Dhaka seeks IMF loan
BANGLADESH FACES FINANCIAL CRISIS AMID RISING FUEL PRICES
BANGLADESH has asked the International Monetary Fund for support in riding out a financial shock triggered by volatile energy prices after the Russian invasion of Ukraine, officials said on Tuesday (26).
The country has experienced lengthy blackouts in recent weeks, sometimes for up to 13 hours a day, as utilities struggle to source enough diesel and gas to meet demand.
Tens of thousands of mosques around the country have been asked to curtail their use of air conditioners to ease pressure on the electricity grid, with power shortfalls compounded by a depreciating currency and dwindling foreign exchange reserves.
A senior finance ministry official, speaking on condition of anonymity, confirmed to AFP that Dhaka had sought an IMF credit line, without disclosing the amount. Local newspaper the Daily Star reported Bangladesh was seeking $4.5 billion (£3.7bn) from the Washington-based lender following a recent visit to the country by its representatives.
Authorities were grappling with a “crisis” because of rising fuel prices after the Russian attack on Ukraine, junior planning minister Shamsul Alam told AFP. “Our balance of payments is in the negative zone. We need to stabilise our exchange rate,” he said.
Atiur Rahman, a former central bank governor, welcomed any approach to the IMF, saying the country should seek longterm, low-interest rates from international institutes in exchange for broader economic reforms like having flexible bank interest rates. “There’s a need for a balance-of-payments support. Exports and remittances alone cannot handle that. You need an extra dose of external funding,” said Rahman.
Bangladesh’s July to May current account deficit was $17.2bn (£14.2bn), compared with a deficit of $2.78bn (£2.3bn) in the yearearlier period, according to central bank data, as its trade deficit widened and remittances fell.
In the first 11 months of the fiscal year that ended on June 30, imports jumped 39 per cent but exports grew 34 per cent.
The central bank, 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.
Its foreign-exchange reserves fell to $39.67bn (£33bn) as of July 20 – sufficient for imports for about 5.3 months – from $45.5bn (37.79bn) a year earlier.
Remittances from overseas Bangladeshis fell five per cent in June to $1.84bn, the central bank said, as many migrant workers lost their jobs because of the Covid-19 pandemic.
Economists say the Bangladeshi taka has effectively slid against the US dollar by 20 per cent in the past three months. The depreciation of the currency has further weakened the nation’s finances, with the current account deficit hitting $17bn.
Alam said the government had rolled out “austerity measures” in addition to electricity rationing, including import curbs and cuts to development spending.
Diesel power plants across the country, accounting for 1,500 megawatts of generation capacity, have been taken off the grid, while some gas-fired plants are also idle. Bangladesh’s precarious financial position has been compounded by unprecedented floods in the northeast.
The opposition Bangladesh Nationalist Party has blamed the government for the crisis, accusing it of squandering cash on multibillion-dollar vanity projects.