Govt commits to 20 IMF conditions

The International Monetary Fund has laid out 20 conditions for Bangladesh for its $4.7 billion loan programme aimed at restoring macroeconomic stability, accelerating overdue macroeconomic reforms and tackling climate change challenges.

Of the 20 conditions, two are quantitative performance criteria (QPCs), which are specific, measurable targets that must be met.

Four of the conditions are indicative targets (ITs), which are similar to QPCs in that those are quantitative indicators to assess progress in meeting a programme's objectives.

For Bangladesh, the QPCs are a floor on net international reserves (NIR) and a ceiling of 3.3 percent of GDP on budget deficit.

The ITs are: ceiling on reserve money and floors on tax revenue, priority social spending that comprises all expenditures on education, health, and social safety nets and capital investment that comprises all Annual Development Programme (ADP) expenditures in the budget.

As per the QPC set for June and December, Bangladesh's NIR cannot be below $22.9 billion in March, $24.5 billion in June, $25.3 billion in September and $26.8 billion in December.

"A modest buildup in NIR, as a QPC (floor), is targeted in the first year of the programme, with further increases programmed over the medium term, to cover four months of prospective imports. Greater exchange rate flexibility will help accumulate reserves, strengthen external buffers, and build resilience," said the staff report prepared for the executive board's consideration.

For program monitoring purposes, the NIR is defined as gross international reserves minus reserve-related liabilities.

As per the lender's balance of payments and investment position manual (BPM6), gross foreign reserves calculation does not include the various funds that the Bangladesh Bank has formed from the reserves as well as the loan guarantees provided for Biman, the currency swap with Sri Lanka, the loan to Payra Port Authority and the below-investment-grade securities.

The fund and the associated reforms are expected to stabilise the public debt at 42 percent of GDP.

Bangladesh has also committed to 13 structural benchmarks (SBs) -- which are reform measures that often are non-quantifiable but are critical for achieving programme goals and are intended as markers to assess programme implementation -- for this year.

The SBs include tax revenue measures yielding an additional 0.5 percent of GDP in the fiscal 2023-24 budget and the National Board of Revenue staffs Compliance Risk Management Units in the customs and VAT wings by December for higher revenue mobilisation.

By December, the finance ministry must develop a plan to reduce net savings certificate issuance to below 1⁄4 of total net domestic financing by fiscal 2025-26 and the government must adopt a periodic formula-based price adjustment mechanism for petroleum products.

The Bangladesh Bank must adopt an interest rate corridor system by July. By June, it must also compile and report official reserve assets as per the BPM6 definition and use the market-determined exchange rate for official foreign exchange transactions on behalf of the government.

The Bangladesh Bureau of Statistics must publish quarterly GDP by December.

The central bank has to complete the pilot risk-based supervision action plan by June and also publish banks' distressed assets in the annual financial stability report.

By September, the finance ministry must submit to the Parliament the Bank Companies (Amendment) Act 2020 and the Finance Companies Act 2020, drafted in line with best practices.

The government must also adopt a sustainable public procurement policy paper and an associated action plan to integrate climate and green dimensions by September.

"We believe that our commitments are adequate to achieve program objectives, but we are prepared to take additional measures, as appropriate, for this purpose," said Finance Minister AHM Mustafa Kamal and BB Governor Abdur Rouf Talukder in the letter of intent to IMF.

Should the government meet its June targets, the IMF will release the second tranche of the loan in November.

The lender has already dispatched the first tranche of $476.27 million yesterday, which took the country's foreign exchange reserves to $32.69 billion, said BB Spokesman Md Mezbaul Haque.