Dhaka (Reuters) – Bangladesh and the International Monetary Fund reached a staff-level agreement on the first review of a $4.7 billion bailout on Thursday, in a boost for the cash-strapped economy as it heads towards a national election in January.
Bangladesh’s $416-billion economy was one of the world’s fastest growing for years, but has recently struggled to pay for imported fuel as its dollar reserves have shrunk by more than a third due to costly imports following Russia’s invasion of Ukraine.
Completion of the first review, subject to IMF board approval in the coming weeks, will make about $681 million in loans available to the country, the IMF said in a statement.
“The authorities have made substantial progress on structural reforms under the IMF-supported program, but challenges remain,” the Fund said.
“Continued global financial tightening, coupled with existing vulnerabilities, is making macroeconomic management challenging, putting pressures on the Taka and FX reserves.”
The IMF approved $4.7 billion in loans to Bangladesh in January, with an immediate disbursement of about $476 million, making it the first to secure such funds out of three South Asian countries that applied last year amid economic troubles.
Bangladesh’s central bank hopes the IMF board meeting on Dec. 11 will approve the second tranche of loans, its spokesperson Mezbaul Haque said.
The country of 170 million people is battling stubbornly high inflation spurred by a spike in energy and food prices, along with a weakening currency, which has caused a headache for Prime Minister Sheikh Hasina’s government.
Protests by opposition parties ahead of January’s election have drawn tens of thousands of people angry over the cost of living onto the streets.
“The IMF is apprehensive about the future outlook of the economy… and without major reforms, little scope for a turnaround would be possible,” said Khondaker Golam Moazzem, research director at the Centre for Policy Dialogue think-tank.
“It seems a major reform drive needs to be taken, targeting the banking sector, forex reserves and domestic resource mobilisation immediately after the election is over,” Moazzem said.
The Fund said further calibrated monetary policy tightening, greater exchange rate flexibility and a tight fiscal policy would help restore macroeconomic stability in the country.
The IMF projects Bangladesh’s growth at 6% in fiscal year 2024, while inflation is projected to moderate slightly above 7% by the end of the year.
