Dhaka, Bangladesh (BBN) – The International Monetary Fund (IMF) has approved a loan to Bangladesh worth almost one billion US dollars under its Extended Credit Facility (ECF), to help the country overcome macroeconomic pressures and build a reserve buffer.
The amount represents the largest loan ever offered to a member country under the IMF’s reformed concessional lending architecture, and is to be staggered across six equal installments, with a disbursement of $141 million to be made available immediately.
“The ECF will facilitate to implement the reform programs in Bangladesh,” Eteri Kvintradz, Resident Representative of IMF Dhaka office, told the correspondent on Thursday.
She also said the Bangladesh Bank will receive first installment of the credit facility on behalf of the Bangladesh government immediately.
“With steady but forceful action, the authorities’ program is expected to reduce imbalances and catalyze additional support from development partners, putting Bangladesh’s balance of payments on a sustainable path over the medium term,” Naoyuki Shinohara, Deputy Managing Director of the IMF said in a statement, following approval for the loan at a meeting of the Fund’s Executive Board.
Over the last year and a half, Bangladesh has faced mounting balance of payments pressures and declining foreign exchange reserves mainly due to increased demand for oil imports.
Its balance of payments went into deficit last year and it is confronting similar pressures in the current fiscal year, with global headwinds and firming oil prices now adding to these pressures.
The IMF expects the country’s GDP growth to slow in 2012, while inflation, which moderated recently, still remains high.
The near billion dollar loan is to be made under the IMF’s ECF designed to give low-income countries access to financing in the face of balance of payments pressures.
Bangladesh is benefiting from reforms to the IMF’s concessional financing, which effectively doubled access to financial resources for many low income countries.
Under these reforms, the ECF replaced the Poverty Reduction and Growth Facility as the IMF’s main tool for medium-term financial support for low-income countries.
As well as currently carrying a zero percent interest rate, the Extended Credit Facility provides a higher level of access to financing, more concessional terms, increased flexibility in its use, and more focused and streamlined conditionality.
As part of the loan agreement, the Bangladeshi authorities agreed to create fiscal space by increasing tax revenues and containing subsidy costs, reinvigorate the financial sector through strengthened governance and oversight, and take other reforms aimed at catalyzing additional resources.
“This will allow increased spending on social welfare and development, more resources to tackle power shortages and the infrastructure deficit, and stimulate export-orientated investment and jobs growth,” the IMF said.
In the process, the authorities aim to restore macroeconomic stability and strengthen the country’s external position, as well as promote higher, more inclusive growth.
The IMF also said the country’s economic outlook will depend on the pace of policy adjustments and implementation of those structural reforms.
Assuming stable domestic economic conditions, more effective use of its resources, and also an improved global economy, the IMF expects the country’s growth to rebound in FY2013.
Inflation is expected to decline to single digits by the end of this year through restrained fiscal and monetary policies. The overall balance of payments is also projected to return to surplus next year through a combination of policy tightening, increased exchange rate flexibility, and supportive global conditions, allowing Bangladesh to begin rebuilding reserves.
“But, the IMF warns, risks remain. Given heightened inflation and reserves, policy buffers remain limited in the face of any adverse shocks. Prolonged delays in adjusting fuel, electricity, and fertilizer prices and unanticipated increased in import-related costs could also exert additional pressure on the fiscal and external positions, cautions the IMF, also pointing to the need for more effective safety nets,” it noted.
BBN/SSR/AD-12Apr12-1:22 pm (BST)
