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IMF won't loosen strings on Bangladesh loans

Publication Date : 11-10-2012


The International Monetary Fund (IMF) will not release the second instalment of its US$1-billion credit to Bangladesh this November if the country fails to implement conditions on value added tax (VAT) and banking laws.

Finance ministry officials said the lender might delay the disbursement of $141 million if the government does not pass the VAT Act and Banking Companies Act in the parliament next month, incorporating its recommendations.

The lender made its stance clear during a meeting between A.M.A. Muhith, the finance minister, and Naoyuki Shinohara, a deputy managing director of the IMF, at a hotel in Tokyo.

In response, Muhith said the government would incorporate the IMF recommendations in the two Acts before they are placed in the parliament for passage, according to officials who were present at the meeting.

The minister is now in the Japanese capital to attend the semi-annual meetings of the IMF.

In the meeting, Muhith also requested the IMF to waive a condition about the exposure limit of commercial banks in the stockmarket.

He sought concession from the IMF in keeping the bank's exposure limit to the stockmarket at 40 per cent of their capitals. The IMF earlier asked the government to keep the exposure limit of a bank at 25 per cent of its total capital.

The existing exposure limit of a bank is 10 per cent of its deposits. An IMF mission, which visited Bangladesh last month, also conveyed the same message to the government as some of the major conditions were not met yet.

According to officials, the mission found major differences in the draft of the VAT law amendment proposal given to them and the one placed in the parliament. They expressed serious concern about it.

A finance ministry official said the original draft to the amendment kept VAT at 15 per cent in all stages of value addition but the rate was 5 per cent in some cases in the final proposal.

The IMF also objected to the planned VAT exemption to different sectors for public interest.

In case of the Banking Companies Act, the lender wanted the government to cut the authority of the Banking Division and give more power to Bangladesh Bank.

The lender has approved $987 million for Bangladesh to help it overcome macroeconomic pressures and build a buffer reserve. The country received one of the seven instalments last year.


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