasis must be placed on tax and revenue collection. He also stressed the need on curbing subsidies in order for the economy to turn around.

The matter that must be given due consideration is how much respite will this satisfaction of IMF offer the country, and how must relief will these reforms give the people for whom the loan has been taken.

Ever since this loan was taken from the IMF, the country has seen one record after the other. There has been a record in the hike of energy prices, the dollar rate has hit a record high, the reserves have hit a record low. And above all, the people are floundering under the record hike in the prices of essentials. IMF’s satisfaction has offered the people no respite. It has simply served to increase their distress further.

On the eve of receiving the loan, in January 2023 Bangladesh’s central bank authorities said that fighting against inflation was Bangladesh Bank’s top priority and that they aimed to bring down inflation to 6 per cent that year. That aim was not met. The prices of essential continue to increase in leaps and bounds.