23rd November 2022
Farid Hossain

When on November 10 Bangladesh finally clinched the IMF’s $4.5 billion loan deal the cheers had been muted. The loan – scheduled to be released in seven instalments over a period of 26 months – surely comes at a time when Dhaka needs it most. Bangladesh has now become the third South Asian country after Pakistan and Sri Lanka to borrow money from the Washington-based International Monetary Fund to weather economic difficulties which can be traced to global economic slowdown with the US and European countries fighting to stave off recession. Only a year ago Bangladesh had been well-off amid a robust economic growth making headlines for its “economic miracle.” Even the world’s leading lending agencies like the World Bank and IFM were in praise of Bangladesh’s transformation from what some US diplomats infamously called a ‘world’s basket case’ to one of the ‘fast growing’ economies. Despite a setback in its readymade garment exports and tens of thousands of migrant workers’ return home from their job-providing countries the Bangladesh economy was growing though at a slower pace.

 

What has happened now that the country of ‘economic miracle’ is now seeking loan from IMF and also from its sister concern the World Bank? Bangladesh’s economy depends on three pillars: apparel exports (it’s the world’s second largest RMG exporter after China), remittance from its large diaspora and import of fuel to meet the country’s electricity requirements. All the three pillars have been jolted by external shocks, especially after the Russian invasion of Ukraine with consequent retaliatory Western sanctions against Moscow that also hit back with its weapon of gas supply to European countries. Record-high cost of living (inflation) in Europe and the US as well, a problem compounded by shortage of gas, are pushing some countries to the brink to recession. This is a bad news for Bangladesh as these countries are mostly the destination of its apparel exports that account for 80% of the country’s export earnings. With the exports falling, the remittances are also on the decline. Even though Bangladesh has sent up to nine lakh workers abroad since the Covid-19 pandemic began easing the inflow of remittances into the country dropped in past two months. These two factors coupled with increased payment for import of fuel have dealt serious blow to the country’s economy. We are spending more on imports than our earnings from exports widening the gap in the balance of payments. Not that we are importing more items than before. The reason behind our fat import bills is the falling prices of taka against the US dollar. Bangladesh Bank is struggling with falling foreign currency reserves. The reserves are going down as import costs continue to increase due to high fuel costs. Over the months the reserves have slipped from over $48 billion to gross amount of over $36 billion and net at $26 billion for so, according to news reports quoting IMF estimates. This has caused a sense of urgency in the policy circles. The shrinking reserves have to be replenished sooner than later. As this realization dawned on the policy makers they wasted no time in knocking on the doors of IMF with a request for $4.5 billion in budget support. The goal has been achieved for now. With the IMF money in the pipeline, Bangladesh has stated negotiations with the World Bank for a possible $2 billion loan. The WB vice-president for the South Asia region is already in Dhaka for negotiating the deal. However, as did the IMF the World Bank team too is expected in its talks with the government leaders to reiterate their call for economic reforms. They will now ask to know more about government’s economic and financial policies. This means the government will no longer be free enough to take certain steps without shutting its eyes on the lending agencies. Call we call it an erosion of free choices for the government at a time when a national election is approaching?


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