Bangladesh lands second tranche of IMF’s $4.7bn bailout
Bangladesh needs to tighten its monetary policy and have greater exchange rate flexibility to help contain high inflation, the IMF said on Wednesday as its board cleared the first review of the country’s $4.7bn bailout.
Sharply rising living costs have sparked violent protests in recent months ahead of national elections in January, as Prime Minister Sheikh Hasina’s government struggles to pay for costly energy imports due to shrinking dollar reserves and a weakening taka currency.
The IMF board clearance provides Bangladesh immediate access to about $468.3m and also makes available $221.5m in support of the country’s climate change agenda.
“Combating inflation is our number one priority,” Bangladesh central bank spokesperson Mezbaul Haque said, adding that their aim is to bring it down to 8% in December and 6% by June.
“We’re getting $1.31bn from the global lenders and our development partners this month. So, overall the foreign exchange reserves will be in a good position. Apart from that, the remittance flow is good,” Haque said.
The IMF said Bangladesh’s economy has suffered multiple shocks. Its $416bn economy was one of the world’s fastest growing for years, but rising energy costs amid the war in Ukraine interrupted its post-pandemic recovery as it dipped into its depleting foreign exchange reserves to pay.
Bangladesh is now forecasting GDP growth to remain at 6% in fiscal year 2024 on the back of relatively resilient exports despite subdued private demand.
Ready-made garments are a mainstay of Bangladesh’s economy, accounting for almost 16% of the GDP. Low wages have helped the country build the industry, with about 4,000 factories employing 4-million workers, supplying brands such as H&M and GAP.
But soaring living costs sparked a week of protests by garment workers last month calling for higher salaries. The IMF projects inflation to moderate to 7.25% year on year by the end of the 2024 financial year after a decade high of 9.9% in August.
“Bangladesh’s economy is navigating multifaceted economic challenges. Despite a difficult external environment, programme performance has been broadly on track,” IMF deputy MD Antoinette Sayeh said.
“Near-term policies should continue to focus on containing inflation and rebuilding external resilience,” Sayeh said, adding that this required a calibrated monetary policy tightening, supported by a neutral fiscal stance and greater exchange rate flexibility.
Bangladesh received an immediate disbursement of about $476m when the IMF approved the loans in January.
Zahid Hussain, former lead economist at the World Bank’s Dhaka office, said the IMF funds unlocked after the first review were not large in size but they would help the economy.
“It gives a positive signal that the IMF is OK with the reforms so far and the programme is on track,” Hussain said.