The government must fulfil 10 conditions in the current fiscal year including withdrawal of the ceiling on lending rate and reduction of loss incurred by three major state owned enterprises to get International Monetary Fund (IMF) loans.
Setting the conditions last month, the IMF said the loan proposals are likely to be placed before the IMF Board meeting this month if the government clears its position in this regard.
Bangladesh Bank (BB) in 2009 capped the interest rate of 13 percent on loans of the commercial banks to encourage investment and cut the cost of business. The IMF said the ceiling should be phased out by March.
The IMF conditions are based on the commitments the finance minister made in his last two years' budget speeches.
To get a $1 billion loan as budget support, the government has held a series of talks with the organisation in the last few months. The government has to meet the conditions by the end of this fiscal year to get the loan which will be disbursed in three years.
In efforts to fulfil the conditions, Finance Minister AMA Muhith held discussions with the ministries concerned when officials of some ministries projected their reservations about some of the conditions.
However, the minister has made some progress in fulfilling the conditions.
One of the main conditions was that drafts of new VAT and income tax laws have to be placed in parliament by June and the government has to finalise the drafts prior to the IMF Board meeting.
The National Board of Revenue (NBR) has already posted the draft laws on its website to solicit public opinion.
The BB is ambivalent about lifting the upper cap on the lending rate as it fears the step would elicit negative reaction from the business community.
The businessmen have long been saying that the interest rate in Bangladesh is too high and have demanded that it be lowered, said BB officials. If the ceiling is lifted, the central bank may face criticism.
In a press briefing on January 30 when journalists asked whether the cap will be withdrawn, Nazrul Huda, central bank deputy governor, said, "It is a major policy decision. It cannot be said at the moment."
Another major condition is to establish a monitoring framework for Bangladesh Petroleum Corporation, Bangladesh Chemical Industries Corporation and the Power Development Board to raise budget appropriation for covering projected loss.
A finance ministry official said the objective of the condition is to cut the loss by increasing prices of their products like power, petroleum and fertilizer.
The government has in principle agreed to increase the prices. BB's monetary policy statement released last Sunday hinted at price hike of the products, which may in turn increase the prices of other non-food products.
Apart from this, there are conditions involving the banking sector and those have to be met between June and December.
The IMF said audit of the state-owned commercial banks (SCBs) by international auditors must be completed in the given period.
Besides, proposals for amending the bank company act should be placed in parliament by September to improve the governance of all commercial banks including SCBs. The reforms are needed to change the definition of default loan and regulate tenure, size and composition of board of directors, ensuring their independence and capabilities.
The conditions also include the recapitalization by December of the SCBs which have about Tk 1200 crore capital deficit. Another major condition is to formulate a plan to clearly delineate the approval and implementation process of the annual development programme.
Setting the conditions last month, the IMF said the loan proposals are likely to be placed before the IMF Board meeting this month if the government clears its position in this regard.
Bangladesh Bank (BB) in 2009 capped the interest rate of 13 percent on loans of the commercial banks to encourage investment and cut the cost of business. The IMF said the ceiling should be phased out by March.
The IMF conditions are based on the commitments the finance minister made in his last two years' budget speeches.
To get a $1 billion loan as budget support, the government has held a series of talks with the organisation in the last few months. The government has to meet the conditions by the end of this fiscal year to get the loan which will be disbursed in three years.
In efforts to fulfil the conditions, Finance Minister AMA Muhith held discussions with the ministries concerned when officials of some ministries projected their reservations about some of the conditions.
However, the minister has made some progress in fulfilling the conditions.
One of the main conditions was that drafts of new VAT and income tax laws have to be placed in parliament by June and the government has to finalise the drafts prior to the IMF Board meeting.
The National Board of Revenue (NBR) has already posted the draft laws on its website to solicit public opinion.
The BB is ambivalent about lifting the upper cap on the lending rate as it fears the step would elicit negative reaction from the business community.
The businessmen have long been saying that the interest rate in Bangladesh is too high and have demanded that it be lowered, said BB officials. If the ceiling is lifted, the central bank may face criticism.
In a press briefing on January 30 when journalists asked whether the cap will be withdrawn, Nazrul Huda, central bank deputy governor, said, "It is a major policy decision. It cannot be said at the moment."
Another major condition is to establish a monitoring framework for Bangladesh Petroleum Corporation, Bangladesh Chemical Industries Corporation and the Power Development Board to raise budget appropriation for covering projected loss.
A finance ministry official said the objective of the condition is to cut the loss by increasing prices of their products like power, petroleum and fertilizer.
The government has in principle agreed to increase the prices. BB's monetary policy statement released last Sunday hinted at price hike of the products, which may in turn increase the prices of other non-food products.
Apart from this, there are conditions involving the banking sector and those have to be met between June and December.
The IMF said audit of the state-owned commercial banks (SCBs) by international auditors must be completed in the given period.
Besides, proposals for amending the bank company act should be placed in parliament by September to improve the governance of all commercial banks including SCBs. The reforms are needed to change the definition of default loan and regulate tenure, size and composition of board of directors, ensuring their independence and capabilities.
The conditions also include the recapitalization by December of the SCBs which have about Tk 1200 crore capital deficit. Another major condition is to formulate a plan to clearly delineate the approval and implementation process of the annual development programme.
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