IMF charts ways to discipline money market, boost revenue

The International Monetary Fund (IMF) has set six new benchmark conditions for Bangladesh to restore discipline in the money market and boost revenue generation.

They are additional to the conditions that have to be met under the performance criteria and indicative targets as part of the $4.7 billion loan programme.

The performance under the new conditions will be assessed during the next review of the 42-month programme in May when Bangladesh is expected to receive the third instalment from the IMF.

On December 12, the executive board of the Washington-based lender approved the second tranche of $689 million of the programme as the country met almost all criteria. The fund was credited to the Bangladesh Bank's account on Thursday.

The IMF assesses a country's performance in three areas – performance criteria, indicative targets and benchmark conditions – before approving an instalment.

The new targets for Bangladesh are related to tax, debt, monetary and exchange rate policies, IMF documents showed.

According to one of the targets, the finance ministry will report tax expenditures seen in the form of personal income tax, corporate income tax and value-added tax as part of the budget for the next financial year.

The tax expenditure refers to the rebates, discounts, exemptions, reduced rates of taxation and exclusion of income from computing total taxable income.

The National Board of Revenue (NBR) will also adopt a tax compliance improvement plan covering VAT and income taxes.

By June next year, the finance ministry will publish an updated medium-term debt management strategy covering three years starting from the current fiscal year of 2023-24.

As per new conditions, the Bangladesh Bank will allow automatic access to the standing lending and deposit facilities for all banks subject to the availability of accepted collateral for the former.

The BB will streamline open market operations (OMOs), reserves averaging provisions, and reserve maintenance periods.

By March, the central bank will prepare a guidance note detailing assessment criteria for various risks covering a robust set of objective and qualitative indicators.

Besides, the finance ministry will submit to parliament the Finance Companies Act 2020, drafted in line with best practices. The target was part of the first review of the loan programme but the government missed it.

Besides, the government will move to a periodic formula-based price adjustment mechanism for petroleum products.

Zahid Hussain, a former lead economist of the World Bank's Dhaka office, thinks that the government will be able to implement the benchmark targets because they only require paperwork.

Some changes, however, will be needed to implement the conditions related to monetary and exchange rate policies, he said.

The government might face challenges in meeting the conditions related to the net international reserves and the tax collections set for March next year.

It failed to reach the goals in the two areas in the first review as higher import bills compared to moderate export and remittance earnings drove the forex reserves down to a record low level while tax receipts did not improve.

Bangladesh will have to ensure a minimum reserve of $19.27 billion in March.

"After meeting expenses, an additional $4 billion has to be added to the reserve to meet the target," Hussain said.

The former World Bank economist thinks that both the IMF and the government expect that export proceeds to the tune of $5 billion that did not flow to the country on time would be repatriated after the elections.

"But that possibility is low," said Hussain. "So, meeting the conditions on the reserves will be difficult to meet."

The tax collection target has been set at Tk 276,170 crore for March.

Hussain said the goal is not high but it will still be tough to attain given the persistently poor show in raising taxes.

The NBR failed to hit the tax collection target for the 11th straight year in 2022-23 in a country that has one of the lowest tax-to-GDP ratios in the world.