The International Monetary Fund (IMF) team, since arriving in Dhaka to discuss the $4.5 billion loan requested by Bangladesh, has made numerous visits to government offices and held a series of meetings to update on the country’s macroeconomic situation, its internal and external finances and its budgetary situation. Strategies. She inquired about Bangladesh’s preparations for LDC graduation, measures to control wasteful public spending and plans to phase out subsidies in the energy sector.

Along with hundreds of questions posed to nearly a dozen government offices and regulatory bodies, there was one common question: why is Bangladesh applying for loans despite its impressive economic performance over the years?

As the IMF team wraps up its two-week visit today with a final meeting with Finance Minister AHM Mustafa Kamal, Finance Ministry officials are hopeful of securing the loan, albeit with stringent conditions.

They said the loan would be available at the same rate for three fiscal years, including this one and the next two.

Of all the IMF queries, most were reserved for the National Board of Revenue (NBR), which received 38 questions. The global lender asked the board a series of questions, from the VAT (value added tax) system, VAT exemptions, how tax exemptions are granted and the treatment of capital losses.

In a previous meeting, the IMF asked the Bangladesh Energy Regulatory Commission (BERC) about its model for determining the wholesale and retail prices of gas and electricity in the country, how often it reviewed or adjusted the tariffs in a certain year and whether the commission had the freedom to independently set the prices, a source told BERC. He also inquired about the role of the energy regulator in accelerating gas exploration in the country.

In a discussion with the Bangladesh Bureau of Statistics (BBS), the multilateral lender also wanted to know the reason for the delay in releasing recent inflation data. He further requested estimates of Bangladesh’s debt service over the next few years. In a meeting with the Economic Relations Divisions, the IMF wanted to know how the increases in the Guaranteed Overnight Financing Rate (SOFR) and the London Interbank Offered Rate affected loan repayments. In addition, he inquired about Bangladesh’s possible signing of free trade agreements with some countries and regions, and its future plans for utilizing ongoing foreign loans. The global money lender also wanted to know what reforms were planned to attract more foreign direct investment.

When speaking with the central bank, the delegation asked about the default lending rate. In another meeting, the IMF delegation questioned the Bangladesh Investment Development Authority (Bida) on the investment environment, status of investment sectors and future plans of Bangladesh.

After holding a wrap-up meeting with the Bangladesh Bank on Tuesday afternoon to finalize the terms and conditions of the loan, the IMF also held another meeting.

The various conditions given by the world financial agency have already been brought to the attention of the Prime Minister on Sunday and the secretaries of the ministries concerned and the governor of the central bank have taken his agreement.

Ministry officials expect to receive the first tranche of the loan by next January after approval at the organization’s next board meeting.

A Finance Division official said the IMF team suggested curbing the huge waste of government spending, which has been identified as a major failure in fiscal management.

He also criticized subsidies given to institutions such as the Bangladesh Road Transport Corporation and the Bangladesh Sugar and Food Industries Corporation.

He also called for increasing the use of fintech to prevent corruption in the distribution of social safety net benefits and reducing subsidies by increasing the prices of fertilizers, electricity and gas.

He further suggested canceling tax holidays and exemptions to increase revenue.

The delegation, led by Rahul Anand, head of the IMF’s Asia and Pacific region, also recommended calculating reserves in accordance with international rules, leaving the dollar rate at the market, removing the ceiling on interest rates, marking as a defaulting if installments are not paid in three months instead of six, and reducing delinquent bank loans.

In order to make proper decisions based on updated information about the country’s economy, the IMF advised the Bangladesh Bureau of Statistics to publish quarterly GDP data, announce monetary policy every three months and to ensure transparency in the management of information.

Additionally, he discussed product diversification by reducing dependence on ready-made garments to mitigate export risks.

The IMF reserves most questions for the NBR

In a meeting with the BNR last week, the IMF delegation suggested increasing the revenue contribution to Bangladesh’s GDP (tax-to-GDP ratio) to 9%.

In the last fiscal year 2021-22, the tax-to-GDP ratio was 7.6%.

NBR officials said average revenue growth over the past five years was around 15%. At this rate of growth, the tax-to-GDP ratio could be 8.5% over the next four years. Achieving a ratio of 9% would require an annual growth of 17 to 18% in tax revenues.

NBR officials said that the NBR has already started the work of reducing tax exemptions.

In the past fiscal year, VAT exemptions were canceled or reduced in some cases at the manufacturing stage of ready-made infrastructure, meditation services, railway services, trade in mobile phones and refrigerators. This will also continue next year.

A month before the visit to Bangladesh, the IMF had sent hundreds of questions to various organizations.

Bangladesh had prepared answers to these questions in advance and provided them during the tour.

Among the questions, the IMF had sent 38 questions to the BNR alone.

In the four-page written questionnaire submitted to the NBR, the IMF said: “We understand that there is a reduced VAT rate [5%] on electricity distribution. Is it correct?

“We understand that effective July 1, 2019, Bangladesh requires non-resident providers of consumer digital services in Bangladesh to register and collect VAT if annual taxable sales exceed Tk 30 million. been implemented? If so, could you provide the annual turnover for 2021?

With regard to corporate tax, the IMF mission asked the BNR to clarify whether companies that benefit from a tax holiday are still required to file an income tax return and requested information on tax procedures. approval of tax incentives and tax holidays and related laws.

She asked if there was close collaboration between relevant agencies that serve to promote tax incentives and if this collaboration was structured and mandated, or informal.

The IMF has sought data on corporate tax incentives, exemptions, special regimes granted for at least the last three years, income taxed as corporate tax, and income exempt from corporate tax, regime, etc.

“Are capital gains made by companies taxed at 15%? How are capital losses handled? he asked.

The questionnaire was prepared by the IMF based on the International Bureau of Tax Documentation.

The IMF also requested compiled data on total tax breaks and tax deductions by category for the past three years.

He held several separate meetings with various branches of finance divisions and important departments of the Bank of Bangladesh.

In addition, the global lender met with government agencies responsible for electricity and energy, including PDB, Petrobangla and BPC.

For electricity and fuel pricing, he held a separate meeting with the Bangladesh Energy Regulatory Commission.

The IMF has also had separate discussions with the Economic Relations Division, Ministry of Planning, Ministry of Commerce, Bangladesh Securities and Exchange Commission and many others.

This discussed 54 programs in talks with Bangladesh Bank. In five meetings with the Commerce Ministry and banking and financial institutions divisions, dozens of issues, including changes in bank provisioning methods and government capital support for state-owned banks, came to the fore. importance.

Bangladesh has sent a formal loan proposal to the IMF after a decade of seeking a $4.5 billion loan to overcome the current foreign exchange reserve crisis.

The two sides had had informal discussions about this four months earlier.

Before coming to Dhaka on Oct. 26 to hold formal talks, the organization said it would discuss reforms and policies in Bangladesh’s economy and financial sector.

When Bangladesh last received budget support from the IMF in 2012, it enacted a new VAT law to comply with the conditions.

The law provided for 15% VAT in all cases, later under pressure the government reduced the rate in various sectors.

Under pressure from traders, the government implemented the law from the 2019-20 financial year.