Bangladesh Seeks Loans Amid Growing Economic Difficulties | Asia | An in-depth look at news from across the continent | DW
Bangladesh recently became the third country in South Asia, after Pakistan and Sri Lanka, to seek financial support from the International Monetary Fund (IMF) this year.
Dhaka would now also seek help from the World Bank and the Asian Development Bank to overcome the economic difficulties it has faced in recent months.
Prime Minister Sheikh Hasina’s government has written letters to the two lenders asking for $1 billion (980 million euros) each, Bloomberg News reported, citing people familiar with the matter.
It comes after the daily star The newspaper reported that the country last week knocked on the IMF’s door asking for $4.5 billion, including for fiscal and balance-of-payments support.
The IMF said Bangladesh is keen to tap into the organization’s new Resilience and Sustainability Facility, which aims to help nations address climate change and sustainability challenges.
The Washington-based lender said on Wednesday it stands ready to help Bangladesh with an aid package to deal with the current economic crisis, as well as funding for longer-term challenges.
“The IMF stands ready to support Bangladesh with this request,” a Fund spokesperson said in a statement, noting, however, that “the amount of aid has not yet been discussed.”
Why does Bangladesh need financial assistance?
“This is not a bailout for Bangladesh, but rather a precautionary measure by the government,” Ahsan Mansur, a former IMF economist and executive director of the Dhaka-based Policy Research Institute, told DW.
However, he warned, if there is no improvement in the economic environment, the government will be forced to spend all its tax revenue on securing imports and will not have much left for it. additional expenses.
“Government spending is doubling. Soon all revenue will be spent to meet the expenses of imports, pensions and all other expenses. The entire development budget will have to be borrowed,” he said.
Bangladesh, a country of more than 160 million people, has for years had one of the fastest growing economies in the world, but the country has been hit hard by the global economic consequences of the Russian-Ukrainian war. .
The conflict, which began in late February, has added to inflationary pressures.
The South Asian country has been particularly vulnerable as it imports significant amounts of essential items like cooking oil, wheat and other foodstuffs, as well as fuel.
Soaring food and energy prices have inflated import costs and widened the current account deficit, which currently stands at around $17 billion.
Bangladesh’s currency, the taka, has meanwhile fallen about 20% against the US dollar in the past three months, further straining the country’s finances.
Dwindling foreign exchange reserves, which fell to around $39 billion as of July 20, enough for just over five months of imports, are putting further pressure, down from $45.5 billion a year earlier. early.
Power cuts and rationing
Meanwhile, utilities are struggling to get diesel and gas supplies, leading to frequent and prolonged power outages, sometimes up to 13 hours a day.
Authorities say diesel power plants across the country have been taken off the grid, while some gas-fired plants remain idle.
The government has imposed measures such as electricity rationing, import restrictions and development spending cuts to deal with the situation.
He also urged tens of thousands of mosques to suspend the use of air conditioners to ease the strain on the power grid.
Power outages have hit industrial activity and sparked public protests.
Mohammed Helal Uddin, professor of economics at the University of Dhaka, said the economy is facing a crisis.
“We are rationing electricity, foreign exchange reserves have declined and the cost of imports has risen dramatically. We have reduced fuel imports and the value of the currency is falling. These are all indicators that the economy is suffering” , he told DW.
The expert pointed out that Bangladesh will not be able to reduce its imports for a long time and should instead focus on boosting exports to overcome the current crisis.
“However, the whole world is facing economic problems and we don’t know when the situation will return to normal. So, I see no other option but to take out a loan for now just to ease the pressure on the reserves. exchange,” he added. he added.
Bangladesh is not alone in facing such problems in South Asia. Other countries in the region, such as Pakistan and Sri Lanka, are also grappling with runaway inflation and deteriorating public finances brought on by headwinds in the global economy.
Bangladesh’s Finance Minister AHM Mustafa Kamal, however, said on Wednesday that the currency and inflation would stabilize within a month. He stressed that the economy will soon get back on track.
The government is taking action
The opposition Nationalist Bangladesh Party, meanwhile, blamed the government for the fragile economic situation, accusing it of wasting billions of dollars on vain projects.
The ruling Awami League denies the criticism and points to steps it has taken to cut spending and save foreign exchange reserves.
While loans from bodies like the IMF usually come with strings attached, Mansur said Dhaka may not be willing to undertake unpopular policies such as cutting fuel subsidies.
“Raising fuel prices and other prices will be an unpopular move, which may not be of interest to the government. Overall, I don’t think the Bangladeshi government is interested in economic and banking sector reform.” , did he declare.
Finance Minister Kamal said the government would only accept an IMF loan if the terms were favorable and stressed that the country’s macroeconomic conditions were still in order.
“If IMF conditions are favorable to the country and compatible with our development policy, we will participate, otherwise not,” Kamal said. “Asking for a loan from the IMF does not mean that the economy of Bangladesh is in bad shape,” he added.
Edited by: Srinivas Mazumdaru