Bangladesh is taking a $217.7 million loan from the International Monetary Fund (IMF) to stave off pressure on its balance of payments (BoP) from high import prices.

The IMF executive board approved the loan yesterday saying it would seek to support "Bangladesh's international reserve position that has been put under pres-

sure in the face of sharp rise in disaster-related imports, including large volumes of food," according to an IMF press release.

"The government has indicated its intention to maintain macro-economic stability and pursue important reforms in the areas of revenue administration and policy, expenditure management, energy pricing, and state-bank reform," said IMF executive board's acting chair Takatoshi Kato.

Finance Adviser Mirza Azizul Islam told reporters earlier this week that there are no conditions attached to this loan.

The S217J millioc-kian would have to be repaid within three years and three months to five years in eight equal quarterly instalments at 0.5 percent interest

Kato said damage to agriculture sector from last year's floods and cyclone would reduce growth this fiscal year and the country's foreign exchange reserve has been hit by a ’substantial rise" in food imports.

He said the IMF loan is part of a ’crucial emergency assistance" effort by donors to finance required imports while "allowing international reserves to remain at about three months of import coverage."

Ensuring the pledged aid from donors are effectively mobilised and efficiently used will be crucial for the ultimate success of the recovery and reconstruction programme, he said.

"A recovery in agricultural production, reconstruction activity, and an improved business climate should allow growth to recover in 2009 fiscal year to Bangladesh's medium-term potential growth path." said Kato.

Limited implementation capacity and potential inflationary pressures, however, were noted as potential roadblocks to the economic recovery. But the IMF said it was "reassured" by the government's decision to curtail domestic financing.

Kato, also IMF’s deputy managing director, said the loan was also given to assist the government recover from the loss of $2.7 billion caused by last year's floods and cyclone. He said it would take years to repair the physical damage, while the human loss is irretrievable.

The Fund observed the government after last year’s disasters allocated additional budgetary’ funds to expand social safety nets and increased funding for fertiliser and fuel subsidies.

This additional spending was kept within the 2008 fiscal year budget through increased revenue collection, reallocation of budgetary funds and additional foreign aid.