DHAKA, April 12 (BSS) -The International Monetary Fund (IMF) has approved nearly US$ 1 billion credit for Bangladesh, offering the country a scope to maintain a comfortable balance of payment (BoP) and foreign exchange reserve, officials said here today.
"This is the largest ever ECF (extended credit facility) the IMF offered to Bangladesh with very flexible conditions . . . this comes to carryout our own programmes mentioned in the budgetary statement and not theirs (IMFs)," Bangladesh Bank governor Dr Atiur Rahman told BSS.
He said the IMF decision came when Bangladesh was faced with a little pressure in dealing with the balance of payment though "we have started overcoming the problem".
The central bank chief said the credit would also be used to increase the growth rate supplementing the budgetary pledges alongside negating the inflationary trends while it was expected to woo foreign investments boosting investors' confidence.
IMF approved the three-year $987 million loan deal for Bangladesh at a meeting of its Executive Board yesterday in Washington saying it would immediately disburse $141 million of the loan as budget and inflationary pressures had increased recently due to rising subsidy costs.
According to a finance ministry official Bangladesh got the IMF credit after nine years while the ECF provides a higher level of access to financing, more concessional terms, enhanced flexibility in programme design, and more focused and streamlined conditionality.
Under the credit Bangladesh in the next three years will receive a total amount equivalent to Special Drawing Rights or SDR 639.96 million. SDR is a supplementary foreign exchange reserve assets defined and maintained by the IMF, which is about US$987 million in current market value.
"The Board's decision will immediately enable the initial disbursement of an amount equivalent to SDR 91.423 million (about US$141 million)," an IMF press release said.
The ECF arrangement is designed to support the authorities' programme, which aims to restore macroeconomic stability, strengthen the external position, and engender higher, more inclusive growth.
IMF mission chief in Dhaka David Cowen said the credit programme focused on fiscal and financial reforms, "restrained" monetary policy, and trade and investment, including cutting trade barriers.
During the programme period, the authorities are committed to taking actions to create fiscal space, reinvigorate the financial sector, and catalyze additional resources, to boost social- and development-related spending, tackle power shortages and the infrastructure deficit, and stimulate export- oriented investment and job growth.
The programme encompasses four main reform pillars including fiscal policy and reforms, monetary and exchange rate policy, financial sector reforms and trade and investment reforms to ensure macroeconomic stability, external viability, and sustained growth. These reforms are broadly consistent with Bangladesh's Sixth Five Year Plan (SFYP) (FY11-15), the IMF said.
Under the fiscal policy and reforms, a moderate fiscal consolidation and sound debt management will underpin macroeconomic stability and create space for more growth- critical spending, supported by tax and public financial management reforms aimed at raising tax revenues, containing subsidy costs, and better targeting social safety nets.
The monetary and exchange rate policy reform will target sound fiscal performance and exchange rate and interest rate flexibility and will aim at reducing aggregate demand pressures, stabilizing inflation expectations, rebuilding a reserve buffer with providing adequate room for private sector credit growth.
The financial sector reforms will strengthen financial sector governance to better manage risks and support growth, ensure proper managerial and operational controls in banks, particularly state-owned ones, clear oversight responsibilities among regulators and strong risk-based supervision.
The trade and investment reforms will help reduce trade barriers and distortions and improve the business climate to raise growth.
"Macroeconomic pressures have intensified in Bangladesh since late 2010 due to a negative terms-of-trade shock, rising oil and infrastructure-related imports, and accommodative policies. More recently, a weakening in external demand and a surge in oil prices have further weakened Bangladesh's balance of payments and added to fiscal and inflationary pressures", Naoyuki Shinohara, Deputy Managing Director and Acting Chair, said after the discussion.
He said the ECF programme focuses on policy adjustments and structural reforms aimed at restoring macroeconomic stability, strengthening the external position, and promoting higher, more inclusive growth. The authorities are committed to these objectives and stand ready to take additional measures, as appropriate, to ensure the success of the programme.
Under the programme, upfront tightening of macroeconomic policies are being undertaken, supported by structural reforms to strengthen tax policy and administration, public financial management, and financial sector oversight.
A moderate fiscal consolidation path will be underpinned over the medium term by a modernization of the tax regime and rationalization of subsidy costs, to create fiscal space for more social and development spending and to contain public debt.
Monetary policy has been tightened, supported by greater exchange and interest rate flexibility. The central bank is committed to further policy measures if needed to bring inflation firmly under control. The authorities also aim to accelerate trade liberalization and improve the investment climate.
"With steady but forceful action, the programme 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."
The ECF currently carries a zero percent interest rate and the loans will have to be repaid within 10 years.