The International Monetary Fund is all set to successfully complete
its Extended Credit Facility loan programme in Bangladesh this month, a
first for the multilateral lender since 1990, as it approved the last
two instalments totalling $258.3 million.
The approval for the loans came at a board meeting of the IMF,
chaired by the donor agency's Deputy Managing Director Mitsuhiro
Furusawa, yesterday in Washington.
With this consent, the ECF loan programme will now end on October 31,
three months after the scheduled deadline of July due to Bangladesh's
failure to fulfil three of the conditions set by the lender.
The conditions include an international audit of the Bangladesh Petroleum Corporation and implementation of the VAT law.
Prudent macroeconomic policies and structural reforms, with support
from the ECF arrangement, have helped steer the Bangladesh economy
through domestic and global challenges in the last three and a half
years, Furusawa said in a statement after the board meeting.
Under the ECF loan programme, initiated by the IMF in April 2012,
Bangladesh will get a total of $904.2 million, of which the country has
already received $645.9 million through five instalments.
Prior to receiving the instalments, the government had to fulfil some
of the conditions regarding the overall improvement of the
macroeconomic and financial sectors.
But the government failed to comply with some of the conditions in
November last year to get the sixth instalment, which prompted the IMF
to defer its release. The lender decided to release it together with the
seventh instalment.
A finance ministry official said, since 1990 none of IMF programmes
could be completed due to noncompliance with conditions set by the
multilateral lender.
The IMF believes that Bangladesh has made significant progress in its
economic field, but still there are opportunities to make progress.
Growth has been robust, inflation has eased, foreign exchange
reserves have risen to a comfortable position, and public debt has
remained stable as a share of GDP, Furusawa said.
Given the challenging and uncertain global landscape and an upside in
inflation risks, the authorities should maintain prudent fiscal and
monetary policies to underpin sustained high growth, build resilience to
shocks and further reduce poverty.
Structural reforms will also play an important role in unleashing the
full potential of the economy, he said, adding that many of the
important reforms were adopted under the ECF arrangement.
He, however, said some key structural challenges still remain.
Bangladesh's already low tax-to-GDP ratio has declined steadily since fiscal 2012–13.
Boosting revenue is necessary to maintain fiscal sustainability and
build fiscal space for public investment in critical infrastructure and
stronger social safety nets.
To this end, the authorities should steadfastly implement the new value-added tax law for launch by July 2016.
The new VAT law will simplify the tax administration and lower the
taxpayers' compliance costs, and it is designed to protect the poor and
small businesses, Furusawa said.
Further reducing inefficient and regressive energy subsidies -- by
aligning domestic fuel prices with international prices and
strengthening financial management and reporting in state-owned
enterprises -- would also open up space to increase well-targeted social
spending.
He said another important priority is to continue to strengthen the resilience of the banking sector.
The state-owned banks, in particular, should be reformed and guided
by good corporate governance practices, supported by complete branch
automation by 2016.
To further boost inclusive growth, continued efforts are needed to
remove infrastructure bottlenecks, particularly in power and
transportation, improve business climate and ensure better labour rights
and safer working conditions.
The government has taken a number of major reforms in the economic
sector to fulfil the conditions of IMF under the ECF programme.
One of them was the amendment to the Banking Company Act to heighten
the power of the central bank. For instance, the central bank governor
now has the authority to remove managing directors of state-owned banks.
After the Awami League-led government came in power in 2009,
political appointments had been made in the board of all state banks,
which resulted in various financial scams such as the Hall-Mark one.
The scams were being unearthed from 2012, when the IMF started the ECF loan programme for Bangladesh.
Finance ministry and Bangladesh Bank officials said IMF teams were
monitoring the financial sector every three months and pressurising the
government to take steps to improve the situation.
Now the situation has improved much, the officials said. The
amendment to Banking Company Act also put a ceiling on investment by
banks in the stockmarket, a major cause for the crash in 2011.
As per the IMF's advice, the government also brought about
stockmarket demutualisation, a process that separated the bourses'
ownership from their management.
To deter the government from taking on too much high-cost external borrowing, the IMF set a ceiling for it.
And to increase the government's revenue earning potential, the IMF
was insistent on implementing the VAT law, due to take effect from July
next year.
Under the law, a 15 percent VAT will be imposed at any stage.
Besides, many other small reforms were carried out, including bringing the state-owned banks under a strict regulation.
The IMF did a mid-term review in 2013 and found that the reforms
increased foreign currency reserves, decreased non-food inflation,
raised tax revenue and curbed poorly-targeted energy subsidies.
The country achieved GDP growth of above 6 percent during the period.
The finance ministry official said the IMF programme played a positive role in maintaining macroeconomic stability.
He said they will now move forward to seek another IMF loan programme
to continue with the reforms in the macroeconomic and financial
sectors.
The finance minister also indicated at different times that they will start negotiating with the IMF on another loan programme.
An IMF high official had also told The Daily Star earlier that they
will consider the loan programme if the Bangladesh government wants.
