IMF agrees $4.5bn loan to Bangladesh, first tranche in Feb

The International Monetary Fund (IMF) has agreed to loan $4.5 billion to Bangladesh in seven instalments extending to December 2026, announced Finance Minister AHM Mustafa Kamal.

The IMF will release the first instalment of 352.35 million SDR (Special Drawing Rights) in February next year, the minister said at a media briefing after a meeting with the global lender on Wednesday.

Bangladesh Bank Governor Abdur Rouf Talukder and Finance Division Senior Secretary Fatima Yasmin were also present at the briefing.

The rest of the loan will be disbursed in six equal instalments of 519 million SDR every six months until December 2026, the finance minister said.

The total loan amount is 3.468 billion SDR, which is about $4.5 billion US dollars according to the current exchange rate.

SDRs are units of account for the IMF, representing a claim to currency held by IMF member countries for which they may exchange.

According to the current SDR interest rate, the average interest rate of the loan is 2.20 percent. One-fourth of the loan will be interest-free while the rest of the loan will be charged with an interest rate of said amount.

Mustafa Kamal said that there are three parts to the loan. Of this, the first tranche of SDR 822.82 million will not be subject to interest. Interest on the balance of the loan amounting to SDR 1,645.64 will be determined by adding one percent to the SDR floating rate. And the interest rate of the remaining 1 billion SDR will be 75 percent with the SDR floating rate.

Finance minister’s briefing

He said economies around the world are going through a transitional period. From advanced to developing – all countries experienced abnormal inflation rate. Almost all countries’ currencies depreciated against the dollar. Foreign exchange reserves have decreased. The heat of the global economy has affected our economy to some extent.

“We have requested the IMF loan as a pre-emptive measure to ensure that this instability does not escalate into any kind of crisis.

He said, there have been several meetings with the IMF earlier.

“We have successfully completed the ongoing loan negotiation phase today. I hope that we are going to get the loan in the same way as we asked for the loan, Kamal added.

“They (IMF) told us that our macroeconomic management is better than many other countries. The IMF team agrees with our ongoing economic reforms,” the minister said.

“Accordingly, we are going to take a four-year loan programme to stabilise the external sector of the economy,” Mustafa Kamal added.

Besides, he mentioned the ongoing reform programme and said, “The government’s budget deficit will be kept at a manageable level, which we have been doing for the last 14 years.”

“Our government always strives to limit the budget deficit to 5 percent of GDP. Last year our budget deficit was 5.1 percent which is estimated at 5.5 percent this fiscal year. Increasing government spending on social sectors like health, education and social security, which we have been increasing progressively every fiscal year,” the minister informed.

In the current financial year, the government allocated Tk 1,13,576 crore for the social security sector which is about 17 percent of the total budget, said the finance minister.

And by increasing the efficiency of tax administration, the revenue collection of the government will be increased. So far 6,732 machines have been installed. Another 60,000 machines will be installed next year and 2,40,000 machines will be installed in the next 4 years.

The finance minister said that the fuel oil price adjustment system should be adjusted from time to time with the international market price, so that if the oil price falls in the international market, it will also be reduced in the country.

He said that the task of fixing the exchange rate should be gradually left to the market, which we have already started. In formulating the government’s development plan and implementing the annual development program, taking the issue of climate change seriously and taking development projects in view of that, planning a disaster risk financing plan, which will also include assistance to disaster victims.

Mustafa Kamal rejected any parallel between Bangladesh with countries like Sri Lanka and Pakistan. “Bangladesh has a good reserve coverage than those countries.”

He also mentioned that Bangladesh’s debt is sustainable. He cited a government analysis for the statement. “Bangladesh has less than 40 percent of total debt against GDP, of which external debt is around 20 percent.”

“The country's economy is in a much tighter fiscal deficit. However, the fiscal deficit is always kept in check which leads to debt sustainability,” he said.

Furthermore, the country needs a good amount of foreign direct investment, for which more economic reform is needed, he added.

Bangladesh Bank governor’s briefing

At the briefing, Bangladesh Bank Governor Abdur Rouf Talukder highlighted the overall process of IMF loan relief and said, “We are getting four and a half billion dollars under three loan programmes.”

These are Extended Credit Facility (ECF), Extended Finance Facility (EFF) and Resilience and Sustainability Facility (RSF). The grace period and repayment period of each loan programme are different.

The governor said that the loan payable under ECF will be available for a grace period of five and a half years. This loan has to be repaid in the next 10 years.

The EFF loan program will have a grace period of three and a half years. And to be paid in the next 10 years.

The RSF loan program will have a grace period of 10 years and will be repaid over the next 20 years, he elaborated.

Regarding IMF loan conditions, the governor said that the conditions that IMF used to give to Bangladesh earlier, but nothing happened this time. In the last four financial years, the reforms that the finance minister of the National Assembly has mentioned through the budget will be discussed.

He also said the talks with the IMF have essentially brought all the reforms together in a package, which is also ongoing.

Next step

This is the first and staff-level agreement. After receiving consent from IMF management within two months then it will go to the board of governors for approval, the finance minister said.

IMF statement

The IMF mission, led by Rahul Anand, came to Dhaka on October 26 to discuss a $4.5 billion loan sought by Bangladesh to deal with the impact of the global recession and the domestic situation.

At the end of the mission on Wednesday, its chief in a statement said that Bangladesh and the IMF have reached a staff-level agreement to support Bangladesh's economic policies with a 42-month arrangement of about $3.2 billion under the Extended Credit Facility (ECF) and the Extended Fund Facility (EFF) as well as of about $1.3 billion under the Resilience and Sustainability Facility (RSF).

A staff-level agreement means that the IMF team and the negotiating team of a sovereign country, in this case Bangladesh, are able to reach a deal on a country’s overall economic programme incorporating the loan, its disbursement schedule, and the planned reforms and policies. This will then be presented to the IMF Executive Board, which is expected in the coming weeks.

The objectives of Bangladesh’s new Fund-supported programme are to preserve macroeconomic stability and support strong, inclusive, and green growth, while protecting the vulnerable, said IMF.

The RSF is expected to provide affordable, long-term financing to support Bangladesh’s climate investment needs, catalyse climate financing, and reduce the balance of payment pressures from import-intensive climate investment.

The statement said, “Bangladesh’s robust economic recovery from the pandemic has been interrupted by Russia’s war in Ukraine, leading to a sharp widening of the current account deficit, rapid decline of foreign exchange reserves, rising inflation and slowing growth.

“Even as Bangladesh tackles these immediate challenges, addressing long-standing structural issues remains critical, including threats to macroeconomic stability from climate change. To successfully graduate from Least Developed Country status and achieve middle-income status by 2031, it is important to build on past successes and address structural issues to accelerate growth, attract private investment, enhance productivity, and build climate resilience.

“Against this backdrop, and following initial measures to maintain macroeconomic stability, the authorities have put together a program—supported by the IMF—that is expected to bolster its external position, reduce vulnerabilities, and prepare the ground for a robust and inclusive growth pick-up by scaling up much-needed social, development and climate spending.

Key elements of the program include:

Creating additional fiscal space

Higher revenue mobilization and rationalization of expenditures will allow increasing growth-enhancing spending. The impact on the vulnerable will be mitigated by higher social spending and better targeted social safety net programmes.

Containing inflation and modernizing the monetary policy framework

The monetary stance will be guided by the inflation outlook. Monetary policy modernisation will promote macroeconomic stability and improve policy transmission. Increased exchange rate flexibility will help buffer external shocks.

Strengthening the financial sector

Reducing financial sector vulnerabilities, strengthening oversight, enhancing governance and the regulatory framework, and developing capital markets will help mobilize financing to support growth objectives.

Boosting growth potential

Creating a conducive environment to expand trade and foreign direct investment, deepening the financial sector, developing human capital, and improving governance to enhance the business climate will lift growth potential.

Building climate resilience

Strengthening institutions and creating an enabling environment will help meet climate objectives, support large-scale climate investments, and help mobilize additional climate financing.

IMF conditions

According to a report published by Business Insider Bangladesh on November 9, it has been decided that the price of oil, gas and electricity will not be increased as per the conditions of the IMF.

Because their prices have already been increased. However, according to the conditions of the IMF, the government will create the infrastructure to increase or decrease the prices of these products in the domestic market by coordinating with the international market. Later these prices will be adjusted with the international market.

According to officials in the finance division, the government has implemented its main conditions to get the IMF loan before the start of negotiations which is the price of fuel oil has been increased up to 52 percent. Fertiliser and gas prices have also been increased.

Subsidy reduction was another condition set by the IMF. In these cases, the subsidy has been reduced by increasing the price.

IMF delegation in Dhaka

After arriving in Dhaka on October 26, the IMF discussed various ministries and agencies of the government, including the finance minister, Bangladesh Bank governor, and finance secretary.

It also met with representatives from the private sector, bilateral donors, think tanks, and development partners.