Bangladesh seeks credit amid mounting economic woes | Asia | An in-depth look at news from across the continent | DW

Bangladesh recently became the third country in South Asia, after Pakistan and Sri Lanka, to seek financial assistance from the International Monetary Fund (IMF) this year.

Dhaka is now also reportedly seeking help from the World Bank and the Asian Development Bank to deal with the economic challenges it has faced in recent months.

Prime Minister Sheikh Hasina’s government wrote letters to the two lenders demanding $1 billion each. Bloomberg News reported with reference to people familiar with the matter.

That comes after Daily Star The newspaper reported that the country knocked on the IMF’s doors last week to demand $4.5 billion, including for budgetary and balance-of-payments support.

The IMF said Bangladesh wants to take advantage of the organization’s new Resilience and Sustainability Facility, which aims to help nations tackle challenges related to climate change and sustainability.

The Washington-based lender said on Wednesday it was ready to provide an aid program to help Bangladesh deal with the current economic crisis, as well as fund longer-term challenges.

“The IMF stands ready to assist Bangladesh with this request,” a spokesman for the fund said in a statement, but noted that “the level of assistance has not yet been discussed.”

Why does Bangladesh need financial aid?

“This is not a bailout for Bangladesh, but a precautionary measure by the government,” Ahsan Mansur, a former IMF economist and director of the Policy Research Institute in Dhaka, told DW.

However, he warned that unless the economic environment improves, the government will be forced to spend all of its tax revenue on securing imports, with little left for additional spending.

“Government spending is doubling. Soon all income will be spent to cover imports, pensions and all other expenses. The entire development budget must be borrowed,” he said.

Bangladesh, a nation of over 160 million people, has had one of the fastest growing economies in the world for years, but the nation has been hit hard by the global economic fallout from the Russia-Ukraine war.

The conflict, which began in late February, has added to inflationary pressures.

The South Asian country was particularly vulnerable as it imports significant amounts of essential commodities such as cooking oil, wheat and other foodstuffs, as well as fuel.

Rising food and energy costs have pushed up import costs and widened the current account deficit, which now stands at about $17 billion.

Bangladesh’s currency, the taka, has fallen about 20% against the US dollar over the past three months, further straining the country’s finances.

Further pressure comes from dwindling foreign exchange reserves, which fell to about $39 billion on July 20 from $45.5 billion a year earlier — enough for just over five months’ worth of imports.

blackouts and rationing

Meanwhile, utility companies are struggling to get enough diesel and gas, leading to frequent and prolonged power outages, sometimes up to 13 hours a day.

Authorities say diesel power stations across the country have been shut down, while some gas-fired power stations have been shut down.

The government has imposed measures such as electricity rationing, import restrictions and cuts in development spending to deal with the situation.

It has also urged tens of thousands of mosques to ban the use of air conditioning to ease pressure on the electricity grid.

The blackouts have affected industrial activity and sparked public protests.

Mohammed Helal Uddin, an economics professor at Dhaka University, said the economy was facing a crisis.

“We are rationing electricity, foreign exchange reserves have dwindled and import costs have risen dramatically. We have cut back fuel imports and the value of the currency has fallen. These are all signs that the economy is suffering,” he told DW.

The expert stressed that Bangladesh is far from reducing its imports and should instead focus on boosting exports to overcome the current crisis.

“However, the whole world is facing economic problems and we do not know when the situation will return to normal. Therefore, I see no other option but to borrow for now just to relieve foreign exchange reserves,” he added.

Bangladesh is not alone in South Asia with such problems. Other nations in the region such as Pakistan and Sri Lanka are also grappling with runaway inflation and deteriorating public finances triggered by global economic headwinds.

However, Bangladesh Finance Minister AHM Mustafa Kamal said on Wednesday that the currency and inflation would stabilize in a month. He stressed that the economy will soon pick up again.

The government acts

Meanwhile, the opposition Bangladesh Nationalist Party blames the government for the fragile economic situation and accuses it of wasting billions of dollars on vanity projects.

The ruling Awami League party dismisses the criticism, citing steps it has taken to cut spending and conserve foreign exchange reserves.

While loans from bodies like the IMF usually come with strings attached, Mansur said Dhaka may not be ready to take unpopular measures like cutting fuel subsidies.

“Raising fuel and other prices will be an unpopular decision that the government may not be interested in making. Overall, I don’t think the Bangladesh government is interested in reforming the economy and banking sector,” he said.

Finance Minister Kamal said the government will only take out a loan from the IMF when conditions are favourable, stressing that the country’s macroeconomic conditions are still fine.

“If the IMF’s conditions are favorable to the country and compatible with our development policy, we will work for them, otherwise not,” Kamal said. “Seeking a loan from the IMF does not mean that Bangladesh’s economy is in bad shape,” he added.

Edited by: Srinivas Mazumdaru