Muhith looks to $1b IMF loan under ECF
Power, energy price hike tagged to it
Finance Minister AMA Muhith sought Wednesday $1.0 billion in loan from the International Monetary Fund (IMF) under its Extended Credit Facility (ECF) arrangement to support the government to address the current growing pressure on the country's balance of payments (BoP) situation.
The government has to raise the power and energy prices to fulfill one of the conditions for becoming eligible for getting the ECF loan, the Finance Minister admitted.
Mr Muhith was speaking to reporters after a meeting with IMF's Article-4 mission, led by Mission Chief David Cowen.
"The real problem lies with the BoP situation now, for which we have sought loans from ECF of IMF," the minister told reporters at the conference room of Ministry of Finance (MoF).
''We should get a $1.0 billion fund under the programme as budget support."
The ECF was created under the newly established Poverty Reduction and Growth Trust as part of a broader reform to make the Fund's financial support more flexible and better tailored to the diverse needs, including in times of crisis.
The ECF succeeds PRGF (Poverty Reduction Growth Facility) as the Fund's main tool for providing medium-term support to the low-income countries.
Responding to query, the Finance Minister said IMF had called for reducing the subsidy bill to lower the budget deficit and pressure on BoP. The government has to increase the prices of energy and power for the purpose, he added.
"Obviously," was the answer of Mr Muhith when he was asked whether the prices of power and energy would be adjusted to become eligible for the ECF of IMF.
Brushing aside the possibility of any further shooting up of inflation rate due to any upward adjustment of energy prices, Mr Muhith said, "Rather, inflation would be tamed after adjusting energy and power prices."
He said, "If the government borrows money from the banking system, it would have a definite impact on inflation."
Furthermore, heavy public sector borrowing has a negative impact on the private sector, the minister noted.
The IMF's Mission Chief on Tuesday at a luncheon meeting of American Chamber of Commerce and Industry (AmCham) said the country's overall BoP was in a deficit for the first time in a decade, leading to losses of foreign exchange reserves, "notwithstanding positive valuation efforts" in FY11.
The country's BoP showed a deficit of $635 million in FY 2010-11 against the surplus of $2.87 billion of the previous fiscal, according to Bangladesh Bank (BB).
AMA Muhith said IMF is in favour of extending ECF support to Bangladesh. An ECF delegation of the IMF will visit the country soon to finalise the loan package.
He said the government would amend income tax laws, Value Added Tax (VAT) Act as a part of the reform programme for the country's financial sector.
IMF has proposed a specific timeframe to bring about reforms in some areas of the financial sector, the Finance Minister said.
Expressing deep concern, Mr Muhith said mainly due to price-hike of fuel and energy in the international market, the budget subsidy might increase.
"IMF has asked us to keep the budget deficit within five per cent of GDP," Mr Muhith told the reporters.
A source in the MoF said the amount of subsidy in fiscal 2010-2011 was about Tk 82 billion.
A total of Tk 50 billion has been earmarked as the subsidy bill in the current fiscal year. If the petroleum prices are not revised upward, the amount of subsidy might be doubled in the current fiscal, officials at the MoF forecast.
UNB adds: The US$ 1.0 billion Extended Credit Facility (ECF) from the International Monetary Fund for Bangladesh is unlikely to be released in the current fiscal, Finance Minister AMA Muhith indicated.
'The IMF credit (ECF) in this year… I don't know," Muhith told reporters after a seven-member delegation of the IMF met him Wednesday at his Ministry.
David Cowen, deputy division chief in Asia and Pacific Department of IMF, led the delegation.
The Finance Minister said the government was expecting the ECF fund support from IMF after the Article IV consultation.
He said the ECF deal was structured, basing mainly on the expectations of the government. "And not a single condition was laid down by the IMF. They just gave the time-line."
Muhith said the ECF is now important as there is a real balance of payment (BoP) problem in the country. "It should be perused and we should get the benefit."
About the inflation and the possible measures to lower the subsidy bill, Muhith said the members of the delegation expressed their concern over the issues and those are the government's concerns, too.
Muhith hinted at further hiking the energy and power tariffs. "We've recently discussed various strategies for facing the subsidy challenge and you'll be informed when we take the steps."
'If the government borrows from the market, the private sector will be deprived of credit support and it's a distortion. This distortion is harmful," he added.
Replying to a query, Muhith said the IMF delegation did not say anything about the government's move to give licences to new banks.
About the government's growth projection at 7.0 per cent in the current fiscal, the IMF delegation was seen positive, but expressed their concern about the balance of payment (BoP) situation.
Muhith said the delegation also cited various issues relating to issues in areas of the financial, banking, monetary and exchange rate-related fields.
About exchange rate, Muhith expressed the hope that the Bangladesh currency would not depreciate to the extent of having dampening impact on imports.
He said the export sector would continue to grow as the power situation is under control and sufficient investments have been made. Remittance is rising and steps have been taken to facilitate increased inflow of remittance by augmenting export of manpower.
The Finance Minister further said the World Bank and IMF must take some actions to develop a mechanism to help stabilise the international food and oil prices.
About the budget support, Muhith said already there were discussions with the World Bank and JICA, and there will be discussion with the ADB, too.
Power, energy price hike tagged to it
Finance Minister AMA Muhith sought Wednesday $1.0 billion in loan from the International Monetary Fund (IMF) under its Extended Credit Facility (ECF) arrangement to support the government to address the current growing pressure on the country's balance of payments (BoP) situation.
The government has to raise the power and energy prices to fulfill one of the conditions for becoming eligible for getting the ECF loan, the Finance Minister admitted.
Mr Muhith was speaking to reporters after a meeting with IMF's Article-4 mission, led by Mission Chief David Cowen.
"The real problem lies with the BoP situation now, for which we have sought loans from ECF of IMF," the minister told reporters at the conference room of Ministry of Finance (MoF).
''We should get a $1.0 billion fund under the programme as budget support."
The ECF was created under the newly established Poverty Reduction and Growth Trust as part of a broader reform to make the Fund's financial support more flexible and better tailored to the diverse needs, including in times of crisis.
The ECF succeeds PRGF (Poverty Reduction Growth Facility) as the Fund's main tool for providing medium-term support to the low-income countries.
Responding to query, the Finance Minister said IMF had called for reducing the subsidy bill to lower the budget deficit and pressure on BoP. The government has to increase the prices of energy and power for the purpose, he added.
"Obviously," was the answer of Mr Muhith when he was asked whether the prices of power and energy would be adjusted to become eligible for the ECF of IMF.
Brushing aside the possibility of any further shooting up of inflation rate due to any upward adjustment of energy prices, Mr Muhith said, "Rather, inflation would be tamed after adjusting energy and power prices."
He said, "If the government borrows money from the banking system, it would have a definite impact on inflation."
Furthermore, heavy public sector borrowing has a negative impact on the private sector, the minister noted.
The IMF's Mission Chief on Tuesday at a luncheon meeting of American Chamber of Commerce and Industry (AmCham) said the country's overall BoP was in a deficit for the first time in a decade, leading to losses of foreign exchange reserves, "notwithstanding positive valuation efforts" in FY11.
The country's BoP showed a deficit of $635 million in FY 2010-11 against the surplus of $2.87 billion of the previous fiscal, according to Bangladesh Bank (BB).
AMA Muhith said IMF is in favour of extending ECF support to Bangladesh. An ECF delegation of the IMF will visit the country soon to finalise the loan package.
He said the government would amend income tax laws, Value Added Tax (VAT) Act as a part of the reform programme for the country's financial sector.
IMF has proposed a specific timeframe to bring about reforms in some areas of the financial sector, the Finance Minister said.
Expressing deep concern, Mr Muhith said mainly due to price-hike of fuel and energy in the international market, the budget subsidy might increase.
"IMF has asked us to keep the budget deficit within five per cent of GDP," Mr Muhith told the reporters.
A source in the MoF said the amount of subsidy in fiscal 2010-2011 was about Tk 82 billion.
A total of Tk 50 billion has been earmarked as the subsidy bill in the current fiscal year. If the petroleum prices are not revised upward, the amount of subsidy might be doubled in the current fiscal, officials at the MoF forecast.
UNB adds: The US$ 1.0 billion Extended Credit Facility (ECF) from the International Monetary Fund for Bangladesh is unlikely to be released in the current fiscal, Finance Minister AMA Muhith indicated.
'The IMF credit (ECF) in this year… I don't know," Muhith told reporters after a seven-member delegation of the IMF met him Wednesday at his Ministry.
David Cowen, deputy division chief in Asia and Pacific Department of IMF, led the delegation.
The Finance Minister said the government was expecting the ECF fund support from IMF after the Article IV consultation.
He said the ECF deal was structured, basing mainly on the expectations of the government. "And not a single condition was laid down by the IMF. They just gave the time-line."
Muhith said the ECF is now important as there is a real balance of payment (BoP) problem in the country. "It should be perused and we should get the benefit."
About the inflation and the possible measures to lower the subsidy bill, Muhith said the members of the delegation expressed their concern over the issues and those are the government's concerns, too.
Muhith hinted at further hiking the energy and power tariffs. "We've recently discussed various strategies for facing the subsidy challenge and you'll be informed when we take the steps."
'If the government borrows from the market, the private sector will be deprived of credit support and it's a distortion. This distortion is harmful," he added.
Replying to a query, Muhith said the IMF delegation did not say anything about the government's move to give licences to new banks.
About the government's growth projection at 7.0 per cent in the current fiscal, the IMF delegation was seen positive, but expressed their concern about the balance of payment (BoP) situation.
Muhith said the delegation also cited various issues relating to issues in areas of the financial, banking, monetary and exchange rate-related fields.
About exchange rate, Muhith expressed the hope that the Bangladesh currency would not depreciate to the extent of having dampening impact on imports.
He said the export sector would continue to grow as the power situation is under control and sufficient investments have been made. Remittance is rising and steps have been taken to facilitate increased inflow of remittance by augmenting export of manpower.
The Finance Minister further said the World Bank and IMF must take some actions to develop a mechanism to help stabilise the international food and oil prices.
About the budget support, Muhith said already there were discussions with the World Bank and JICA, and there will be discussion with the ADB, too.