The government is to be commended, for its smooth handling of the negotiations over the loan it sought from the International Monetary Fund, that concluded this week with the announcement that Bangladesh had become the third South Asian nation to secure the requisite "staff-level agreement" this year after Pakistan and Sri Lanka. These things play out pretty much in public, and one can easily surmise the stay in Dhaka for the Fund's visiting delegation was much less stressful than it was in either Islamabad or Colombo. With both our good neighbours, we saw the talks being dragged out and considerable uncertainty arising at various points of the negotiations. Comparatively, the conclusion in the case of Bangladesh was never in doubt.
And so as the visit wrapped up, we learned the Fund had provisionally agreed to a $4.5 billion support programme to Bangladesh, with the country's otherwise rather absent finance minister saying the deal would help prevent economic instability "escalating into a crisis". The Fund too released a statement that said the staff-level agreement had been reached for a 42-month arrangement, including about $3.2 billion from its Extended Credit Facility and Extended Fund Facility, plus about $1.3 billion from its new Resilience and Sustainability Facility.
"The objectives of Bangladesh's new Fund-supported program are to preserve macroeconomic stability and support strong, inclusive, and green growth, while protecting the vulnerable," the world's original 'Lender of Last Resort' said in the statement. A staff-level agreement is typically subject to approval by IMF management and consideration by its Executive Board, which is expected in the coming weeks.
The lack of drama around it all was a vote of confidence in the economy too, or its underlying fundamentals - the Fund acknowledged that it is Bangladesh that has put together 'a programme to foster growth' that it will be expected to adhere to, with measures to contain inflation and strengthen the financial sector. The finance minister said the IMF team agreed with the government's economic reforms. Funds will be disbursed in seven tranches, Kamal said, adding that the first instalment will be available in February 2023.
What may have been the case in 2009, in the aftermath of the global financial crisis, may not be possible during the current global economic slowdown, because Bangladesh is so much more entwined with the rest of the world: It's the second-largest clothing exporter, behind China. It has a big diaspora that sends remittances home. And the government relies on imported fuel to run its electricity grid. So the country's economic health largely rests on those three things - exports, remittances and fuel prices - all of which have taken a hit in recent months.
Economists say Bangladesh's request for IMF assistance was an early, prudent step that could actually help it weather this global slowdown better than its neighbours. Even though Bangladesh asked the IMF for $4.5 billion - 50% more than Sri Lanka - as a proportion of the respective economies, Bangladesh's loan is much more manageable.
It may now provide the little breathing space that countries like it could certainly do with in the present atmosphere.
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