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ECF loan draws economists' ire

News Published: Thursday, Apr 26, 2012

ECF loan draws economists' ire

FE Reprot
Thursday April 26 2012

Pic_FE1Country's leading economists Wednesday found the International Monetary Fund's (IMF) Extended Credit Facility (ECF), made available to Bangladesh recently, inadequate and untimely and felt that reform-strings attached to it would be difficult to implement by the government.

They also criticised the multilateral lending agency for ignoring many core issues, including governance, allowing of new banks and provision for whitening black money.

But the IMF mission chief and the Bangladesh Bank consultant defended the ECF saying that it would give a positive signal about the country to other development partners, investors' lending agencies and rating agencies. Apart from that the four-point reform measures will also have significant interventions to various core governance issues, they said. 

They were speaking at a roundtable discussion on 'The New ECF Programme and Bangladesh Current Macroeconomic Situation and Outlook," organised by the Policy Research Institute (PRI) at its conference room. 

Former finance minister M Syeduzzaman said that US$1.0 billion assistance is very negligible to enforce reform activities compared to the country's annual export earning of $ 22 billion and remittance earning of over $12 billion.

Syeduzzaman said that the four-point reform agenda brought under the EFC is nothing new.

Former adviser to the caretaker government Mirza AB Azizul Islam said the major challenge facing the reform agenda will be its implementation.

"IMF may have undertaken many legal and regulatory changes for bringing reform in tax measures but implementation of those at the field level will be an uphill task," he said.

About reform in subsidy adjustment Mirza Aziz said introduction of automatic price regime for imported fuel in line with international market rate is an overambitious scheme. "Considering the political situation now prevailing in the country it would be a quite challenging task to introduce an automatic price adjustment mechanism in case of fuel oils," he commented.

About implementation of VAT law policy he said introducing a law is very easy but implementation of that is always difficult.

He blamed donor agencies for their poor pace and small amount of funding to the country saying, "External financing kept at a low level has forced the government to borrow from banking sector thus squeezing the credit facility for private sector," he said.

Dr. Mustafa K Mujeri, Director General, BIDS said the timing of the funding is very wrong when the government has only two years left to complete its tenure and when the government has to undertake different politically populist programmes.

He said with the small amount of fund along with seven equal installments will have a minor impact on the reform activities. He expressed the fear that many of the reform activities would unfinished due to the bad timing and size of funding.

He also criticised the automatic fuel price adjustment move saying that without proper consultation with stakeholders and communication campaign, hasty implementation of any reform would face serious challenge.

In his welcome address Dr. Zaidi Sattar, Chairman, PRI, said that the ECF comes at a time of a great need when pressure is building up on the balance of payment and macroeconomic balances.

The programme at hand is modest one but covers all the key macro economic policies -- fiscal, monetary, exchange rate, banking, trade and investment reform.
Ahsan H. Mansur, Executive Director, PRI, said the IMF reform proposals ignored important agenda like governance, policy on new bank and whitening of black money options.

Replying to the criticism, IMF Mission Chief David Cowen said though the governance issue has not been mentioned in the EFC reforms, the EFC has been designed to bring many big governance issues through changes in the VAT and tax laws, amendment to bank company act and introducing demutualization of Dhaka Stock Exchange.

About timing of the fund, the mission chief said the IMF has to maintain long process of its board approval. "Though the government has only 18 months in its hand, it needs to demonstrate that it is able to manage the macroeconomic stability," Cowen said. 

He said the reform agenda is nothing new and originated from Bangladesh's own policy documents including budget document and monetary policy statements.

Bangladesh bank senior economic adviser Hassan Zaman said that the financing will give positive signal to donors, foreign investors and rating agency that the country is moving forward at the right path.

"Due to the ECF allocations now the rating agency will give correct rating of the country, the government will get right price for its sovereign bond and foreign investors will come to invest in different new projects," he said mentioning the positive effect of the funding.