IMF Loan: 4th, 5th tranches may come together in June

News Desk :

The fourth and fifth tranches of the ongoing $4.7 billion loan programme from the International Monetary Fund (IMF) may be jointly released in June this year, contingent on the execution of two mandatory prior actions: additional revenue mobilisation and exchange rate flexibility.Officials stated that the fourth instalment, amounting to $645 million, was initially expected by 10 February, following a board meeting scheduled for 5 February to conclude the third review. However, the meeting has already been postponed to mid-March, with the possibility of further delays in the decision on the fourth tranche.

Under the fifth instalment, Bangladesh is set to receive approximately $530 million from the $4.7 billion loan package that the IMF approved in January 2023. This financial assistance was aimed at supporting the country’s struggling economy and achieving stability amidst macroeconomic challenges.

The IMF loan was approved to help Bangladesh combat severe macroeconomic instability, exacerbated by the ongoing war in Ukraine. However, Bangladesh has been unable to meet all the targets set by the IMF as prerequisites for the release of each tranche. Despite this, the IMF has provided waivers for non-compliance with performance criteria upon requests from the government.

To boost revenue generation, the IMF in December 2023 urged the government to separate tax policy from tax administration by June 2024, as the authorities have consistently failed to meet revenue targets. This has resulted in significant gaps and a widening budget deficit.

Bangladesh’s tax-to-GDP ratio has stagnated at 7.0 per cent for a prolonged period-one of the lowest globally and far below the levels of neighbouring countries.
The IMF has emphasised the urgency of revenue mobilisation for two key reasons: first, without adequate revenue, Bangladesh will lack the fiscal space to increase spending on social and capital projects. Second, it is essential for ensuring the sustainability of fiscal operations.

Additionally, the IMF has advocated for greater flexibility in the exchange rate, suggesting that the central bank should cease intervening in setting the rate, which is currently not market-based.