The International Monetary Fund (IMF) is set to send a delegation to Dhaka on Saturday, April 5, to assess whether Bangladesh will receive the remaining $2.39 billion of its loan package. During the visit, discussions with the government will focus on conditions such as subsidy reductions, electricity price hikes, and making the currency exchange rate more market-driven. However, the Finance Advisor has stated that implementing all of the IMF’s conditions immediately is not feasible for maintaining economic stability. Economists warn that if the IMF delays its disbursement, other development partners like the World Bank and ADB may become more cautious in extending loans.

Amid economic distress caused by issues like money laundering and non-performing loans, the IMF began providing a $4.7 billion loan to Bangladesh on January 30, 2023. So far, three installments totaling $2.31 billion have been disbursed. The government is seeking the remaining $2.39 billion in a single payment for budget support, which may be approved in June.

Before approving the fourth and fifth installments together, the IMF team will review Bangladesh’s progress in fulfilling key conditions, such as adopting a market-based exchange rate, increasing revenue collection by 0.5% of GDP, and raising electricity prices. From April 6, they will hold discussions with various government agencies for two weeks to assess compliance. However, questions remain about the government’s preparedness to meet these conditions.

Since the Russia-Ukraine war in 2022, inflation has remained stuck at 9% despite various measures. Raising electricity prices under these circumstances could trigger public dissatisfaction. Economist Dr. Mahfuz Kabir warns that lifting electricity subsidies or increasing prices will create fresh inflationary pressure, and accountability for the resulting economic burden must be addressed.

To meet IMF conditions, Bangladesh must collect an additional Tk 570 billion in revenue and reduce tax exemptions. CPD’s Distinguished Fellow, Dr. Mustafizur Rahman, notes that tax incentives primarily benefit vested interest groups, and rationalizing these incentives requires a well-structured plan.

The IMF also wants Bangladesh to abandon the crawling peg system for exchange rate determination, which has kept the dollar’s value stable at Tk 122. However, Finance Advisor Dr. Salehuddin Ahmed disagrees, cautioning that abrupt changes could push Bangladesh into crises similar to those of Pakistan or Sri Lanka. He insists that such a decision requires careful deliberation.

Nonetheless, the government has already taken steps to comply with one of the IMF’s key demands by initiating the separation of revenue policy from tax administration under the NBR’s framework.