The International Monetary Fund (IMF) has approved US$ 732 million emergency assistance for Bangladesh to address the COVID-19 pandemic.
The disbursements of about US$ 244 million or 16.67 percent of quota under its Rapid Credit Facility (RCF) and a purchase of about US$ 488 million or 33.33 percent of quota under the Rapid Financing Instrument (RFI) were approved by the IMF executive board.
Bangladesh’s economy has been severely impacted by the COVID-19 pandemic with weaker domestic demand and a sharp decline in exports and remittances, said a statement issued in Washington on Friday.
It said the IMF assistance is to address the urgent balance-of-payments and fiscal needs of Bangladesh.
The government of Bangladesh has scaled up health and social protection expenditures to mitigate the pandemic’s impact on the population and adopted several stimulus measures to preserve economic activity.
This will help finance the health, social protection and macroeconomic stabilisation measures, meet the urgent balance-of-payments and fiscal needs arising from the COVID-19 outbreak, and catalyse additional support from the international community, said the IMF statement.
The COVID-19 pandemic is severely impacting the Bangladesh economy. 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.
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 programmes 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 mobilisation, 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 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, Ms. Antoinette Sayeh, Deputy Managing Director and Acting Chair, issued a statement, saying that the IMF assistance will help cover the financing gap and support the authorities’ effort to contain the adverse impact of the outbreak and catalyse additional support from the international community.
She said 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.
“The Bangladesh Bank took appropriate steps to ease liquidity conditions and allow the financial sector to support the economy,” she noted, adding that 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, she said.
“Once the crisis abates, the authorities are committed to re-focus on addressing banking sector problems, including non-performing 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.”