IMF’s $4.5 billion loan for Bangladesh

Bangladesh and the International Monetary Fund (IMF) finalized the preliminary deal for a 4.5 billion USD loan.

About the IMF loan to Bangladesh

  • Under the preliminary deal, the IMF provisionally agreed to provide a 4.5 billion USD support programme to Bangladesh.
  • With this, Bangladesh became the third South Asian country to reach a “staff-level agreement” with the IMF for loans in 2022. Other countries are Pakistan and Sri Lanka.
  • This staff level agreement is subject to approval by IMF management and considerations by its executive board.
  • The deal with Bangladesh was reached for a 42-month arrangement, including some 3.2 billion USD from IMF’s Extended Credit Facility (ECF) and Extended Fund Facility (EFF) and about 1.3 billion USD from its new Resilience and Sustainability Facility (RSF).
  • The amount will be disbursed in seven instalments until December 2026. The first instalment of 447.48 million USD will be cleared in February 2023. The interest rate of the loan will depend on the market rate at the time of maturity. It is estimated to be around 2.2 per cent.

How will the new IMF loan help Bangladesh?

Monetary security

It will help act as a buffer for the Bangladesh’s net foreign currency reserves that are currently being stressed because of the surging commodity prices and the economic uncertainty caused by the Ukraine war.

The country’s exports are expected to contract since 80 per cent of the consignment are heading to Europe and the United States, where a recession is imminent.

Creditworthiness

Creditors like commercial banks and foreign governments consider arrangements with IMF as an indicator of a country’s creditworthiness. This will catalyse additional funding from other developmental and bilateral partners.

Bangladesh is currently seeking assistance from the World Bank and the Asian Development Bank (ADB).

Economic Reforms

The IMF loan programme mandates the Bangladesh government to implement existing economic reform plans. This means that the government will be implementing the reforms without any delays, enabling the macroeconomic stability and protection of the vulnerable communities from economic shocks.

 

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