Bangladesh has sought loan to ‘head off climate crisis’: IMF official

An IMF spokesperson confirms the information as finance ministry officials refute the claim

Staff Correspondentbdnews24.com
Published : 26 July 2022, 07:04 PM
Updated : 27 July 2022, 06:20 AM

The Bangladesh government has formally written to the International Monetary Fund or IMF, seeking loan for what an official of the global lender said was to move forward the efforts to prevent the climate crisis.

An IMF spokesperson confirmed the development to bdnews24.com on Tuesday, as finance ministry officials refuted the claim amid media reports that the government sought $4.5 billion in funds from the global lender.

Finance Minister AHM Mustafa Kamal and Finance Secretary Fatima Yasmin did not respond to calls for comments.

Several officials of the ministry said they were unaware of any proposal seeking funds from the IMF. They did not know the source of the news published by the media.

A spokesperson for the IMF headquarters told bdnews24.com on Tuesday night that the Bangladesh authorities showed interest in funds from the Resilience and Sustainability Trust, or RST.

The government said in the proposal it wanted to use the funds to move forward the efforts to prevent climate change, requesting the IMF to start talks on the proposal, according to the IMF official.

“The IMF is ready to extend financial assistance to Bangladesh. Our representatives will start preparing a project after consulting Bangladesh,” the official told bdnews24.com.

Bangladesh's $416 billion economy is the first in Asia to put such a request forward to the Washington-based lender as it seeks to ramp up its attention on how to mitigate the impact of climate change, according to Reuters.

"The RST comes also with an (upper credit tranche) program, so it's a joint initiative. The amounts will have to be discussed subsequently," Krishna Srinivasan, director of the IMF's Asia and Pacific Department, told Reuters. This means that Bangladesh will need a regular IMF-supported program such as a stand-by agreement or an extended fund facility to be able to get this new type of financing.

"This facility is aimed at addressing transformational changes in countries, notably climate change and pandemic preparedness," he said. "One would hope that other countries would also take advantage of this instrument."

RST funds are capped at 150% of a country's quota or, in Bangladesh's case, the maximum of $1 billion.

The IMF expects to begin lending from the RST in October. Low-income and vulnerable middle-income countries can apply to get the financing, which has channeled special drawing rights from countries with strong external positions, according to the fund's website.

The loans will have a 20-year maturity and a 10-1/2-year grace period.

"We would hope that it is one among more to come down the road," Reuters quoted Srinivasan as saying.

An IMF team last week visited Bangladesh and held meetings with officials amid reports that the government was preparing to seek the funds from the global lender.

Finance Minister Kamal had refuted the claims at that time, saying Bangladesh did not need IMF funds. “We’ll take a loan if it is necessary. But we don’t need it now,” he had told reporters in Dhaka on Jul 20.

Bangladesh has been facing a shortage of the US dollar as exports and remittances have not been enough to pay high import costs, which have grown rapidly due to the Russia-Ukraine war amid bolstered economic activities during the recovery from the effects of the coronavirus pandemic.

In the first 11 months of the fiscal year that ended on Jun 30, imports jumped 39 percent but exports grew 34 percent. Its remittances from overseas Bangladeshis fell 5 percent in June to $1.84 billion, the central bank said, as many migrant workers lost their jobs because of the COVID-19 pandemic and many could not get home because of the travel disruption it caused.

Bangladesh imports most of the energy it needs to generate power – a fact that led the government to suspend production at power plants run by costly diesel. It also faces a gas shortage to produce power. The authorities have resorted to recurring outages to tackle the crisis for now.

The government has already postponed many projects, halted needless foreign trips of public servants and cut fuel allocation for them as part of desperate efforts to ease pressure on the foreign currency reserves.

The country’s foreign-exchange reserves fell to $39.67 billion as of July 20 - sufficient for imports for about 5.3 months - from $45.5 billion a year earlier.

The Bangladesh Bank recently announced a policy to preserve dollars by discouraging imports of luxury goods, fruit, non-cereal foods, and canned and processed foods.

Bangladesh’s July to May current account deficit was $17.2 billion, compared with a deficit of $2.78 billion in the year-earlier period, according to central bank data, as its trade deficit widened and remittances fell.

Elsewhere in South Asia, Sri Lanka is facing its worst economic crisis in seven decades while Pakistan's foreign exchange reserves are depleting rapidly.

The IMF cut global growth forecasts again on Tuesday, warning that downside risks from high inflation and the Ukraine war were materialising and could push the world economy to the brink of recession if left unchecked.

The fund said its latest forecasts were "extraordinarily uncertain" and subject to downside risks from Russia's war in Ukraine pushing energy and food prices higher. This would exacerbate inflation and embed longer-term inflationary expectations that would prompt further monetary policy tightening.

[With details from Reuters]

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