The board of the International Monetary Fund (IMF) sits in Washington today to decide on a US $1 billion credit facility for Bangladesh.

“We hope the government will get $ 1 billion under the Extended Credit Facility (ECF) of the global lender though a $ 1.5 billion proposed loan from the World Bank to construct Padma Bridge is now hanging on corruption charges”, a senior official of the finance ministry said yesterday.

The proposed loan, which tags 11 conditions including automatic price adjustment of fuel oils to be fulfilled by December, 2012, would ease the country’s balance of payment and foreign exchange reserve problems, he added.
The fund will come in six tranches, of which the first $167 million installment will be released for the current fiscal year, if the board approves the proposal.

At present the ECF carries a zero per cent interest rate and will have to be repaid by the country within 10 years. If the loan is approved, Bangladesh will get IMF credit after nine years.

Meanwhile, finance minister AMA Muhith has already informed the IMF the details on what steps the government will take in the next three years to fulfill its conditions.

Earlier, Prime Minister’s energy adviser Tawfiq-E-Elahi Chowdhury said progress in price hike of petroleum products, tagged with the release of the ECF fund, will also be placed at today’s board meeting.

The Energy Division is likely to increase fuel oil prices again before the announcement of next budget in June, he said, adding that the process might begin from next month.

Energy Division may also adopt a formula soon which will put in place a system to automatically adjust domestic retail petroleum prices in line with their international rates, he added.

The 11 conditions of the loan include demutualisation of Dhaka and Chittagong stock exchanges by December this year, among others.

As per the conditions, the government should bring down budget deficit to five per cent of GDP, but a finance ministry report showed that budget deficit may increase to 5.1 percent at the end of current fiscal due to huge fuel subsidies.
Drastic fall in receiving foreign assistance may also result into widening budget deficit.

Meanwhile, different government agencies have already made significant strides in implementing the conditions entwined with the IMF loan facilities. The cabinet has approved the draft value added tax law which will be placed in the next session of parliament as a bill.

Economists and experts, however, expressed mixed reaction about the IMF loan conditions.
Dr AB Mirza Azizul Islam, former adviser to a caretaker government, told daily sun recently that the ECF fund will help ease the foreign currency crisis of the government.

“We need foreign currency to strengthen local currency taka,” he said, sounding a note of caution that the government should not take IMF loan accepting the painful conditions that might go against the interest of the country.

Islam said the IMF’s policy reform conditions will not benefit the government as it’s not possible to implement all the conditions.

Ashan Mansur, executive director of Policy Research Institute, told daily sun that the government needs the low-interest credit of IMF to ease its balance of payment problems.

Implementation of IMF conditions will also streamline the economy and help reduce inflation rate, he added.

Professor Anu Muhammad, who teaches Economics at Jahangirnagar University, told daily sun that Bangladesh did not require the ECF loan as the foreign exchange reserve of the central bank has increased significantly in the last five years.

The remittance flow from expatriate Bangladeshis is enough to solve the balance of payment problem, he added. He termed IMF as a controversial global lender, adding that it wants countries like Bangladesh to fall under it loan trap.

Showing example he said, Malaysia achieved high economic growth without financial help from global lenders like IMF and WB, while countries like Brazil and Argentina faced economic hardship availing their loans, he added.

The Daily Sun/Bangladesh/ 11th April 2012