The International Monetary Fund (IMF) has put emphasis on major reforms in banking sector governance and revenue administration as part of its pre-condition for providing $4.5 billion loan sought by Bangladesh.
The global lender may suggest that the government withdraw subsidies in the power sector during the two-week visit by an IMF delegation to Dhaka, economists told the Daily Sun.
“At this time, when the reserve is sinking, there is no alternative for Bangladesh to taking the IMF loan with a set of conditions. The monetary agency will impose a series of suggestions to reform the banking, tax collection and foreign exchange management,” Dr Masrur told the Daily Sun.
The economist thinks the government might have been asked to withdraw subsidies from power sector as quick rental companies burn plenty of dollars.
Director of Bangladesh Institute of Bank Management (BIBM) Prof Shah Md Ahsan Habib said the IMF mission may suggest ways for improving good governance in the banking sector.
“Reform is a continuous process which may include in the conditions for IMF credit. However, the delegation may show the exit point for Bangladeshi banks which have been struggling with bad loans and liquidity crisis. The number of banks is not the issue.
The discussion will may focus on the merger and acquisition of weak banks with stronger ones,” Dr Ahsan told the Daily Sun.
“The objective is to make progress towards a staff-level agreement” on funding in the coming months, including a long-term credit line specifically aimed at helping build resilience against climate risks in countries highly vulnerable to climate change, it said.
In July, the government sought $4.5 billion in loans from the IMF after the country’s macro-economy came under pressure due to falling foreign currency reserves.
The delegation came to Dhaka when Bangladesh’s foreign exchange reserves declined to $35.98 billion as of 19 October from $46.19 billion a year ago, according to data from the central bank, providing import cover of just five months.
The IMF mission led by Rahul Anand began discussing economic and financial reforms and policies. During initial discussion with the central bank, the global lender pressed Bangladesh for declaring the borrowers defaulted in case of no payment of instalment within 90 days.
The IMF held talks with Bangladesh Bank on Thursday following the country’s request for foreign currency credit as dollar reserves continued to deplete.
During the meeting, the BB assured the global lender that the central bank will lift the existing lending rate cap and leave the country’s foreign exchange market to a free-floating exchange rate system. The IMF delegation will hold four more meetings with Bangladesh Bank on October 30, October 31, November 2 and November 8.