IMF approves US$732mn to address COVID-19 pandemic in Bangladesh
The Executive Board of the International Monetary Fund (IMF) has approved a disbursement of SDR 177.77 million, about US$ 244 million or 16.67 percent of quota, under the Rapid Credit Facility (RCF).
It also approved a purchase of SDR 355.53 million, about US$ 488 million or 33.33 percent of quota) under the Rapid Financing Instrument (RFI) to tackle the coronavirus pandemic.
This will help finance the health, social protection and macroeconomic stabilization measures, meet the urgent balance-of-payments and fiscal needs arising from the COVID-19 outbreak, and catalyze additional support from the international community, according to IMF.
The COVID-19 pandemic is severely impacting the Bangladeshi economy, said the lending agency in a media release issued from Washington.
Two major sources of external financing, namely exports of Ready-Made Garments (RMG) and remittance inflows, are projected to decline rapidly.
Necessary policy responses to prevent a domestic pandemic, including the shutdown of major cities, will inevitably affect economic activities and slow growth, it said.
The authorities have started implementing several measures to mitigate the impact of the pandemic and preserve the country’s macroeconomic prospects.
In addition to increasing health expenditures, the government’s immediate response has focused on expanding food distribution and cash transfer programs to vulnerable populations, ensuring the payment of wages in export-oriented industries, and facilitating the provision of working capital to businesses and farmers.
The authorities remain committed to promoting strong and inclusive growth while preserving macroeconomic stability.
Key policy challenges include tax revenue mobilization, addressing the non-performing loans in the banking sector, and improving infrastructure and governance to enhance the business environment and attract foreign direct investment.
The IMF said it continues to monitor Bangladesh’s situation closely and stands ready to provide further advice and support if needed.
The authorities have also committed to put in place targeted transparency and accountability measures to ensure the appropriate use of emergency financing.
Following the Executive Board’s discussion on Bangladesh, Antoinette Sayeh, Deputy Managing Director and Acting Chair, said the outbreak of COVID-19 is severely affecting the two main sources of Bangladesh’s external earnings, exports of ready-made garments and remittances.
Together with the measures to contain the spread of the virus in the country, the outbreak is expected to result in a significant slowdown of economic growth and the emergence of fiscal and balance of payments needs, said Sayeh.
The IMF’s emergency financial assistance will help cover the financing gap and support the authorities’ effort to contain the adverse impact of the outbreak and catalyze additional support from the international community.
Sayeh in a statement said the authorities have responded quickly to the COVID-19 outbreak with a comprehensive set of measures aimed at containing the spread of the pandemic, providing immediate relief to the most vulnerable households and affected businesses, and preserving the country’s macroeconomic prospects.
A temporary increase in the fiscal deficit is necessary, and it will be important to ensure transparency and accountability in the use of all emergency spending, said the Acting Chair.
“The Bangladesh Bank took appropriate steps to ease liquidity conditions and allow the financial sector to support the economy. Further easing could be considered if the economic situation deteriorates and inflation remains moderate. A gradual increase in exchange rate flexibility should be allowed to adjust to the external shock while preserving foreign reserves,” said Sayeh.
“Once the crisis abates, the authorities are committed to re-focus on addressing banking sector problems, including nonperforming loans and the poor performance of the state-owned commercial banks. They are also committed to ensuring fiscal discipline and debt sustainability by broadening the tax base and strengthening tax administration and compliance.”