Dhaka expects IMF’s 4th tranche, plus $80m from additional loan, on 10 Feb

The fourth tranche of the ongoing $4.7 billion loan programme from the International Monetary Fund (IMF) will include an instalment from an additional $750 million loan, said Finance Secretary Khairuzzaman Mozumder today. 

The multilateral lender will disburse $645 million, including $80 million from the new loan, on 10 February, Mozumder said during a discussion between Finance Adviser Salehuddin Ahmed and journalists at the Secretariat.

Bangladesh will receive another $80 million in June along with the fifth tranche – with a total of $160 million from the additional loan in the current fiscal year, he added.

IMF mission chief Chris Papageorgiou said the fourth tranche, along with the additional loan instalment, could be released on 10 February, pending approval at a board meeting of the multilateral lender scheduled for 5 February.

Addressing a press conference to conclude their review mission from 3 December at the finance ministry, he said inflation in Bangladesh has exceeded the IMF's expectations, adding pressure to the economy. High inflation, combined with slow growth, is creating further strain on foreign exchange reserves and the balance of payments.

"We do not see inflation coming down at the rates we were expecting. As of November, inflation remains very high, still in double digits," he said. 

Papageorgiou explained that inflation in Bangladesh remains in double digits, primarily driven by two factors – food inflation stemming from structural issues on the supply side, and elevated aggregate demand on the demand side. 

The IMF has been vocal about issues in the banking sector, particularly regarding non-performing loans (NPLs) and their recording. Papageorgiou commended the interim government for prioritising banking sector reforms but noted that the sector is still in distress. 

He pointed out that Bangladesh, which was growing at 7% with low inflation as recently as 2022, is now facing 3.8% growth and high inflation, along with additional pressure on reserves and a banking sector in need of support.

On the topic of revenue mobilisation, Papageorgiou highlighted that Bangladesh's tax-to-GDP ratio is among the lowest globally, stagnating at around 7% for a long time. 

He stressed the importance of increasing revenue mobilisation, with a focus on separating policy formulation from administration within the National Board of Revenue. He emphasised that this reform could help improve revenue generation over the medium term.

The IMF also suggested addressing long-standing exemptions, which have contributed to issues in revenue collection over the years. Papageorgiou explained that such exemptions have become ingrained in the country's culture, and efforts are underway to change this.

The IMF is pushing for greater flexibility in the exchange rate to stabilise reserves and improve the balance of payments. Regarding the banking sector, the immediate next steps will involve official assessments of 10 to 12 banks.

In the discussion with journalists, Finance Adviser Salehuddin Ahmed acknowledged that the IMF's portrayal of Bangladesh's economic situation might seem gloomy but described it as realistic, given the current challenges. 

The IMF has projected 11% inflation and 3.8% GDP growth for the current fiscal year, and Salehuddin agreed that the growth rate is likely to decline. However, he said the government aims to reduce year-on-year inflation to 8% by December next year, with point-to-point inflation at 8% and average inflation within 9% by June.

Salehuddin emphasized the importance of banking sector reforms, citing the IMF's call for reducing non-performing loans, improving asset quality, and strengthening bank governance. 

He also focused on the need for tax reforms, specifically increasing the tax-to-GDP ratio and eliminating unnecessary tax exemptions. The government has already cancelled some exemptions and is reviewing others.

To widen the tax net, Salehuddin discussed plans to automate the tax system and minimize in-person interactions between taxpayers and collectors. 

He mentioned the establishment of a National Single Window, with a workshop scheduled for January. This project, delayed for seven years, aims to streamline tax collection processes.

Additionally, Salehuddin revealed plans to separate tax policy formulation from tax collection, with a proposal to split the NBR into two departments, each with separate secretaries. This proposal will be presented to the Advisory Council for approval.

Bangladesh currently faces a $3 billion resource gap. To address this, the IMF has committed $750 million, the World Bank has pledged $500 million, and the Asian Development Bank will also provide assistance.

In response to concerns about dearness allowances for government employees, Salehuddin said such expenditures have minimal impact on inflation. He clarified that inflation is primarily driven by high-powered money.

Salehuddin concluded by emphasizing that the upcoming fiscal year's budget will focus on equity and fairness. Efforts will be made to ensure effective implementation, particularly by ensuring that those eligible to pay taxes contribute. 

He stressed that the government is determined to tackle tax evasion and widen the tax base to ensure long-term financial stability.