Reforms need political will, not IMF

Reforming economic policies in Bangladesh to avoid corruption and disparity and ensure good governance requires strong political will, not the conditions of the International Monetary Fund (IMF), said economists yesterday. 

Their comments came at a webinar titled "IMF's loan: who consume, who repay" organised by the Forum for Bangladesh Studies, a platform of academics, analysts and researchers.

On January 30, the IMF approved a $4.7 billion loan programme which would run for 42 months and has as many as 30 conditions falling under three categories: quantitative performance criteria, structural performance criteria and general commitment.

"The state of governance corruption cannot be changed by the IMF's conditions because these cannot be bought by money. Rather the political intent is necessary," said Ahsan H Mansur, executive director of Policy Research Institute of Bangladesh.

"The state of governance corruption cannot be changed by the IMF's conditions because these cannot be bought by money. Rather the political intent is necessary," said Ahsan H Mansur, executive director of Policy Research Institute of Bangladesh

The amount of the loan is not that big compared to the size of the economy but its conditions may contribute in taking some necessary steps, he said.

The government did not focus on reforming policies to stop capital flight and improve the tax to GDP ratio. "So, the government's fiscal space is being squeezed," he said.

In fiscal year 2021-22, the tax-GDP ratio was only about 7.5 per cent which was over 12 per cent a few years back, he added.

Meanwhile, the exchange rate was fixed for so many years that the dollar became overvalued by around 40 per cent and it has been adjusted by only 25 per cent, he said.

Now the exchange rate has become almost fixed again, he said.

The tax structure was also convenient for big players, for which disparity has been rising and while the tax to GDP ratio going down, he said.

The IMF has been working with Bangladesh "sitting inside its office" and that also for many years but non-performing loans (NPLs) has remained high, said Prof Anu Muhammad.

Default loans in Bangladesh's banking sector jumped 17 per cent year-on-year to Tk 120,656 crore last year.

As a result, the ratio of bad loans rose to 8.16 per cent of the outstanding loans in December compared to 7.93 per cent in the same month in 2021, showed data from Bangladesh Bank.

One of the IMF conditions is to raise the tax to GDP ratio and now the government will raise tax and value added tax, increasing sufferings of general people, said Muhammad.

Meanwhile the rich will remain as beneficiaries as their taxes are not that high, said the former chairman of the economics department of Jahangirnagar University.

Moreover, the loan will make it easy for the government to get more loans from other international bodies and increase the tax burden on general people, he added.

"We don't want to continue subsidy in electricity year after year but the government needs to find the reasons behind its high prices. How much money was spent in the name of capacity charge?" asked Muhammad.

The government should work on improving accountability in democracy to improve the economic situation, said Badiul Alam Majumdar, secretary to Shushashoner Jonno Nagorik.