The International Monetary Fund (IMF) will not release the second instalment of its $1-hillion credit to Bangladesh this November if the country fails to implement conditions on VAT and banking laws.

Finance ministry officials said the lender might delay the disbursement of $141 million if the government does not pass the VAT Act and Banking Companies Act in parliament next month, incorporating its recommendations.

The lender made its stance clear during a meeting between AMA Muhith, the finance minister, and Naoyuki Shinohara, a deputy managing director of the IMF, at Imperial Hotel in Tokyo.

In response, Muhith said the government would incorporate the IMF recommendations in the two Acts before they are placed in parliament for passage, according to officials who were present at the meeting.

The minister is now in the Japanese capital to attend the semi-annual meetings of the IMF.

In the meeting, Muhith also requested the IMF to waive a condition about the exposure limit of commercial banks in the stockmarket.

IMF won't loosen strings on loans

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He sought concession from the IMF in keeping the bank’s exposure limit to the stockmarket at 40 percent of their capitals. The IMF earlier asked the government to keep the exposure limit of a bank at 25 percent of its total capital.

The existing exposure limit of a bank is 10 percent of its deposits. An IMF mission, which visited Bangladesh last month, also conveyed the same message to the government as some of the major conditions were not met yet.

According to officials, the mission found major differences in the draft of the VAT law amendment proposal given to them and the one placed in parliament. They expressed serious concern about it.

A finance ministry official said the original draft to the amendment kept VAT at 15 percent in all stages of value addition but the rate was 5 percent in some cases in the final proposal.

The IMF also objected to the planned VAT exemption to different sectors for public interest.

In case of the Banking Companies Act, the lender wanted the government to cut the authority of the Banking Division and give more power to Bangladesh Bank.

The lender has approved $987 million for Bangladesh to help it overcome macroeconomic pressures and build a buffer reserve. The country received one