The possibility about enhancement of the government's borrowing from the banking system, beyond its original budgetary target, has emerged as a major irritant during the discussions with the International Monetary Fund (IMF), clouding the prospects for approval of a US$1.0 billion support under the Extended Credit Facility (ECF) of the Fund.
"The government informed the visiting IMF mission about its willingness to raise bank borrowing up to Tk 257 billion for the fiscal year (FY) 2011-2012 exceeding its original budgetary target at Tk 189.57 billion, to finance its fiscal deficit," a senior official, who is closely involved in the negotiations with the ECF for ECF funding, informed the FE.
"The IMF mission which has just completed its negotiations in Dhaka with the authorities concerned will submit a report to their headquarters in Washington, apprising the latter of the country's latest overall economic situation. The report will be considered by the IMF board of directors in its next meeting for deciding on Bangladesh's request for ECF support," another official said.
The government's net borrowing from banking system stood at Tk 156.36 billion so far until February 14, 2012, in fiscal '11-12 as against Tk 19.64 billion during the same period of fiscal '10-11, according to the central bank statistics.
"We've fulfilled most of the conditions, set by the IMF for approval of the ECF support to Bangladesh," the official said in response to a query.
The IMF earlier set 16 conditions, including increase of fuel prices, withdrawal of the cap on the lending rates and raising the interest rate on repurchase agreement (REPO).
The IMF team from Washington visited Dhaka during the second week of this month. The Bangladesh government will need to fulfill the conditions under the agreed commitments to avail itself of the IMF soft loan facility, sources said.
"With timely progress on these and other agreed commitments, the Bangladesh authorities expect to reach an ad referendum agreement with the IMF on an ECF arrangement in the near future," the IMF said in a statement from Washington DC on Wednesday.
"Much focus was placed on measures needed to address fiscal pressures, which stem mainly from rising fuel imports and associated subsidy costs, and to move forward on a new value-added tax (VAT) law, as a key plank of the reform program," it noted.
David Cowen, head of the IMF mission to Bangladesh, said in the statement that constructive discussions were held with the Bangladesh authorities on an economic reform programme for which they are seeking support under the ECF.
"In support, the authorities have taken a number of upfront measures to address macroeconomic pressures currently confronting Bangladesh. Foremost, greater exchange rate and interest rate flexibility is being allowed, helping to absorb external pressures and transmit necessary monetary policy tightening, in line with achieving program objectives," the IMF said.
Discussions also centered on adopting an appropriately restrained fiscal policy, ensuring a continued sound debt management strategy, and undertaking growth-critical reforms in tax policy and administration, public financial management, the banking and financial sectors, and trade and investment policies, it added.
The government had sought the credit to improve the country's overall balance of payments (BoP) situation which entered the negative territory in fiscal year (FY) 2010-2011 after a decade due to widening trade gap, lower growth of remittances and deficit balance in the financial account.
The BoP has recorded a deficit of $998 million during the July-December period of the FY12 from the deficit of $268 million in the corresponding period in the previous fiscal, according to the central bank statistics.
Meanwhile, the government has already formed a six-member committee to finalise the draft VAT law. The committee is expected to give its report at the earliest for enhancement of a new piece of legislation by Jatiya Sangsad (JS). The proposed law is expected to be placed before the JS (parliament) by the middle of June 2012.
Under the earlier agreed commitments, the amendment of the existing VAT law is one of the major conditions under a time-based implementation framework for approval and disbursement of ECF fund by the IMF in tranches
The budgetary target for government's borrowing from the banking system was originally set at an aggregate level of Tk 189.57 billion through issuing treasury bills (T-bills) and bonds, for FY12.
"We've fulfilled most of the conditions, set by the IMF for approval of the ECF support to Bangladesh," the official said in response to a query.
The IMF earlier set 16 conditions, including increase of fuel prices, withdrawal of the cap on the lending rates and raising the interest rate on repurchase agreement (REPO).
The IMF team from Washington visited Dhaka during the second week of this month. The Bangladesh government will need to fulfill the conditions under the agreed commitments to avail itself of the IMF soft loan facility, sources said.
In this context, discussions centered on the authorities' plans to undertake sustained macroeconomic stabilization measures and supportive structural reforms aimed at reducing external and fiscal imbalances, rebuilding a foreign reserve buffer, and putting Bangladesh on a higher sustained growth path, according to the statement.
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