BMirror Report:

The International Monetary Fund (IMF) has reached a temporary agreement with Bangladesh to release $1.15 billion in additional financing. This decision comes after a successful review of Bangladesh’s economic reforms undertaken with the help of the IMF.

The funds will be released upon final approval by the IMF’s Executive Board, which is expected in the coming weeks.

The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Board. Based on the preliminary findings of this mission, staff will prepare a report that, subject to management approval, will be presented to the IMF’s Executive Board for discussion and decision.

IMF staff and the Bangladesh authorities have reached a staff-level agreement on the policies needed to complete the second review of the authorities’ program supported by the IMF’s Extended Credit Facility (ECF), Extended Fund Facility (EFF), and Resilience and Sustainability Facility (RSF). The review is pending IMF Executive Board approval. Upon the Board’s approval, Bangladesh will have access to SDR871 million (about US$1,152 million) in financing.

Bangladesh authorities adopted some critical reforms to address macroeconomic imbalances, including the realignment of the exchange rate, adoption of a crawling peg regime, and the full liberalization of retail interest rates. It is imperative to sustain the reform momentum and ongoing efforts towards macroeconomic stabilization.

The authorities’ reform program supported by the IMF will continue to help Bangladesh navigate a difficult external environment and preserve macroeconomic stability, while accelerating economic reforms and delivering on their climate agenda to achieve sustainable, inclusive, green growth.

Dhaka, Bangladesh – May 8, 2024: An International Monetary Fund (IMF) mission team led by Mr. Chris Papageorgiou visited Dhaka during April 24 – May 8, 2024 to discuss economic and financial policies in the context of the second review of the IMF’s Extended Credit Facility (ECF), Extended Fund Facility (EFF), and Resilience and Sustainability Facility (RSF).

At the end of the mission, Mr. Papageorgiou issued the following statement:

“The IMF team reached a staff-level agreement with the Bangladesh authorities on the policies needed to complete the second review under the ECF/EFF/RSF arrangements. The staff-level agreement is subject to approval by the Executive Board, which is expected in the coming weeks. Completion of the second review will make available SDR704.70 million (about US$932 million, equivalent of 66 percent of quota) under the ECF/EFF and SDR166.68 million (about US$220 million, equivalent of 15.6 percent of quota) under the RSF.

“The authorities have made significant progress on structural reforms under the IMF-supported program, including the implementation of a formula-based fuel price adjustment mechanism for petroleum products. Nonetheless, larger-than-expected spillovers from tightening of global financial conditions, and still elevated international commodity and food prices, coupled with domestic vulnerabilities, has led to persistently high inflation and declining foreign exchange (FX) reserves. This has exacerbated pressures on the economy and heightened the complexity of macroeconomic challenges.

“Against this backdrop, we welcome Bangladesh Bank’s bold actions to realign the exchange rate and simultaneously adopt a crawling peg regime with a band as a transitional step toward greater exchange rate flexibility to restore external resilience. Following the liberalization of retail interest rates, additional tightening of monetary policy should help alleviate any inflationary pressures resulting from the exchange rate reform. Fiscal policy should support these monetary tightening efforts through revenue-based consolidation. If external and inflationary pressures intensify, the authorities should stand ready to tighten policies further.

“The macroeconomic outlook is expected to gradually stabilize as policy actions start to take hold. Real GDP growth is projected to moderate to 5.4 percent in FY24 owing to the ongoing import compression and policy tightening. However, it is anticipated to rebound to 6.6 percent in FY25 as imports rebound and FX pressures ease. Inflation is projected to remain elevated at approximately 9.4 percent (year-on-year) in FY24 but is anticipated to decline to around 7.2 percent in FY25, on the back of the continued tighter policy mix and projected lower global food and commodity prices. Nevertheless, uncertainties surrounding the outlook remain high, with risks predominantly leaning towards the downside.”

The IMF recommends that Bangladesh prioritize tax reforms to increase revenue and support social spending. This will be crucial for achieving long-term economic stability.