Desk: Amid ongoing tensions with India, Pakistan recently secured a loan from the International Monetary Fund (IMF). Now, another neighbor of India—Bangladesh—is set to receive a $1.3 billion loan from the IMF. According to Bangladesh’s Ministry of Finance, the IMF is expected to disburse the amount in June as part of its $4.7 billion loan program. This comes after the successful completion of the fourth review of the program, which centered on implementing key economic reforms.
It is notable that Bangladesh, under the rule of Nobel laureate Muhammad Yunus, has faced criticism for increasing incidents of atrocities against the Hindu minority. Ever since Prime Minister Sheikh Hasina left the country, several Hindus have reportedly lost their lives in targeted violence.
On Wednesday, Bangladesh agreed to adopt a market-determined exchange rate as per IMF requirements in order to unlock the stalled loan installments. Bangladesh Bank Governor Ahsan H. Mansur announced the immediate implementation of a managed floating exchange rate system, which helped secure the IMF’s approval.
Speaking at a virtual press conference from Dubai, Mansur stated, “By June, Bangladesh is expected to receive a total of $3.5 billion from multiple multilateral donors, including the World Bank, the Asian Development Bank (ADB), and the IMF.” He expressed optimism that with increased dollar liquidity, the managed rate would remain close to current levels.
According to central bank officials, the IMF has agreed to release both the fourth and fifth tranches of the loan by June after resolving disagreements over the implementation of a more flexible exchange rate system. This marks a shift away from the previously applied partially flexible system to a fully market-based exchange rate regime.
While detailed guidelines for the new system are yet to be revealed, officials mentioned that it will involve a rate band within which the currency will fluctuate. To stabilize the exchange rate, the central bank has created a $500 million stabilization fund. Although banks were previously briefed on the new system, the Governor said that the Bangladesh Bank will still intervene in large foreign payment transactions to maintain currency stability.
The $1.3 billion disbursement had been on hold due to disagreements over implementing a “crawling peg” mechanism, which is now resolved.