IMF, Bangladesh reach preliminary deal for $4.5bn loan | Business and Economy News

Rising energy and food prices and dwindling foreign exchange reserves caused by the Russia-Ukraine war have also affected Bangladesh.

The International Monetary Fund (IMF) has temporarily approved a $4.5 billion support program for Bangladesh, and the country’s finance minister said the deal would help prevent economic instability from spiraling into crisis.

Bangladesh’s $416 billion economy has been one of the fastest growing in the world for years. However, rising energy and food prices and dwindling foreign exchange reserves caused by Russia’s aggression in Ukraine have increased import payments and current account deficits.

On Wednesday, the country became the third South Asian country after Pakistan and Sri Lanka to secure a “staff-level agreement” for loans with the IMF this year.

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“The global economic heat has affected our economy to some extent,” Finance Minister AHM Mustafa Kamal told reporters after the IMF announcement. “We asked for a loan from the IMF as a precaution to prevent this instability from turning into a crisis.”

“Bangladesh’s strong economic recovery from the pandemic, interrupted by Russia’s war in Ukraine, has seen a sharp increase in the current account deficit, a rapid decline in foreign exchange reserves, rising inflation and slowing growth,” Rahul Anand said. Visiting IMF staff delegation.

The group arrived in Bangladesh at the end of last month to arrange loans for the South Asian country of over 160 million people.

The IMF has agreed to a 42-month “Staff Level Agreement” that includes $3.2 billion from the Extended Credit Facility (ECF) and Enhanced Financing Facility (EFF), as well as $1.3 billion from the new Flexibility and Stability Program. (RSF).

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“The objective of the new program supported by the Bangladesh Fund is to protect the vulnerable while maintaining macroeconomic stability and promoting strong, inclusive and green development,” the lender said in a statement.

The staff-level deal must be approved by IMF management and discussed by the executive board and is expected next week.

Preparation for rapid deceleration

The mainstay of Bangladesh’s economy is its export-oriented garment industry, and production is slowing as major buyers such as Walmart are flush with excess stock as inflation forces people to prioritize spending.

It can be seen from the data of the Central Bank that the foreign currency reserves of the country decreased from 46.49 billion US dollars a year ago to 35.74 billion US dollars by November 2.

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The IMF said Bangladesh has developed a growth-promoting program that includes measures to contain inflation and strengthen the financial sector.

Finance Minister Kamal said the IMF team agreed with the government’s economic reforms. Earlier, in August, Bangladesh raised fuel prices by about 50 percent to reduce its subsidy burden, though government officials denied at the time that this was a precondition for an IMF loan.

The funding will be disbursed in seven tranches, Kamal said, adding that the first disbursement could be received in February 2023.

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