A Deep Dive Into IMF Loan Conditionalities In The Context of Bangladesh

Ishrat Jahan Shithi | 16 February 2024
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Bangladesh has been a member of the International Monetary Fund (IMF) since 1972, taking 12 loans since its inception in 1974. The IMF aims to reduce poverty, promote international trade, and enhance global economic growth and financial stability. Regarding Bangladesh's present economic circumstances, the International Monetary Fund (IMF) released a statement that contained two noteworthy points.

Although not currently in a state of emergency, Bangladesh still faceseconomic challenges. The government plans to implement economic policies to address these issues, collaborating with the IMF to build long-term structural solutions. The country has four to five months of foreign exchange reserves and a modest level of foreign debt, providing enough resources to meet immediate needs. Government initiatives to reduce imports, such as currency depreciation and enabling banks to trade more freely, have made the dollar kerb market more tranquil. The taka value has increased by ten percent due to a ten percent decline in the dollar. The government can now take this opportunity develop a substantial portion of its economic stabilization and recovery policy package before the IMF's arrival, negotiate with them, and secure approval for enhanced coordination and political backing.

The IMF loan is necessary to avoid dire economic situations similar to Sri Lanka's. The IMF has agreed to grant Bangladesh $4.7 billion, aiming to maintain stability and foster inclusive, green growth. The loan also aims to protect the weak, as the global market price of commodities has increased, leading to increased imports and a shortage of dollars in the domestic market. The country has not faced such issues in the past decade due to strong exports and remittances. However, the current global crisis has severely impacted remittances.




Total loan amount:


ECF (Extended Credit Facility) +EFF (Extended Fund Facility)


RSF (Resilience and Sustainability Facility)



1. Increasing revenue and implementing fiscal discipline, especially by considering the role of development in determining expenditure. Those in vulnerable situations should be targeted with specific social protection programs.   2. Control of inflation and the creation of modern monetary policies are also important. Along with this, the exchange rate should be made more flexible.      
3. Addressing the weakness in the economic sector, increasing oversight, and developing the financial market alongside government and regulatory authorities are also important.
4. To attract commerce and foreign investment, improve the environment, increase human skills, and ensure good governance in the economic sector to improve the business environment.
5. To mitigate the damage caused by climate change, empower organizations, take steps for environmental improvement, and ensure further investment and economic supply in climate-related areas.

The most important condition of the IMF loan is the elimination of subsidies. There has always been an ongoing need for reform in the energy sector. Despite changes to its energy pricing policy, India's government no longer sets energy prices; instead, the state of the market does. Prices and the market are subject to weekly fluctuations that Bangladesh could also attempt. However, conditions are currently unfavorable. Prices would have slowly climbed, and there would have been no political uproar if it had been implemented when prices were lower. Refreshing the reporting method for foreign currency reserves is another criterion. As a result of modifying the method Bangladesh uses to report on foreign reserves, its foreign reserves will decline by $7 billion. It will be essential to withdraw a portion of the funds that governments deem available. For instance, because Sri Lanka no longer owes Bangladesh money, this obligation must be abolished. However, it is not particularly difficult. The primary issue is that the rate at which dollars are exchanged needs to become more market-driven, and certain subsidies need to be eliminated. There are numerous options for resolving the problems with IMF conditionalities. The proposed $4.5 billion loan from the IMF to Bangladesh is subject to a variety of conditions due to the IMF's concerns regarding the government's current and prior policies. For instance, the IMF has regularly criticized previous administrations' "unbalanced" emphasis on export promotion and their inability to eliminate the massive subsidies they had handed to the petroleum, electricity, and fertilizer industries. In addition to requiring private sector reforms, the IMF places a heavy emphasis on economic liberalization in Bangladesh.

Bangladesh requires selective import substitution and targeted subsidies for food and agriculture to achieve food security in light of the recent global shortage of food grains and the high import cost of imported raw materials. There are additional methods for addressing the deficiencies, including harsh penalties for loan defaulters, unlawful money launderers, and tax evaders. In addition to a political system that is more democratic, transparent, and accountable, the government requires non-bureaucratic state machinery. The majority of the problems that the IMF handles are an indication of how poorly the state has met its duties. Bangladesh must propose its own suggestions in areas where the interests of its people reside while negotiating with the IMF. For instance, many low-income and fixed-income people who rely on interest on savings will suffer if interest rates on savings certificates are reduced. Farm sector subsidies are another concern that has to do with food security. The government can help farmers if it can free up more funds. But there must be a limit and a state of equilibrium. It has increased as a result of subsidies damaging the economy and squandering resources. 

Bangladesh has never before received IMF loans with such associated requirements.However, this also represents Bangladesh's largest loan request to the IMF. The country's needs have grown along with its economy. Moreover, the nature of the problem is unique. As a result, prudent loan management will be necessary to revive the economy. A successful outcome for the IMF will require a transparent and accountable system.

Ishrat Jahan Shithi, Research Intern, CGS 

Views in this article are author’s own and do not necessarily reflect CGS policy.