An International Monetary Fund (IMF) loan programme of $4.7 billion for Bangladesh started in January 2023. The loan was to be disbursed in seven tranches, and so far, Bangladesh has received $2.31 billion in three tranches. The remaining $2.39 billion is to be disbursed in other four tranches. The fourth tranche, amounting to $640.5 million, was supposed to be released two months ago, in December last year. But it has been announced recently that the release of the fourth tranche of the IMF loan to Bangladesh would be delayed.
Why is this delay? Both the IMF and the Government of Bangladesh have their own perspectives on this delay. In broader terms, the Fund maintains that since Bangladesh was unable to comply with the conditionalities agreed upon in the IMF loan agreement, the release of the fourth tranche would be temporarily put on hold. The Bangladesh Government, on the other hand, has indicated that some of the agreed upon conditionalities of the loan cannot be met right now. Globally, such a phenomenon is not new to IMF operations. It is a part of the IMF agenda culture to provide loans to the developing world on strict terms, and to temporarily suspend the loans, till the conditionalities are met.
Many people may recollect the IMF’s Structural Adjustment Facilities in the developing world in the decade of 1980s. At that time, because of different economic crises, many countries of Asia, Africa and Latin America had to resort to IMF loans. Against those loans, the Fund imposed the strict conditionality of economic stability as the prime economic goal for those nations. The pursuit of that goal has led to sluggish economic growth (even generating no or negative growth), increased poverty incidence, deepening inequalities and shrinking of social services in those countries. In other words, budgets were balanced, by unbalancing the lives of the people. At that time also, as it is now, because of non-meeting of IMF conditionalities, the loan-tranches were stopped in countries after countries, and in some cases, loans were suspended. In fact, Bangladesh has had similar experiences in the 1980s as well.
This time also, the IMF has indicated the non-meeting of its loan conditionalities as the reason for delaying the release of a loan tranche to Bangladesh. According to the Fund, a number of old conditionalities of the loan were not met and as a result, new conditionalities were imposed, increasing the number of conditionalities. One of the conditionalities was to separate the revenue policy function of the National Board of Revenue (NBR) from its revenue administration function. But credible progress has not been reported on that front. Other loan conditionalities included: mobilisation of additional revenue through personal income tax, fixation of the rate of the value-added tax (VAT), reduction of tax rebates etc. Satisfactory Progress was not achieved on those fronts either. The list of loan conditionalities does not end here. Formulation of new financial laws and reformulation of old laws; bringing the percentage of defaulted loans of public banks down to less than 10%, allowing market forces to determine the foreign exchange rate are also part of the IMF conditionality structure.
On these issues, the position of the Government of Bangladesh is the following. First, there are some issues in the IMF conditionality structure, which cannot be immediately implemented. Second, the government has some other critical tasks to take care of. As a result, it does not want to expedite the process of meeting the IMF conditionalities. Third, the government is also saying that there are some conditionalities which, even if the Fund insists, the government will not comply with. This is because the macroeconomic position of the country is good – with the current account, the financial account, the remittances all being positive. Therefore, the government is not desperate to meet the IMF conditionalities. Some high government officials are also of the opinion that it is of very little significance, if the IMF withdraws its loan facility to Bangladesh.
Yet, in the context of the current economic realities of Bangladesh, a few cautionary remarks may be appropriate vis-à-vis the delayed release of the fourth tranche of the IMF loan. First, after the economic debacle of the past, the Bangladesh economy is yet to turn around. It is true that some of the economic indicators of the country have been showing some improvements, but they are not still on a solid sustainable foundation. So even though in line with our national interest, we shall definitely take a clear and strong position with regard to the IMF loan conditionalities, still we should be careful on three fronts on what we say. One, our words should not create any undesirable sensitivities among the concerned parties; two, we should avoid saying things which in future, we will be forced to take back given the realities of that time; and three, we should refrain from providing false assurances to the people.
Second, we must quite objectively assess whether we really need the IMF loan and whether we want to keep the loan active and running. It is neither a political issue, nor an ideological or emotional thing. It is a matter of pure need. At the same time, we must remember that the question is not whether Bangladesh should take a hard or a flexible stance vis-a-vis the loan conditionalities, the question is how we can take a pragmatic position with regard to those conditionalities.
Third, if Bangladesh wants the continuation of the loan, then the country will have to accept the related conditionalities. Undoubtedly, there can be further discussions on those issues with the IMF. At the same time, it should be examined as to why these conditions cannot be met. We should also stress that we should undertake some reforms because of our own interests, not because the Fund asks us to do so.
The delay in disbursement of the IMF loan-tranche may have an adverse impact on the Bangladesh economy. One has also to consider whether such a delay will also impact the budget support programmes of the World Bank to Bangladesh. The disbursement of every IMF loan-tranche requires the approval of the IMF governing body. The Fund intends to have the discussion on the fourth tranche in March, rather than February, when the IMF governing body meets for its next meeting. The Government of Bangladesh, however, wants to defer that discussion even to a later date meeting of the IMF governing body, preferably in June and it prefers the release of two tranches together – the fourth and the fifth tranches. In the light of the present economic situation of Bangladesh and its future prospects, this idea also requires an objective and pragmatic consideration.
Dr. Selim Jahan is the former Director of the Human Development Report Office (HDRO) of the UNDP, New York.