IMF suspends next loan tranche due to failure in reforms

❐ Staff Reporter

The International Monetary Fund (IMF) has suspended the next tranche of Bangladesh’s debt relief due to its failure to achieve the desired targets in fiscal and banking sector reforms.

The agency said that it is not possible to release the loan amount by June as the conditions of the existing loan program have not been properly implemented. Instead, the agency has proposed starting a new loan program with additional stringent conditions.

A member of the Bangladesh delegation participating in the IMF and World Bank spring meetings in Washington, DC, confirmed this information.

The delegation is currently in Washington, led by Finance Minister Amir Khosru Mahmud Chowdhury.

The IMF said it will not release the $1.3 billion expected by June of the current fiscal year under the existing $5.5 billion loan program. Bangladesh still owes $1.86 billion under the current agreement, which is due to expire in January.

According to sources at the meeting, Bangladesh has not shown any significant success in implementing conditions such as reforming the revenue sector, ensuring good governance in the banking sector, withdrawing subsidies in the power and energy sectors, and implementing a market-based currency exchange rate.

The IMF has expressed deep concern over the inclusion of Section 18(a) in the recently passed Bank Resolution Bill, which allows former owners to return.

According to the organization, instead of spending budget money to pay off depositors’ debts, alternative measures should have been resorted to.

“With the new government coming to power with a strong majority, now is the right time to take major reform steps. We have discussed this issue in detail with the Prime Minister and the Finance Minister,” IMF Asia and Pacific Department Director Krishna Srinivasan said at a press conference in Washington. “Bangladesh’s revenue collection situation has deteriorated steadily in the last three years, which is not at all good for the economy.”

Meanwhile, Bangladesh has sought additional financial assistance to cover the high cost of imports as fuel oil prices have increased in the international market due to the war situation in the Middle East.

However, due to the IMF’s tough stance, the Bangladesh delegation is now discussing the possibility of alternative financing with the World Bank on relatively easy terms.

It is worth noting that this loan agreement of $4.7 billion was signed in 2023, which was later increased to $5.5 billion. So far, Bangladesh has received a waiver of $3.64 billion, but new uncertainties have now arisen regarding the outstanding installments.