Bangladesh Bailout: Repeat Of Pakistani Incident

Recent dealing of macro woes kept people in the dark without clues

Bangladesh Bank claims in December Bangladesh is going to receive $1.8 billion as credit and budget assistance. This addition will not lower further the forex reserve, Bangladesh Bank believes. Asian Development Bank(ADB) will give $400 million as assistance and IMF may endorse $680 million as second tranche of the $4.07 billion credit. And Bangladesh is pretty confident that it is likely to get the second pack.

Despite the improvement in current account balance, inflation is still high,around 10%. Exchange rate of taka against major currencies like USD and Pound sterling has not yet been stabilized. The loans and assistance we are receiving may be a condition of IMF's ongoing support. IMF Special Drawing Right (SDR),a special reserve asset comprised of several currencies (USD,Pound,Euro,Yen,Yuan), may be transferred toward other causes like aiding countries in dire financial situation. IMF in its website acknowledges that¹:

->SDR Department participants with strong external positions have historically used some of their SDR holdings to help countries in need. For instance, during the current crisis, several countries have used part of their SDR holdings to expand the IMF’s concessional financing by scaling up the IMF’s Poverty Reduction and Growth Trust’s (PRGT) loan resources. …
->We are also exploring other options for voluntarily channeling SDRs from members with strong external positions to support poorer and more vulnerable countries to help their recovery from the pandemic. Depending on the priorities of the membership, a new Resilience and Sustainability Trust could be considered to facilitate structural transformations, including greener recoveries from this crisis, for resilient and sustainable growth in the medium term. Another possibility could be to channel SDRs to support lending by multilateral development banks.

ADB being one of the development institutions as prescribed holder of SDR may be using IMF SDR to assist Bangladesh in addressing its budget deficit. Richer countries sympathetic towards Bangladesh may be using their SDRs to provide soft credit to bail out Bangladesh.

One of the conditions set by IMF to get the next credit pack is that reserve should be $18 billion by December 2023. As per BPM-6, Bangladesh's net reserve stands at $19.40 billion at the end of first week of December. As Bangladesh sells dollar from its reserve, downward pressure on reserve still remains. Meanwhile, we witnessed that Bangladesh leased Potenga Container Terminal to Saudi Red Sea Gateway Terminal (RSGT) for 20 years. Similar incident took place in Pakistan when the country leased its Karachi port to UAE for $220 million in June². Later Saudi Arabia came into the scene. It perked $2 billion in Pakistan central bank to get it vital IMF loan³.

The strange behavior of one specialized bank and its Saudi shareholder lent credence to the argument that Middle Eastern countries may play a role in achieving the second credit pack from IMF.In November 2023,the bank lent a huge some of money to a fraudulent group ,which laundered the money in a Middle Eastern country, and put the whole banking sector in a precarious situation. It was the Saudi exchange house that charged higher rate for USD in recent weeks. Last week, exchange houses in the UK charged higher rate for Pound. It indicates that the exchange houses abroad are stockpiling taka to gain more from appreciation of taka in the event of IMF loan approval / significant interest rate hike. They have this prior information.

Back in October last year,I penned a piece titled “Macro-Woes”⁴ where I highlighted how strategic relations shape economy, citing Saudi money perking in Pakistani bank with strings attached. I strongly believe the Parliament comprised of MPs with popular mandate should have the last word on making strategic decisions. Few regimented people in a close door meeting making key decision about strategic relations is not good for the country while leaving the people in the dark. At the end of the day ,country and people bear its consequences. And our constitution does not allow such kind of decision making as Parliament’s approval is required for any military engagement with other country besides multilateral initiative. Strategic decision making including forming alliance to wage war is a political matter, not a military one. Political matter should be solved by political stakeholders. Anyway, the way Bangladesh is addressing its macroeconomic issues hints that it is similar to the way Pakistan has dealt with its recent macro woes.

Notes And References

1. ”Questions And Answers On Special Drawing Rights(SDRs)”,IMF.For more read at https://www.imf.org/en/About/FAQ/special-drawing-right
2. “Cash Strapped Pakistan To Lease Part of Karachi Port To UAE For $220 Million”, NDTV,June 22,2023.For more read at https://www.ndtv.com/world-news/cash-strapped-pakistan-to-lease-part-of-karachi-port-to-uae-for-220-million-4144226
3. “Saudi Arabia Gives $2 Billion as IMF Bailout To Pakistan, says Country’s Finance Minister”,Reuters,July 11,2023. For more read at https://www.tbsnews.net/world/global-economy/saudi-arabia-gives-2-billion-imf-bailout-pakistan-says-countrys-finance
4. “Macro Woes”, Rezaul Hoque,October 28,2023.https://hoquestake.blogspot.com. For more read at https://hoquestake.blogspot.com/2022/10/macro-woes.html?m=1