Bangladesh has been hit by rising energy and food prices and dwindling foreign exchange reserves fueled by the war between Russia and Ukraine.
The International Monetary Fund (IMF) has agreed to provide a $4.5 billion aid program to Bangladesh on a temporary basis, and the country’s finance minister said the deal will help prevent economic instability from turning into a crisis.
Bangladesh’s $416 billion economy has been one of the fastest growing for years. However, rising energy and food prices, fueled by Russia’s invasion of Ukraine, and a decline in foreign exchange reserves have worsened the foreign exchange balance and current account deficit.
On Wednesday, it became the third South Asian country, after Pakistan and Sri Lanka, to secure a “working standards agreement” with the IMF this year.
“Global warming has affected our economy to some extent,” Finance Minister Ahm Mustafa Kamal told reporters after the IMF’s announcement.
“Bangladesh’s strong economic recovery after the outbreak has been hampered by Russia’s war in Ukraine, which has led to a sharp widening of the current account deficit, a rapid decline in foreign exchange reserves, inflation and a slowdown in growth,” Rahul Anand said. Visiting the IMF staff mission.
The group arrived in Bangladesh at the end of last month to make arrangements to provide the loan to the South Asian nation of more than 160 million.
The IMF said it had reached a “staff-level agreement” on a 42-month arrangement, including $1.3 billion from the Extended Credit Facility (ECF) and Extended Fund Facility (EFF) and the new Resilience and Continuity Facility. (RSF)
“The objectives of the new Bangladesh Fund-backed program are to maintain macroeconomic stability and support strong, inclusive and green growth, while protecting the vulnerable,” the lender said in a statement.
A staff-level agreement is likely to be considered by the IMF’s management and executive board in the coming weeks.
Braking to slow down
Bangladesh’s economy is dominated by the export-oriented apparel industry, which has seen large customers such as Walmart grappling with excess inventory as rising prices force people to prioritize their spending.
The country’s foreign exchange reserves fell from $46.49 billion a year ago to $35.74 billion on November 2, according to data from the Central Bank.
The IMF said Bangladesh has developed a program to stimulate growth that includes measures to control inflation and strengthen the financial sector.
Finance Minister Kamal said the IMF team agreed with the government’s economic reforms. Earlier in August, Bangladesh’s move to reduce its subsidy burden saw oil prices rise nearly 50 percent, but government officials denied at the time that this was a condition for an IMF loan.
The fund will be disbursed in seven tranches, Kamal said, adding that the first tranche will be available in February 2023.