Govt eyes $6.5bn foreign loan to ease tension

The government has so far sought a total of $6.50 billion in foreign loans as budget support from the development partners to meet the budget deficit and fight the dollar crunch, official sources said.

Of the amount, $4.5 billion loan has been sought from International Monetary Fund (IMF) to stabilise the volatile money market and $1 billion dollar each from the World Bank and the Asian Development Bank (ADB) as budget support.  

Currently, government agencies are in negotiations with the lenders to finalise the deals. Once available, these loans can be utilised in areas the government thinks necessary.

In total, the government may require nearly $12 billion in foreign funds to meet the budget deficit, according official sources.

In 2021-22 fiscal year, Bangladesh received $7.32 billion in budget support from the development partners on the back of increased demand for public expenditure to help corona recovery.

This fiscal year, the government is struggling with high demand for US dollar due to a rise in imports after waning of corona crisis and hike in global price of fuel, commodities and fertiliser caused by Russia-Ukaraine war.

In view of this, the country’s foreign currency reserve has slipped to $39 billion from a healthy $45.5 billion.

The government is in frantic search of loans in US dollar to offset the immense crisis of the greenback created by high demand for the foreign currency and increased import cost.

Economic analysts say if the loans can be mobilised, those will be helpful for carrying out social safety net schemes, economic recovery, Annual Development Programme (ADP) and other areas.

Usually, ADP is implemented with foreign and domestic loans due to domestic resource gap in the budget. These loans are utilised in specified projects, but budget support can be utilised without any condition.

The analysts said the loans will also open up opportunity for the government to increased expenditure in development ahead of the national polls.

Apart from mobilising foreign loans, they also advised to spend the money in priority areas and concentrate on enhancing the reserve to overcome the dollar crisis.

“Taking loans from the development partners won’t create much problem if the loans come in the form of budget support. But their conditions should also be taken into consideration,” said Dr Zahid Hussain, former lead economist at the WB’s Dhaka office.

At the same time, he also suggested the government to find out solutions to enhance the foreign reserve.

Finance Minister AHM Mustafa Kamal sent a letter in July to the IMF seeking its loan.

This issue will be discussed at the upcoming annual meeting of the World Bank and IMF slated to be held in Washington in October this year.

In addition, Bangladesh has sought budget support of $500 million from the Japan government even though it usually provides project loans to Bangladesh.

Economist Mustafa K Mujeri said: “The IMF loan will help Bangladesh in lowering its borrowing from domestic banking system and savings certificates, which will lower the government’s loan burden as its interest rate is low.”

At the same time it will also help ease tension in the money market with increased flow of foreign currency in the market.

Earlier, Bangladesh had taken IMF loans four times, but this time the size of the expected loan is much higher than the previous ones.