IMF loan and its implications on the Bangladesh economy

This article explores the conditionality of foreign aid and its impact on the national economy of Bangladesh, in response to an agreement between Bangladesh and the International Monetary Fund (IMF) for a $1billion conditional loan. It argues that the terms and conditions attached to the loan may hamper rather than facilitate Bangladesh’s economy in the long run.

In support of its argument against the loan, the paper explores the following issues:

• contradictory monetary policy suggested by the IMF
• probable impact of the loan on savings
• impact on investment
• consequences of trade liberalisation and its impact on local industries
• deregulation of exchange rate and performance of macro economy
• inflationary pressures that the Bangladesi economy faces due to continuous currency depreciation.
  

The paper argues that the loan will have a negative impact on the economy of Bangladesh. Problems may arise in relation to high inflation, slow remittances, and balance of payments if IMF instructions are not followed. There remains a question of a huge trade deficit for Bangladesh, and the country is likely to face severe global trade competition. All these will precipitate a vulnerable financial condition and offer significant challenges for the government’s fiscal and monetary policy. In such a situation, IMF conditionality may create further tension for the government’s macroeconomic policies.

The report concludes with the prediction that due to continual deregulation of the tariff regime, the trade balance of the country might break down and IMF prescriptions, if followed, may restrict the policy space of the government for sustained economic growth.