The government has decided to exit the existing $5.5 billion loan programme with the International Monetary Fund (IMF) and move toward negotiating a new arrangement instead.
The IMF also agreed to hold formal talks on the fresh loan after the decision was conveyed during a virtual meeting on Thursday evening between Finance Minister Amir Khosru Mahmud Chowdhury and IMF Deputy Managing Director Nigel Clarke.
Officials from both sides joined the meeting, including Finance Secretary Khairuzzaman Mozumder and Bangladesh Bank Governor Md Mostaqur Rahman.
According to finance ministry officials, the government is considering a fresh three- to four-year programme worth $5 billion to $6 billion.
A formal letter will be sent to the IMF within the next few days, a senior finance ministry official told The Daily Star on condition of anonymity.
He said an IMF mission is expected to visit Bangladesh in July or August to discuss the reform agenda and determine the final size of the programme.
Once Bangladesh formally exits the current arrangement, any undisbursed amount will be returned. Officials said the size of the new package would depend on Bangladesh’s IMF quota and the facilities the government seeks to access.
“How much Bangladesh can draw will be known after calculations,” one official said.
Finance ministry officials said the government had reservations about existing programme from the outset, partly because it was initiated under AL regime and because many conditions are difficult to implement under current economic conditions.
Officials said the government was confident the IMF would issue “comfort letters” -- written assurances that Bangladesh remains eligible for lending -- based on the spirit of the ongoing discussions.
The IMF was yet to respond to requests for comments on the matter via WhatsApp messages.
In January 2023, the IMF approved $4.5 billion for Bangladesh under three facilities: the Extended Credit Facility (ECF), Extended Fund Facility (EFF), and Resilience and Sustainability Facility (RSF). The package was expanded by $800 million in May last year under the interim government, taking the total to $5.5 billion.
Bangladesh has so far received $3.8 billion in five tranches. The sixth tranche remained pending after the IMF suspended discussions in November and decided to resume talks with the new government following the election.
Under the previous schedule, the fifth and sixth tranches, together worth $1.3 billion, were due by June this year, while the final tranche was expected in December.
Discussions on a replacement programme began during the IMF-World Bank Spring Meetings in April, when the Bangladesh delegation led by the finance minister held talks with IMF officials in Washington, DC. The IMF signalled during the Spring Meetings that no further tranches would be released without visible progress on economic reforms.
Since then, virtual discussions have continued every week over the proposed loan amount and reform conditions.
Finance ministry officials said the BNP-led government had reservations about continuing the programme from the outset, partly because it was initiated under the Awami League government and because many of its conditions are difficult to implement under current economic conditions.
Maintaining the programme would require Bangladesh to meet several stringent conditions within the next six months, a target the government considers unrealistic amid global and domestic economic pressures. A new programme, officials said, would allow reforms to be implemented gradually.
Speaking to reporters after returning from Washington in April, Khosru said the IMF programme had been negotiated under the previous “unelected” Awami League government and included conditions the BNP government may not accept.
“We are an elected government. We will not accept any condition that goes against public interest. This programme will end in six to seven months, after which we will decide whether to continue further,” he said.
Officials said key areas of disagreement include introducing a single VAT rate, reducing tax exemptions, adopting a fully market-based exchange rate, cutting power and fertiliser subsidies, and implementing reforms in the banking sector and the National Board of Revenue.
Despite the disagreements, officials said Bangladesh still needs an active IMF programme because it serves as a “seal of approval” for international lenders and investors, helping unlock financing from other development partners.
According to finance ministry officials, the government will require $3 billion to $4 billion annually in budget support to finance large upcoming budgets and fulfil electoral commitments. Securing at least $1 billion a year from the IMF would help attract further support from lenders such as the World Bank, the Asian Development Bank, the Asian Infrastructure Investment Bank and the Japan International Cooperation Agency.
At the end of an IMF mission in November last year, mission chief Chris Papageorgiou warned that Bangladesh faced “significant macro-financial challenges stemming from weak tax revenue and undercapitalisation in the financial sector”.
He said delayed or inadequate policy action could weaken growth, raise inflation and increase risks to macro-financial stability.
The IMF also called for ambitious tax reforms, including eliminating reduced VAT rates and exemptions except on essential goods and services, increasing the minimum turnover tax for corporations, containing subsidies at fiscally sustainable levels, and accelerating reforms in the banking sector.
The lender further stressed the need for stronger monetary policy to curb inflation, greater exchange-rate flexibility, and measures to improve banks’ governance, transparency and recovery of non-performing loans.
