IMF to release $1.1b as fourth tranche by March: Finance adviser

The International Monetary Fund (IMF) has greenlighted the release of $1.1 billion as the fourth tranche – nearly double the amount initially set – of its $4.7 billion loan programme to help Bangladesh steer out of its financial challenges.

"The lending agency's visiting representatives have confirmed to the finance ministry that the fourth instalment will be released by next March," Finance Adviser Salehuddin Ahmed told journalists after a 13-member IMF delegation had met with him today (3 December).

Finance Secretary Khairuzzaman Mozumder, National Board of Revenue (NBR) Chairman Abdur Rahman Khan, and other senior officials were present at the meeting with the IMF officials, headed by Jayendu De, resident representative for Bangladesh.

Officials from the Washington-based lender are scheduled to meet with the NBR chairman tomorrow to discuss the current state of revenue mobilisation.

According to NBR sources, the officials have recommended further reductions in tax expenditures by eliminating certain sector-specific tax breaks.

As its foreign exchange reserves were steadily declining, Bangladesh signed the loan agreement with the IMF in January 2023, which will be disbursed in seven instalments by 2026.

The first instalment of $476.27 million was disbursed in February 2023, followed by a second instalment of $682 million in December that year.

In June 2024, Bangladesh received $1.15 billion in the third tranche, nearly double the originally planned amount. At that time, the IMF also eased the conditions for the country's foreign exchange reserves, lowering the target from $20.10 billion to $14.76 billion.

A finance ministry official, speaking on condition of anonymity, told The Business Standard that the IMF has adopted a flexible approach in evaluating the progress of conditions, given the current situation in Bangladesh.

It has been clearly communicated to the IMF that the revenue collection target cannot be met this time, and the visiting officials did not raise any objections. They also expressed no concerns regarding the budget deficit or the rise in defaulted loans in the banking sector.

The IMF representatives expressed satisfaction with the transparency in presenting the actual data. However, they enquired about the strategies the interim government is planning to address the current instability in the financial sector, as well as the timeline and implementation plans. The IMF has requested that this information be provided within the month, the official added.

Salehuddin Ahmed told reporters, "The IMF's main focus is to assess the situation in the revenue sector, as well as the fiscal deficit, budget, GDP growth, and inflation. They wanted to know the strategies we have implemented so far and the steps we plan to take in the future. We discussed these issues with them."

He noted that defaulted loans have increased in the banking sector, which is under stress. Discussions will be held with the Bangladesh Bank to address these issues.

"We have said that stability is returning to the banking sector, although it has not fully stabilized. However, there is positive news for investors and foreign donors," said the finance adviser.

He added that foreign exchange rates are no longer as volatile as before. Several banks, including the largest, Islami Bank, have returned to normal, though liquidity support is still needed. He expressed hope that the rest will gradually return to stability.

The adviser said, "Remittances are very good, and export growth is strong. Imports are slightly lower, but they have increased compared to before. Capital equipment imports are somewhat reduced, and there are some restrictions in this regard. We are considering what can be done."

He added, "We have said that we will take all necessary steps for reforms or changes that are beneficial for Bangladesh's future. We will not implement anything that could suddenly cause problems. We want to ensure that whichever government comes next can follow these steps. Therefore, we will make thoughtful decisions and consider all aspects. The IMF is convinced of this approach."

He remarked, "Whether we can meet the targets set by the IMF is another matter. I hope the IMF will make decisions in the best interest of Bangladesh's economic development."

Salehuddin Ahmed also said, "We have requested additional funds, and discussions will take place regarding that. They will let us know when the funds will be provided. There are significant costs involved in implementing the reforms we are planning, especially in the banking and revenue sectors."

The finance adviser said, "In addition, if we have a trade deficit, we will need funds to maintain the current account balance. We have already asked for these. Most recently, in Washington, we have been talking to various organisations, including the World Bank, IMF, and OPEC Fund."

"We have asked for about $6 billion in the current fiscal year. It is not possible to say how much we will get right now."

It is expected that additional funds from the ADB and OPEC funds will be available in a few days. The donor agencies will provide this money as project finances for five-seven years. As a result, the entire money may not come at once.

The finance adviser said the mission will come again next March for the next review of the IMF's $4.7 billion scheme.

IMF meeting with NBR 

A senior NBR official, speaking on condition of anonymity, told TBS, "IMF officials contacted us three days ago to enquire about NBR's plans for further reducing tax expenditure benefits in FY25."

"The IMF believes that Bangladesh's reduction in tax expenditures in the last budget contributed to a 0.25% increase in the tax-to-GDP ratio, though their target was 0.50%. To meet the IMF's revenue target, additional tax exemptions must be curtailed to mobilise more revenue."

In FY24, Bangladesh's tax-to-GDP ratio was 7.5%. As part of the conditions tied to the $4.7 billion loan, the IMF requires the country to rationalise tax exemptions and increase the tax-to-GDP ratio by 0.5% in FY25, aiming for 7.9%.

To meet the IMF's target, Bangladesh must collect at least Tk4.6 lakh, a 21% increase compared to FY24's revenue earnings.

However, NBR data shows that in the first four months of FY25, revenue collections fell short of the target by around Tk31,000 crore, reflecting a less than 1% decline year-on-year.

The official said, "We believe tax expenditures need to be reduced further. However, making such adjustments mid-year is challenging, as these changes are typically implemented during the budget cycle."

"Given the current inflationary pressures, reducing exemptions on essential goods is not feasible. In fact, additional exemptions have recently been granted for items like sugar, edible oil, onions, rice, and potatoes at the import stage."