Bangladesh has reached a preliminary agreement with the International Monetary Fund (IMF) that could unlock $681 million from a $4.7 billion loan package, subject to IMF board approval. The staff-level agreement was made on necessary policies for the first review of the loan program, according to a statement released on Thursday.
The funds are considered crucial for Bangladesh’s economy, which is grappling with a global slowdown and high commodity prices. Despite significant progress on structural reforms, Bangladesh faces macroeconomic challenges due to global financial tightening and inherent vulnerabilities.
IMF’s Bangladesh mission chief, Rahul Anand, recommends further monetary tightening, a neutral fiscal policy, and enhanced exchange rate flexibility for economic stability. Central bank spokesman Mezbaul Haque expects fund disbursement approval at an IMF board meeting in December.
In order to meet the IMF’s conditions, Bangladesh has implemented several measures including raising taxes, removing subsidies, and allowing its currency to float freely. However, it fell short of meeting foreign currency reserves and revenue collection targets. Its forex stockpile fell to $21.1 billion, below the IMF target of $25.3 billion, and tax revenues were $1.36 billion short.
Moody’s (NYSE:) downgraded Bangladesh’s credit rating due to its worsening external position. The loans from the IMF will ease pressure on Prime Minister Sheikh Hasina, who is currently facing calls for resignation by the Bangladesh Nationalist Party amidst upcoming January elections and a planned street rally on October 28.
Bangladesh emerges as the primary beneficiary among three South Asian nations that requested financial assistance last year. The country continues to face ongoing challenges due to global financial tightening which exerts pressure on the Taka and FX reserves.
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