Foreign debt repayment pressure will mount, IMF warns
Summary:
- IMF has asked Bangladesh to prepare and release quarterly GDP report
- It also suggests reducing dependence on apparel exports only
- IMF team will want to know about export earnings targets from RMG and non-RMG sectors in next three fiscal years
- IMF and ERD will sit again on 7 November over debt servicing
The International Monetary Fund (IMF) fears that Bangladesh will face more pressure in repaying external debts as its export earnings and remittance inflow may further fall amid the ongoing global economic downturn.
Stating that Bangladesh's debt-to-GDP ratio is still much lower than the global standards, yet the visiting IMF team, in a meeting with the Economic Relations Division (ERD) on Monday, suggested a little more cautious approach in taking out new loans, considering the current global situation.
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The Washington-based lender also thinks that Bangladesh's overdependence on a single export product – readymade garments – has put the country's export earnings at serious risk.
To minimise such a risk, the IMF is also expected to meet with commerce ministry officials on Wednesday and suggest production diversification by reducing reliance on apparels, according to ministry sources.
In another discussion with the Bangladesh Bureau of Statistics (BBS) yesterday, the multilateral lender recommended calculating the GDP size every three months, said sources at the BBS.
The delegation also wanted to know the reason behind the delay in publishing recent inflation data.
The IMF delegation arrived in Bangladesh on a 15-day visit on 26 October to discuss conditions related to the release of a $4.5 billion loan for budget support to the country.
Debt servicing estimates for next few years sought
The IMF delegation has sought estimates of Bangladesh's debt servicing over the next few years. Based on this information, the global lender will prepare a debt sustainability analysis report, according to ERD officials.
A two-member IMF team took part in the meeting with the ERD where Md Mostafizur Rahman, additional secretary and wing chief of Foreign Aid Budget and Accounts of ERD, was present. There will be another meeting between the two sides on 7 November.
ERD sources said the IMF wanted to know how the increases in the secured overnight financing rate (SOFR) and the London Inter-bank Offered Rate have affected loan repayments. In response, ERD officials told the IMF delegation that there have been some concerns because of such rate hikes.
According to ERD data, Bangladesh has to pay $2.77 billion, $3.3 billion and $4.02 billion, in that order, for the three fiscal years. In FY22, the government repaid $2 billion to various development agencies.
Bangladesh's foreign debts are becoming costly because of rising per capita income. Interest rates on most foreign loans exceed 2%. In this situation, the IMF thinks that there is a need to be a little cautious about the loans.
As of June 2022, Bangladesh's outstanding external debt stood at $55.66 billion, of which 60% was taken out from multilateral lenders.
Push for product diversification
The IMF delegation in a meeting with the commerce ministry will emphasise a diversification of export products by reducing dependence on the RMG in order to minimise the risks of a fall in exports.
Senior Commerce Secretary Tapan Kanti Ghosh will attend the meeting, where senior officials of the relevant divisions will be present.
The IMF team will want to know of the export earnings targets set by the government from the RMG and non-RMG sectors in the next three fiscal years, according to the meeting agenda.
In the last fiscal year, Bangladesh exported goods worth $43 billion, with the apparel sector accounting for 82% of the receipts.
The IMF will also want to know what steps Bangladesh is taking to become eligible for trade facilities in the United States and the European Union after LDC graduation.
Besides, the development lender would like to know about Bangladesh's possible signing of free trade agreements with some countries and regions.
As a least developed country, Bangladesh has imposed tariffs exceeding WTO-prescribed rates on imports of various products to protect domestic producers. The IMF team will ask the government to let them know of its plans to bring down these tariff rates in line with WTO standards.
BBS asked to publish quarterly GDP report
In a meeting with BBS officials, the visiting IMF delegation has asked Bangladesh to prepare and release a quarterly report on gross domestic product (GDP).
IMF Mission Chief Rahul Anand led the IMF team while BBS Director General Matiar Rahman, National Accounting Wing Director Ziauddin and some other BBS officials participated in the meeting.
As per IMF requirements, Matiar Rahman said, "The government is working to update the base year to calculate the GDP every three months, for which the IMF is providing technical assistance."
Explaining the existing GDP assessment process, the BBS director general told The Business Standard that BBS calculates yearly GDP in the last quarter of a fiscal year.
"The final report is released a few months after the end of the given year," he explained.
The IMF delegation came to the BBS office to learn of the progress of this work, he added.
He also noted that this meeting with the BBS had nothing to do with the ongoing discussion regarding the IMF's $4.5 billion loan support.
Matiar Rahman also noted that there are some problems in publishing the GDP data every quarter.
"Now production data are collected once a year from various institutions, but then the data have to be collected four times a year to release the GDP report every quarter," he said.
For this reason, other organisations must also be prepared, he noted, adding, "We are preparing everyone for this. Almost all South Asian countries publish their quarterly report on GDP. We also have to follow suit. But it is not possible to say how much time it will take. We have conveyed all these matters to the IMF."In response to a question, he said, the delegation wanted to know the reason for the delay in releasing inflation data in August.
Matiar Rahman continued, "I told them [the IMF team] we need permission from the higher authorities to release data on inflation, which came to us late. This is the reason for the delay."
Although it is customary to prepare the inflation report at the end of each month and release it in the first week of the following month, the inflation data for August were not released even in September.
Before the two-month data were released by the BBS in October, Planning Minister MA Mannan had said inflation rose significantly in August and came down slightly in September.
Many people commented that the release had been delayed due to the big jump in inflation, exceeding 9.5%.
According to a source who participated in the meeting, the IMF also wanted to know the latest data on the country's poverty and employment rate.
