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IMF loan scheme ushers in an era of reforms

The lender's three-year ECF loan ends on a positive note

Rejaul Karim Byron
The International Monetary Fund's Extended Credit Facility loan, which ushered in some major reforms in the economic field, is nearing the end of its three-year term this month.
Still, two more instalments amounting about $280 million remain to be dispatched and IMF officials are likely to place the relevant report before the board on July 22.
The multilateral lender deferred the sixth
of the seven-part instalments for the $1 billion loan in November last year after the government failed to meet two of its pertinent conditions - both related to the VAT law.
At that time, the IMF said it would release the final two instalments together, provided the conditions were met.
A finance ministry official said the two conditions have somewhat been fulfilled and the government is hopeful that the IMF board will now approve the last two instalments.
One of the conditions was that the amended VAT law has to be approved in the cabinet meeting, and the cabinet on June 29 gave it the green light.
Another condition was that the government would assign a vendor to implement the tax automation system.
An official of the National Board of Revenue said a proposal was sent to the cabinet committee but due to objections from some members of the purchase committee a fresh tender was floated.
The new tender is now being evaluated by the technical committee and will soon be placed before the cabinet committee on purchase.
Approved in April 2012, the ECF programme has enforced a number of major reforms in the economic sector.
One of them was the amendment to the Banking Company Act to heighten the power of the central bank.
For instance, the central bank governor now has the authority to remove managing directors of state-owned banks.
The amendment also put a ceiling on investment by banks in the stockmarket, a major cause for the crash in 2011.
As per IMF's advice, the government also brought about stockmarket demutualisation, a process that separates the bourses' ownership from their management.
To deter the government from taking on too much of high-cost external borrowing, the IMF set a ceiling for it.
And to increase the government's revenue earning potential, the IMF was insistent on implementing the VAT law, due to take effect from July next year.
Under the law, a 15 percent VAT will be imposed at any stage.
Businesses with annual turnover of up to Tk 30 lakh are likely to be excused from paying VAT. Also, some new commodities, deemed to be basic needs, were included in the list of items enjoying VAT exemption.
Besides, many other small reforms were carried out, including bringing the state-owned banks under a strict regulation.
The IMF did a mid-term review in 2013 and found that the reforms increased foreign currency reserves, decreased nonfood inflation, raised tax revenue and curbed poorly-targeted energy subsidies.
The country achieved GDP growth of above 6 percent during the period.
The finance ministry official said the IMF programme played a positive role in maintaining macroeconomic stability.
Several officials said, after the present programme is concluded, the government is likely to seek another round of ECF programme to help maintain economic stability in the coming years.