- Bangladesh has requested for a $4.5 billion loan package from the IMF
- Despite speculations, the country's Finance Minister has assured the economy is not in trouble
- The IMF has said it is ready to support the South Asian nation
YEREVAN (CoinChapter.com) — Bangladesh has sought a $4.5 billion loan from the International Monetary Fund (IMF). The development comes weeks after Sri Lanka defaulted on its debt for the first time in its history.
Pakistan, another South Asian country, has also knocked on IMF’s door with a $1.2 billion loan request.
According to the local newspaper Daily Star, the country’s Finance Minister AHM Mustafa Kamal sent an official appeal to Kristalina Georgieva, the Managing Director of the Washington-based multilateral lender.
The news agency said the country sought the amount as a balance of payment. In addition, the loan will help alleviate the impact of climate change on Bangladesh.
Bangladesh Finance Minister sees no reason to worry
Over recent years, the South Asian nation’s $416 billion economy has been one of the fastest-growing in the world.
However, rising energy and food prices caused by the Russian invasion of Ukraine have inflated its import bill and the current account deficit.
Nonetheless, the country has less than $40 billion in foreign reserves, enough to pay for imports, at least for now. However, these are fast depleting.
Around this time of last year, the foreign reserves of Bangladesh stood at around $45.5 billion.
Meanwhile, the Finance Minister insists that the country is not yet vulnerable.
“When and how much loan will be available will depend on them. As far as our current macroeconomic situation is concerned, we are in no way in trouble,”Mustafa Kamal said.
He also assured citizens that the country would only take the loan from IMF if the organization offered favorable terms.
Bangladesh Prime Minister’s Principal Secretary Ahmad Kaikaus also claimed news of the crisis is exaggerated. According to him, the country has enough foreign exchange reserves to meet all types of import expenditures for more than five months.
“We have import expenditure for more than five months in our reserve whereas it is said that having more than three months’ import expenditure is the symbol of a strong economy. There is no risk to us,”The Daily Star quoted Kaikaus saying.
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Bangladesh asking for a loan from IAF is well-timed
Despite assurances from the Finance Minister, the country has every reason to worry. Bangladeshi and international economists agree that the request for a loan from IMF is well-timed.
The country’s current account deficit between July to May was $17.2 billion in July to May. Just a year ago, that number was $2.78 billion.
Amid falling remittances, the country’s currency, the taka, has also fallen against the dollar. As a result, in June 2022, it hit a nine-month high after rising 7.56%, bringing the average inflation for fiscal 2021-22 to $6.15.
Charlie Robertson, Global chief economist, Renaissance Capital, believes the decision to go to the IMF was wise.
In a recent piece for The Business Standard, Economist Debapriya Bhattacharya shared similar sentiments.
“This is the time for Bangladesh to seek access to the IMF’s policy based credit facility. Indeed, recent Sri Lankan experience tells us that countries afflicted by serious balance of payment challenges should approach the IMF earlier than later,”Bhattacharya, a Distinguished Fellow, Centre for Policy Dialogue (CPD), wrote.
Over 15% of the country’s GDP relies on exports. However, over 85% of the exports come from the textile industry. The lack of diversification can spell trouble, with global imports declining due to the ongoing inflation.
The International Monetary Fund has expressed its readiness to help Bangladesh.
“The IMF stands ready to support Bangladesh, and the staff will engage with the authorities on program design as per the established policies and procedures of the Fund,”an IMF spokesperson said.
Meanwhile, India seems to be holding up comparatively well. However, the Rupee continues to struggle after falling record levels against the dollar.