IMF loan: Deadlock broken

The government is set to reach an agreement with the International Monetary Fund over the exchange rate issue that has been holding up the release of the fourth and fifth tranches of the $4.7 billion loan programme soon.

Both the parties have moved from their rigid position and made concessions from their respective sides, The Daily Star has learnt from the Bangladesh Bank and finance ministry officials involved with the proceedings.

The IMF had been insisting on setting the band for the "crawling peg" system at 10 percent, but the BB was reluctant to widen it beyond 2-3 percent.

Under the crawling peg system, the exchange rate fluctuates within a narrow range.

In the latest round of meetings, the two sides have decided to keep the band at  5 to 6 percent.

In that case, the IMF board would authorise the two tranches amounting to $1.3 billion later this month.

"Discussions with Bangladesh authorities continued toward reaching an agreement during the 2025 IMF-World Bank Spring Meetings in Washington, DC in late April and are currently ongoing virtually on the parameters and policies needed to sustain reform momentum under the program," an IMF spokesperson told The Daily Star on Tuesday.

Bangladesh has sought a $1 billion stabilisation fund from the IMF to support its foreign exchange market, particularly if it adopts the lender's recommended shift toward a more flexible exchange rate system.

While the decision is still pending, officials say the fund would act as a buffer to smooth out "lumpiness in transactions" -- large, irregular dollar deals that can cause sharp, temporary spikes in the taka's value.

Under the proposed framework, the central bank would allow market forces to determine the exchange rate within a predefined band, but if volatility exceeds acceptable limits due to lumpy transactions or speculative pressures, it would intervene using the stabilisation fund to supply dollars and stabilise the rate.

Since December last year, the government and the IMF held multiple rounds of talks in Dhaka and Washington over the realise of the two tranches. Disagreements -- particularly over exchange rate flexibility and efforts to raise the country's revenue-to-GDP ratio -- had delayed the release of the fourth tranche.

After the meetings in Washington DC last month, consensus was reached on the revenue-to-GDP ratio. Both sides agreed to collect additional taxes of Tk 40,000 crore in the upcoming fiscal year, which is equivalent to 0.7 percent of the GDP.