Banking sector reform, subsidy on the agenda

The International Monetary Fund will learn about Bangladesh’s progress in reforming the banking sectors and local subsidies as well as the ongoing vaccination campaign as it prepares to hold its first dialogue with the government since the outbreak of coronavirus.

The Article IV consultation to be held from December 5 to 15 will focus on five key areas, namely Banking, Subsidy, Income and Exchange Rate Reforms, Covid Vaccination Program- 19, as well as $ 3 billion in loans to be granted to the country over a three-year period.

For all the latest news, follow the Daily Star’s Google News channel.

During an Article IV consultation, a team of IMF economists visits a country to assess its economic and financial development and discuss the country’s economic and financial policies with representatives of the government and the community. central bank.

Rahul Anand, assistant to the director of the IMF Institute for Capacity Development, will lead the mission. The last time an IMF mission visited Bangladesh was in 2019.

The banking sector reform program will focus on default loans and the latest situation in the banking sector.

In 2019, the IMF presented Bangladesh with a detailed proposal on how to improve the situation of the banking sector. The crisis lender did not sue him due to the pandemic. The upcoming mission will push for the reform agenda, sources at the Ministry of Finance and the Bangladesh Bank (BB) said.

The issue of non-performing loans (NPL) will be a priority. Official figures put the NPL rate at around 8.18% in June.

But in 2019, the IMF said the bad asset ratio, which stood at 11.50% for the year, would double, because not all sources of problem assets are captured by the definition. central bank defaulted loans.

The coronavirus pandemic has exacerbated the NPL scenario, with borrowers facing an unprecedented drop in business amid collapsing demand, weakening their ability to repay.

The IMF mission two years ago estimated that a large number of defaults were by choice and not due to unexpected financial hardship.

In addition, the balance sheets of some banks, including Padma Bank, deteriorated.

The government has taken steps to address the issue of banking reform.

He amended the law on banking companies. Once parliament passes the amendment, it will begin to tackle the bad debt problem.

The amendment includes a provision relating to asset management companies. The government is considering setting up a crown corporation to buy and trade distressed loans from banks as part of its efforts to clean up the financial sector.

The subsidy will be a priority during discussions between the IMF and the government.

The IMF still says energy prices should be aligned with international markets to keep the budget deficit manageable, officials say.

The government has set a budget deficit target of 6.3 percent for the current fiscal year, but it could exceed given soaring commodity prices internationally.

Bangladesh last week raised the price of fuel oils such as diesel and kerosene after their prices rose sharply in world markets.

A finance ministry official, however, said the price increase was not tied to any IMF conditions. The budget for the current fiscal year did not include funds for subsidies for the fuel sector.

He allocated Tk 9,000 crore for the electricity sector. But due to rising fuel prices, another Tk 6,000 crore might be needed if the electricity tariff is increased.

Likewise, the government may need to channel an additional Tk 2,000 crore to the agricultural sector in the form of subsidies if the price is not adjusted according to world fertilizer prices. Prices for most fertilizers jumped in 2021, driven by strong demand and higher input costs. The agricultural subsidy currently stands at Tk 9,500 crore.

The government can increase the prices of electricity and gas. The price of fertilizers can remain unchanged.

The taka exchange rate will be discussed at the meeting.

Although the central bank has introduced a floating exchange rate, it intervenes indirectly in the market when necessary in order to keep the local currency stable. The IMF wants it to be market driven.

A BB official said that a weak taka will create inflationary pressure, so the central bank does not allow too much depreciation.

In recent times, the taka has come under pressure from rising imports, prompting the central bank to sell US dollars. BB has sold dollars for $ 1.58 billion so far in the current fiscal year, which was nil in the last fiscal year.

The official average exchange rate hovers around Tk 85 per USD.

The IMF mission will also focus on reforms in the revenue sector, according to the finance ministry official.

In June 2019, the IMF said the organizational structure of the National Board of Revenue needs to be modernized to improve its coordination and efficiency.

Regarding the immunization program, the IMF will discuss expenditure related to immunization campaigns and the use of donor funds, as it sees immunization as the key to recovery from the pandemic.

Since the mass vaccination began in February this year, the government has administered eight crore in doses and set a target of increasing them to 12 crore in doses by January.

The government received $ 940 million from the Asian Development Bank and $ 500 million from the World Bank to implement the immunization program. An additional $ 500 million could come from the Asian Infrastructure Investment Bank and $ 300 million from Japan.

The government has allocated Tk 10,000 crore in the budget to immunize the population. So far, around Tk 12,600 crore has been spent on the purchase of vaccines.

Source link

About Christopher Easley

Christopher Easley

Check Also

Clean coal loans put China’s green dilemma in place

A chimney of a coal-fired power plant stands behind a lion statue in Shanghai, China …

Leave a Reply

Your email address will not be published. Required fields are marked *