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Bangladesh expects a staff-level agreement on a loan request for $4.5 billion in two weeks
Published : 27 Oct 2022, 08:28 PM
Bangladesh Bank has explained the method of calculating the country’s foreign exchange reserves to the International Monetary Fund after the IMF questioned the calculation that makes the number appear bigger than under the agency’s latest manual.
The issue came up again as the IMF held talks with Bangladesh officials for the second day on the country’s request for $4.5 billion in loans as dollar reserves continued to deplete.
Discussions “have been fruitful and satisfactory”, central bank spokesman Abul Kalam Azad said on Thursday.
An IMF delegation led by Rahul Anand opened the discussions with finance ministry officials in Dhaka on Wednesday on what the Washington-headquartered agency said was “economic and financial reforms and policies”.
Bangladesh’s reserve calculation makes a departure from the IMF’s Balance of Payments and International Investment Position Manual, known as BPM6, which stipulates a country considers only the readily usable funds to calculate its reserves.
One area of contention is that the accounts of reserves published by Bangladesh’s central bank include nearly $7.8 billion earmarked for the Export Development Fund, a scheme created in 1989 to facilitate financing in foreign currency for local exporters.
It also lent funds to Biman Bangladesh Airlines, the Payra seaport project and Sri Lanka, a South Asian neighbour that experiences a crushing economic crisis.
All added up to $8.4 billion in illiquid funds, which Bangladesh Bank included in its reserve calculation, according to the IMF.
Bangladesh’s forex reserves declined to $35.85 billion as of Oct 26, enough to cover about four months of prospective imports, from $46.49 billion a year earlier, according to central bank data.
If the IMF’s calculation method is taken into account, Bangladesh’s reserves will slip to $27.45 billion.
The IMF team asked if Bangladesh was following the agency’s latest manual in reserve management and asked for the net and gross accounts of reserves.
The central bank explained its reserve account to the IMF officials through a PowerPoint presentation made by a technical committee. The members of the committee also took questions from the IMF.
Earlier this year, a proposal was presented to the central bank’s board of directors for discussion on the questions raised by the IMF over the method of reserve management. The Bangladesh Bank is still following its old rules as the proposal was not accepted.
The other issues being discussed with the IMF are the macroeconomic indicators, foreign currency exchange rates and the impact of currency volatility on the economy over the next three fiscal years, the monetary policy, banking, interest rate, default loans, the balance of payments and reforms to the financial sector.
“Discussions with the IMF mission will continue. The $4.5 billion loans will be confirmed within the next two weeks,” said Azad, the central bank spokesman.
The talks will continue until Nov 9. The IMF officials are scheduled to sit with Bangladesh Bank Governor Abdur Rouf Talukder again on the final day.
A growing trade deficit has also put Bangladesh’s current account balance under pressure. The dwindling reserves have led to the devaluation of the taka against the dollar.
As the government has put curbs on imports to save dollars, industrial production is decreasing amid an energy crisis.
To tackle the situation, the government is seeking funds from domestic and foreign sources, such as the IMF and the World Bank.
On Wednesday, the IMF delegation began a 15-day visit by holding talks with finance ministry officials on economic and financial reforms and policies, with an eye on a future lending programme and access to a new longer-term facility.
The IMF said the objective of the mission is to make progress towards a staff-level agreement on a prospective Extended Credit Facility and access to the RSF in the coming months.
