B Mirror Desk : Bangladesh is on the verge of addressing its initial challenge in securing an installment from the ongoing $4.7 billion loan program with the International Monetary Fund (IMF). To achieve this, the country will need to implement some unpopular measures, including cutting subsidies, raising electricity prices, and allowing the exchange rate to be determined by market forces.
If both Bangladesh and the IMF remain rigid in their positions regarding the fulfillment of these conditions, the country may not receive any further installments. This could lead to additional complications, as other development organizations might also adopt a more cautious approach to lending to Bangladesh. Financial Advisor Salehuddin Ahmed has voiced concerns regarding this potential scenario.
Experts identify three significant hurdles that Bangladesh must overcome to secure two installments from the IMF loan program simultaneously. Failure to address these challenges could hinder the receipt of the IMF funds. The obstacles include establishing a market-based currency exchange rate, generating additional revenue equivalent to 0.5 percent of the gross domestic product (GDP), and decoupling revenue administration from the National Board of Revenue’s (NBR) revenue policy.
While Bangladesh has assured the IMF of its commitment to these conditions, sources from Bangladesh Bank and the Ministry of Finance indicate that there has been little progress on the first two points, aside from the initiative to separate revenue administration from revenue policy.
In a recent pre-budget discussion, when asked about the timeline for implementing a market-based exchange rate by June, Finance Advisor Salehuddin Ahmed refrained from making any commitments, citing the need to assess the duration of inflation. He cautioned that a sudden shift to a market-driven exchange rate could lead to a situation similar to that of Pakistan and Sri Lanka, increasing the associated risks.
Currently, the exchange rate is managed through a crawling peg system, which mitigates the risk of sudden spikes in the dollar’s value. Under this system, the dollar is presently stable at 122 taka.
