$700m will come from IMF and without strings attached
Bangladesh is set to demand the International Monetary Fund (IMF) within a week to extend $700 million in emergency financing to help the country avoid being overwhelmed by the coronavirus pandemic.
The amount is about half the sum Bangladesh can seek from the IMF under the country's quota as special drawing right (SDR), a kind of reserve assets that can be used by countries as additional liquidity.
The tool credits member countries' accounts with brand-new, unconditional liquidity that may be exchanged for the five currencies that underpin the SDR: the dollar, the yen, the euro, sterling and the renminbi.
Bangladesh features sought SDR500 million to handle the total amount of payment concerns, and a single SDR equals $1.36.
Finance Minister AHM Mustafa Kamal would send a letter of intent to the Washington-based multilateral loan company outlining the way the support would be used, said a finance ministry.
The emergency financing from the IMF would generally be with few or no strings attached, which is unlike the Washington-based multilateral lender's modus operandi, said the finance ministry official.
Under normal conditions, when the IMF is the last-resort loan company to a nation, it insists that the borrowing government tighten its belt and work out restraint in public areas spending.
This helps to attain three objectives. One is normally to stabilise the public personal debt burden, to ensure that the resources offered are certainly not wasted. The second is to limit the complete economy's need for foreign exchange, a shortage which had prompted the country to get the IMF's assist in the first place.
And the 3rd is to ensure that the IMF will get repaid. Because the Fund will not have any physical security from countries to whom it really is lending, the belt-tightening really helps to work as a sort of collateral.
In other terms, it helps to increase the probability that the IMF does not suffer losses alone loan portfolio - losses that could have bad consequences for the fund's purpose within the international monetary system.
The last time Bangladesh borrowed from the creditor beneath the extended credit facility, it had been handcuffed with a bunch of conditions.
But a belt-tightening might not exactly be advised this time around because spending is required to stop persons dying or from dropping into a long lasting trap of unemployment.
Besides, countries worldwide are facing a good shortage of forex, not because they possess indulged in any irresponsible spending sprees, but as a result of a good virus beyond their control.
For example, with rising expenditures and declining revenues, additional government financing requirements this fiscal 12 months are estimated at $8.8 billion, which is 14.2 % of the budget.
Facing constraints on household borrowing, the federal government urgently necessities external financing to support key element pro-poor initiatives and also to inject fresh liquidity in to the economy to improve aggregate demand.
In fact, IMF's message to its customers is, "please, spend as much as you can and then a little bit more," stated its managing director Kristalina Georgieva recently.
However, the lender wish to see how Bangladesh spends the amount of money and if the support is employed to boost economic recovery, support damaged exporters, to improve social safety nets spending and help agriculture, the financing ministry official said.
It would also prefer to look at whether Bangladesh spends funds to strengthen its weak wellbeing system.
The federal government has announced an $11.2 billion pro-poor countercyclical bundle -- which is 3.3 per cent of Bangladesh's GDP -- with a give attention to social cover for the poor and support for key industries to preserve jobs.
Lending to Bangladesh wouldn't normally raise eyebrows since the country has a good repayment track record and your debt ratio is well within control.
Public debt on Bangladesh was $105 billion on fiscal 2018-19, which is approximately 34.9 % of GDP, and the external consumer and publicly guaranteed (PPG) debt ratio was 14.5 % of GDP. Both happen to be low.
The excess external debt of $2.9 billion, as government projected, increase both external PPG debt-GDP ratio and consumer debt-GDP ratio by 0.9 % this fiscal year.
The IMF previous allocated funds from the SDR to the member countries in 2009 2009 in the wake of the global financial crisis.
