Objectionable conditions of development partners must be rejected

In response to the request of the previous government, in 2023 the International Monetary Fund (IMF) approved a loan of 4.7 billion US dollars in favour of Bangladesh. Although Bangladesh had sought 4.5 billion dollars in the original loan application, the institution granted 200 million dollars more. After the IMF loan approval, the then Finance Minister A H M Mustafa Kamal told the media that the IMF had approved the loan exactly as Bangladesh had asked for. Even then, some quarters questioned the truth of his statement. Many said the minister had not spoken the truth, since the IMF never approves a loan without conditions. And Bangladesh surely did not apply for a conditional loan.

In accordance with the open and secret conditions of the IMF loan agreement, Bangladesh undertook reforms in various sectors. In particular, the redefinition of defaulted loans in the banking sector, market-based determination of the exchange rate of the US dollar, changing Bangladesh Bank’s reserve accounting from the gross method to the net method, merging weaker banks with stronger ones, and other such reform initiatives were launched. Though these reforms were somewhat disrupted by the change of government, they were not abandoned. The present government has also continued with the reforms directed by the IMF. From time to time IMF delegations visit Bangladesh to review the progress of the agreed conditions. It should be noted that the IMF is such an organisation that never lends without conditions. The conditions vary from country to country, but there is virtually no precedent of the IMF granting a loan without conditions. Therefore, when the former finance minister claimed that the IMF had approved the loan exactly as Bangladesh wanted, his statement did not appear credible.

The approved loan was scheduled to be disbursed to Bangladesh in phases over three years. Only two instalments now remain. Meanwhile, the IMF has set a condition that is in no way acceptable. If this condition is complied with, it will harm the sovereignty of the country. Bangladesh’s independent decision-making power will be curtailed. No other international organisation has previously imposed such a condition. Thus it is unprecedented. The institution has said that in the 2025–2026 fiscal year Bangladesh may borrow a maximum of 8.4 billion US dollars, or 844 crore dollars, from foreign countries and international organisations. The IMF has also fixed limits on a quarterly basis. It has said that in the first three months of the current fiscal year Bangladesh can borrow a maximum of 1.91 billion dollars, 3.34 billion by six months, 4.34 billion by nine months, and a total of 8.44 billion in the entire fiscal year. We do not know if there was any such condition in the original loan agreement signed with the institution. When Bangladesh took the loan from the IMF in 2023, the country’s foreign exchange reserves had dropped abnormally. Perhaps there was then a necessity to borrow, which is why Bangladesh applied. For at least ten to twelve years before that Bangladesh had not taken any IMF loans. Hence, there was no compulsion to comply with any conditions imposed by them. Yet the way the IMF disbursed the approved loan did not contribute much to overcoming the reserve crisis.

That is why many local economists opposed taking such a loan from the outset. But at that time Bangladesh Bank’s reserves had sunk to the bottom. In addition, the government needed foreign exchange to finance various mega projects. That is why the IMF loan was taken. Under the previous government the volume of foreign debt increased substantially. The current stock of foreign debt contracted by Bangladesh has now exceeded 100 billion US dollars. Bangladesh has effectively turned into a debt-dependent country. In a few years’ time Bangladesh will have to borrow again to repay earlier loans. The limit on foreign borrowing set by the IMF is highly disgraceful. This condition can and should be rejected. The IMF is such an organisation that never lends without conditions, though the conditions vary from country to country. For economically weaker countries the terms are comparatively harsh. Taking foreign loans is not necessarily bad, provided the funds are invested in ways that sustain and accelerate economic development. But in Bangladesh the picture has been different. Under the previous government huge amounts were borrowed indiscriminately in the name of development projects, a large part of which was embezzled.

Thus, far from accelerating development, foreign borrowing has made the country even more debt dependent. For the first time in its history, during the previous government’s tenure, the stock of foreign debt exceeded 100 billion US dollars. At the end of 2023 it stood at 106.4 billion dollars, equivalent to Tk 11.7 trillion. Per capita foreign debt has reached Tk 65,000. Many projects implemented with foreign loans were shown to have excessive costs. For instance, in India a one-kilometre four-lane road costs 1.4 million dollars, in Pakistan 2.95 million, in the Philippines 1.15 million, in China 2.9 million — but in Bangladesh the same costs 6.35 million dollars. Such highly costly projects have not yielded the expected benefits for the nation. Yet indiscriminate borrowing has steadily turned Bangladesh into a debt-dependent country. Now the time has come to repay the earlier loans. Every year Bangladesh has to repay foreign loan instalments at an increasing rate. In the fiscal year 2013–14 Bangladesh paid 1.29 billion US dollars in interest and instalments. In 2023–24 this rose to 3.28 billion. Even if no new foreign loans are taken, by 2029–30 Bangladesh will have to pay 5.15 billion annually in instalments of principal and interest.

Therefore, the condition set by the IMF can and should be rejected. If necessary, the loan agreement signed with the institution may even be cancelled. It is not desirable to accept loans from anyone at the cost of the country’s dignity.

MA Khalek: Retired General Manager, Bangladesh Development Bank PLC, and writer on economic issues