Imf Loan and Its Implications on Bangladesh Economy

Executive Summary

The International Monetary Fund has offered Bangladesh a loan equivalent to USD one billion under its Extended Credit Facilities (ECF) program for three years. The IMF standby loans are provided to its members basically to maintain the balance of payments difficulties usually on the basis of strict adherence to stipulated corrective measures. The credit facility endorsed by the IMF is quite similar to that of the World Bank accompanied by a set of conditions which might go against the interest of the debtor countries.

Contractionary monetary policy is one of the major conditions set for negotiating IMF’s USD one billion loan under its Extended Credit Facility (ECF) programme. As stated by the IMF, Bangladesh has to pursue a tight monetary and fiscal policy to control its inflationary pressure. It is necessary to mention that IMF fell short to identify the real phenomenon of Bangladesh’s inflationary situation.

Bangladesh Bank has recently taken steps to remove the interest rate ceiling to allow the commercial banks to move into the market based rates. The major argument to remove the lending rate cap on interest rate is to provide a remedy to financial sector for a massive liquidity crisis in the financial market.

Further liberalization of trade regime by reducing tariff rate and removing trade barriers are the major requirements for Bangladesh for receiving IMF’s loan under the Extended Credit Facility (ECF) programme. The removal of both import and export duty generally puts pressure for both import and export of the country. The benefit of tariff removal depends on the economic strength and nature of economy of the particular country.

The International Monetary Fund (IMF) is stressing Bangladesh to change its current managed floating exchange rate system and move to clean floating exchange rate system where the exchange rate of taka will be determined by the interaction of demand and supply of taka in the foreign exchange market....