Bangladesh bags $4.7 billion loan from IMF as Pakistan, Sri Lanka wait for bailout

New Delhi: Bangladesh has secured loans worth $4.7 billion from the International Monetary Fund (IMF) for immediate disbursal making it the first South Asian country to get access to such funds from the global financing agency despite the fact that other regional countries like Sri Lanka and Pakistan in far worse economic turmoil are yet to get their loans sanctioned.

All three South Asian countries had applied for IMF funds last year amid severe economic trouble.

Looming financial crisis:

The loans will help Bangladesh to tide over a looming financial crisis with the country having witnessed a sharp widening of its current fiscal account deficit as well as a depreciation of the taka—the Bangladeshi currency. The country has also recorded a significant dip in its foreign exchange reserves.

Headed for general elections early in 2024, the IMF funds are a shot in the arm for Prime Minister Sheikh Hasina’s government and will help the country to sort out its fiscal woes.

Credit facility:

Bangladesh will get about $3.3 billion under the IMF’s extended credit facility and related arrangements, with an immediate disbursement of about $476 million. The IMF executive board also approved about $1.4 billion under its newly created Resilience and Sustainability Facility for climate investments for Bangladesh, the first Asian country to access it.

With the global economic slowdown hitting Bangladesh’s steady growth too, the loans were necessary to protect the country’s fiscal stability before the economic situation deteriorated further as it had for Pakistan and earlier for Sri Lanka.

Macroeconomic management:

In a statement the IMF said, the loans would “protect macroeconomic stability and rebuild buffers, while helping to advance the authorities’ reform agenda”. The agenda includes creating fiscal space to enable greater social and developmental spending, strengthening Bangladesh’s financial sector, and giving fresh impetus to fiscal and governance reforms and building climate resilience.

Antoinette M Sayeh, the IMF’s deputy managing director has said, “Since independence, Bangladesh has made steady progress in reducing poverty and significant improvements in living standards. But, the Covid-19 pandemic and subsequent Russia’s war in Ukraine interrupted this long period of robust economic performance.”

“Multiple shocks have made macroeconomic management challenging in Bangladesh.” Sayeh added.

Bangladesh’s regional counterparts, Sri Lanka and Pakistan, are in a worse situation economically but have not been able to get final approval for loans from the IMF. Bangladesh’s current account deficit hit a record $18.7 billion in the last financial year, which ended on June 30, as exports of garments failed to offset a surge in energy costs. The Bangladesh central bank expects the deficit to fall to about $6.8 billion at the end of the current fiscal year.

In 2022, the Asian country also sought $2 billion from the World Bank and the Asian Development Bank amid efforts to bolster its foreign exchange reserves.

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