As expected, the IMF has formally approved what it called a 'stabilisation package' for Bangladesh valued at $4.7 billion, following the January meeting of its board. The package is the first given to an Asian country that includes funding from the IMF's new Resilience and Sustainability Facility, intended to help vulnerable middle-income countries. Bangladesh's package comes as its neighbours Pakistan and Sri Lanka-under worse economic stress-have struggled to secure new assistance, even though they have been in negotiations longer. In at least one of their cases, an agreement seems to be some way off materialising any time soon.
The IMF clearly has fewer concerns about Dhaka's economic policies. The key point that has emerged to cause Bangladesh's package to sail through is the timing of its application. Unlike Sri Lanka and Pakistan, who showed up at the IMF's door with their economies already knee-deep in strife, Bangladesh had the good sense to do it with the intention of pre-empting any such stress. Rahul Anand, the IMF's mission chief in Bangladesh who also led the staff-level delegation that negotiated the package, has been particularly keen to emphasise this point.
Announcing the new agreement, IMF Deputy Managing Director Antoinette M. Sayeh praised Bangladesh's economic growth and said the "COVID-19 pandemic and Russia's war in Ukraine interrupted this long period of robust economic performance"-implying that external shocks and not poor policies had provoked the conditions that prompted Dhaka to go to the IMF. As a result, near-term growth is projected by the IMF to slow to 5.5 percent in the 2022-23 fiscal and 6.5 percent in 2023-24, compared to the pre-war growth projections at above 7 percent. Rising global commodity prices, supply disruptions, and slowdown in external demand have led to high inflation, a sharp widening of the current account deficit, depreciation of the Taka and the rapid decline of foreign exchange reserves. Nevertheless, Bangladesh's overall risk of debt distress remains low.
Importantly, Bangladesh requested a stabilisation package, not a bailout package, as Pakistan and Sri Lanka have. IMF officials likely saw this as an effort to preempt worsening economic problems down the road. Islamabad and Colombo came to the IMF in bad shape-and that's because bad policies produced rapidly deteriorating economic conditions, along with political instability. None of this applied in the case of Bangladesh, even with recent protests in response to rising economic stress.
As such, the minimum of fuss with which Bangladesh's application sailed through can only be seen as an endorsement of the government's economic management. A number of the voices that have been insisting otherwise would do well to take note.
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