Recently, Bangladesh asked for a loan of $4.5 billion from the International Monetary Fund to meet the balance of payments and budgetary needs. Since then, there was a mixed feeling among the people that Bangladesh might be in a similar situation to Sri Lanka and Pakistan.
On 16th of August, Mr. Rahul Anand, the chief of the Asia and Pacific Division of the IMF said that Bangladesh is in less debt distress than its neighbors. Although, inflation has reached an exceptional level of 7.6 percent and the trade deficit has reached a historic high of $33.25 billion, Bangladesh’s external position is entirely on the solid end.
Mr. Rahul Anand, further corroborated that the loan request is pre-emptive, and the IMF is always ready to support Bangladesh. Currently, Bangladesh has an external debt ratio of close to 14% of GDP, which is relatively low compared to the IMF-recommended external debt to GDP ratio of 55%. Although the reserve has come down, it’s still enough to cover 4-5 months of prospective imports.
Mr. Rahul Anand also said, “Bangladesh did well during the Pandemic. It recovered faster than its neighbors, but the Ukrain war dampened it. As Bangladesh is an import-dependent economy, although the commodity prices have started to come low, it will still remain elevated and impact on imports.”
Moreover, the IMF official confirmed that the recent record fuel price hike has nothing to do with the loan program and that the support will mainly be used for climate financing needs through the newly established Resilience and Sustainability Trust (RST) and to protect supply chains from disruptions caused by the Ukrainian war. The loan amount from RST will have a 20-year maturity and a 10.5-year grace period.
After the first staff mission, which is expected to take place from the 10 to the 16th of October of 2022, the loan program will be sent for approval to the executive board. Once the executive board approves it, the loan disbursement process will start.