DHAKA: An International Monetary Fund team begins negotiations on a loan to Bangladesh on Wednesday as the country faces increasing pressure on its foreign exchange reserves and considerations about its ability to manage debt.
Bangladesh is the third South Asian country to turn to the IMF this year, after Sri Lanka and Pakistan. The fund said its team would remain until Nov. 9 “to start discussions with the Bangladeshi government on economic and monetary reforms and policies. “
“The purpose is to move toward an agreement at the personnel level,” he said. Local reports indicated that the government is seeking up to $4. 5 billion.
Bangladesh Bank Governor Abdur Rouf Talukder, who led the national delegation to the just-concluded annual meeting of the IMF and World Bank in Washington, said the lender had responded definitively to the loan but was calling for reform measures.
As of Oct. 19, Bangladesh’s foreign exchange reserves had fallen to $35. 98 billion, according to the central bank, a sharp drop of $48 billion in August last year and the lowest point in 28 months.
The decline is attributed to a combination of remittances and lower export earnings, along with higher import expenses due to high foreign costs of fuel and other commodities, pressures similar to those that have hit its neighbors.
The existing general reserves would be sufficient for five months of imports. Inventory is expected to fall below US$35 billion in November after Bangladesh met its import obligations through the Asian Clearing Union, a payment agreement for the intra-regional transactions agreement.
Bangladeshi Prime Minister Sheikh Hasina’s strength adviser, Tawfiq-e-Elahi Chowdhury, said on Sunday there was no cash to import more fuel oil for force generation and there was no way to avoid power cuts in the country.
“It’s about foreign exchange,” he said, calling for efforts to save electricity for the day in order to leave enough energy for commercial and agricultural production.
Meanwhile, the anxiety is about debt.
At the end of the fiscal year ending in June, notable foreign loans overall were $95. 85 billion, up from $81. 57 billion a year earlier. Of this amount, public sector debt amounted to US$69. 90 billion, while the personal sector amounted to US$25. 95 billion.
The personal sector figure is up from US$18. 68 billion last year. Also noteworthy is the expansion of personal debt to mainland China, which increased by 142% year-on-year to US$2. 23 billion. The amount of the second-largest source of loans, Hong Kong, fell to $1. 41 billion from $1. 634 billion. Singapore, foreign organizations and Germany were the highest lending resources, according to the data.
The central bank highlighted the threats posed by short-term debt, in particular. In its most recent Financial Stability Report for 2021, the bank said: “Short-term external debt growth would possibly lead to a greater threat due to its short-term outlook. “reversal and possibly create a sudden strain on foreign exchange reserves. “
One immediate fear is $20. 65 billion in short-term foreign loans, most commonly taken through the personal sector, according to central bank data. Shortage of foreign currency in the country, according to bankers.
“There are pressures on LCs (letters of credit), but banks are managing them by extending the term,” said Selim R. F. Hussain, president of the Bangladesh. Il Bankers Association, said some banks face delays in paying LC’s debts. Due to the shortage of foreign currency, however, the central bank is helping banks by offering them dollars.
Amid repeated failures, however, many foreign correspondent banks seem reluctant to open LCs to load goods, bankers say. And short-term lending considerations are developing that create the brutal tension the central bank has warned against.
“Unless it can refinance (debts), the reserve will be affected,” said Zahid Hussain, a former chief economist at the World Bank’s Dhaka office. He added that usable foreign exchange reserves are well below the amount declared through the central bank, due to a calculation that includes illiquid assets.
Referring to IMF guidelines, Hussain said that if the ratio of short-term debt to reserves reaches one hundred percent, a debt flag is activated, making it difficult to obtain new loans. one hundred percent,” depending on how the reserves are tabulated.
Ahsan Mansur, executive director of the Bangladesh Institute of Policy Research, echoed the fact that maturing short-term debts are dangerously close to general foreign exchange reserves. “If we can’t pay on time, we have to renew them, which creditors don’t like. “” the former IMF official said, noting that this would be perceived as a “sign of monetary distress. “
Mansour advised the government to be careful when borrowing and compare debt not to gross domestic product (the ratio was a modest 20. 6% at the end of June, according to data recently released by the central bank), but to revenues.
“The country’s debt is now 3 times annual revenue,” he said, “which is alarming. “
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