Marc Jones, Ruma Paul
LONDON/DHAKA (Reuters) -The International Monetary Fund (IMF) provisionally agreed a $4.5-billion support programme on Wednesday for Bangladesh, with the country’s finance minister saying the deal would help prevent economic instability escalating into a crisis.
Bangladesh’s $416-billion economy has been one of the world’s fastest growing for years. But rising energy and food prices, sparked by Russia’s invasion of Ukraine, along with shrinking foreign exchange reserves, have swelled its import bill and current account deficit.
On Wednesday it became the third South Asian nation to secure a “staff-level agreement” with the IMF for loans this year, after Pakistan and Sri Lanka.
“The heat of the global economy has affected our economy to some extent,” Finance Minister A.H.M. Following the IMF announcement, Mustafa Kamal said to reporters. “We requested the IMF loan as a precautionary measure to ensure that this instability does not escalate into a crisis.”
The Fund said a “staff-level agreement” had been reached for a 42-month arrangement, including about $3.2 billion from its Extended Credit Facility (ECF) and Extended Fund Facility (EFF), plus about $1.3 billion from its new Resilience and Sustainability Facility (RSF).
“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 lender said in a statement.
A staff-level agreement must be approved by the IMF Management and considered by its Executive Board. This is expected to happen in the coming weeks.
Bangladesh’s economic mainstay is the export-oriented garment industry, which is bracing for a slowdown as big customers like Walmart are saddled with excess stocks as inflation forces people to prioritise their spending.
The country’ foreign exchange reserves had dwindled to $35.74 billion by Nov. 2 from $46.49 billion a year ago, central bank data showed.
According to the IMF Bangladesh has created a programme to promote growth, which includes measures to reduce inflation and strengthen its financial sector.
Finance Minister Kamal said the IMF team agreed with the government’s economic reforms. In August, Bangladesh increased fuel prices by approximately 50% to cut subsidy burdens. Officials at the time denied that this was a condition for an IMF loan.
Kamal explained that funds will be paid in seven tranches. The first instalment of the fund will be available February 2023.
(Reporting by Marc Jones, Ruma Paul in Dhaka and Marc Jones in Lonson; Writing by Shivam Patel. Editing by Robert Birsel and Clarence Fernandez.
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