‘IMF loan programme can be touchstone of financial sector reforms’08 February 2023
The government's successful negotiation of a $4.7 billion, approved at the Executive Council of the International Monetary Fund (IMF), will raise confidence in the macroeconomy amid a volatile foreign exchange market, analysts said.
They said that the IMF loan program can help bring stability to the macroeconomic situation in two ways- increasing the US dollar supply and igniting a process of reform in the financial sector.
Economist and adviser to the last caretaker government Dr ABM Mirza Azizul Islam told UNB that the IMF loan works as a standard for the economic strength of a country. Other international financial organisations would be encouraged to provide loans and in other financial dealings with Bangladesh now. He said that the loan will contribute to a stable exchange rate by strengthening the foreign exchange reserve for the short term.
Besides, the IMF loan will work as a remedy while inward remittance flow and repatriation of export income have slightly decreased, Mirza Aziz said.
The government will be implementing reforms in the financial sector as per the advice of the IMF, which will bring good results in the long run for the macroeconomy, he pointed out.
Many countries are seeking IMF's loan support to face the foreign exchange crisis due to the fall of global economic growth. Bangladesh's process for securing the loan has been much smoother than some other countries, which is a good endorsement of Bangladesh's macroeconomic stability.
Economist and former Governor of Bangladesh Bank (BB) Dr Atiur Rahman told UNB that the IMF board decision indicates strong confidence in Bangladesh's macroeconomic management and willingness to undertake necessary reforms for inclusive and sustainable growth.
Besides budget support, the approval of a new loan of $1.4 billion from the Resilience and Sustainable Fund (RSF) also demonstrates the IMF's recognition of Bangladesh's capacity to address climate change challenges, he said.
"The loan, of course, is focused on addressing high inflation and falling foreign exchange reserves. Indeed, Bangladesh, though not in the same club as Sri Lanka and Pakistan, has still made this pre-emptive move of asking for long term low-cost funding support from the IMF, to avoid future pressures on its macroeconomic indicators that have already been affected to some extent by the ongoing global economic crisis," he added.
Dr Atiur said the state-of-the-art technical knowledge of IMF experts in Bangladesh will certainly benefit from this program in undertaking necessary reforms in the financial sector for raising revenue and foreign exchange reserve, improving governance of the banking sector to reduce non-performing assets, and targeting better social protection for the extreme poor.
These reforms are, however, already in place as a part of the indigenous development strategy of Bangladesh. The program will only further consolidate their implementation process, he said.
"Other development partners like the World Bank, ADB, and JICA will be encouraged to come forward with additional support for infrastructural development in Bangladesh. FDI will also flow at a faster pace to take advantage of the conducive investment environment in Bangladesh which will be further strengthened by the presence of the IMF program," said Dr Atiur, also a professor of economics at Dhaka University.
The IMF said that the loan will help stabilise Bangladesh's macroeconomy, implement the necessary reforms to build capacity for social and development spending, strengthen the financial sector, modernise policy frameworks, and address climate change.