IMF opposes forex reserve use for development projects

Shakhawat Hossain  | Published: 23:47, Mar 05,2021


The International Monetary Fund has expressed its reservation about the government move to use foreign currency reserve funds for development projects citing that the country’s forex reserve is not adequate for such purpose.      

Finance ministry officials said that the IMF had first expressed its views in last December in a meeting with officials of the ministry and the Bangladesh Bank.

The IMF view came after prime minister Sheikh Hasina directed the central bank in July 2020 to find out whether the government could borrow from the central bank’s forex reserve to implement development projects.

IMF Bangladesh resident representative Jayendu Du told New Age in the past week that there had been an elaborate discussion with the finance ministry and BB officials in last December on the government proposal for using the country’s forex reserve money.

Without disclosing the outcome of the meeting, Jayendu said that the global agency always wanted its member countries to use their forex reserve prudently.

He, however, said that the agency had already sent its opinions on the sensitive issue to the BB and the finance ministry.

The IMF in its opinions said that the country’s forex reserve was adequate for supporting import bills but not adequate for financing long-term infrastructure development projects.

Calling the government proposal for using forex fund an ad-hoc one, the Washington-based multilateral agency also reminded that such use of forex was not in practice in other countries.

Such uses could jeopardise prudent fiscal management, said the IMF.

Not only the Fund but also local economists have opposed the government intention of using forex reserve to finance development projects.

Former BB governor Salehuddin Ahmed reasserted that the forex reserve in the central bank was no government property but people’s possession.

In February, the country’s forex reserve swelled to a new height of $44.02 billion after it crossed the $40 billion mark for the first time in last October amid a high inflow of remittances.

Salehuddin pointed out that the hard-earned foreign currency sent as remittances by tens of thousands of expatriates from various parts of the world mainly helped the country’s reserve to grow over the years.

He hoped that the current forex reserve policy should be continued by the central bank in the greater interest of the nation.

Despite opposition from different quarters, a section of government policymakers is fervent for using forex reserve money.

On December 17, finance minister AHM Mustafa Kamal told reporters that a decision on the utilisation of forex reserve in government-sponsored projects was expected in the next budget.

With the pressure from these policymakers growing, the Bangladesh Bank formed a 10-member committee in the first week of this month to pass its views on the government proposal.

BB spokesperson Serajul Islam said that there was no timeframe for the committee to submit its suggestions to the central bank.

Finance ministry officials said that former finance minister AMA Muhith in 2016 mooted the idea of creating a fund with forex reserve money for development projects.

But the idea was set aside amid criticisms that there were risks of waste as the money would be taken for mega projects undertaken mostly on political considerations.

According to the finance ministry officials, the latest IMF observation also said that uses of foreign currency reserve funds for long-term infrastructure projects could undermine the fiscal discipline by exposing the public sector to a large contingent liability.

Besides, the officials warned, an instance of using forex reserve money might strengthen private groups’ demand for borrowing from the reserve.

It is reported that a local corporate group has already submitted a proposal to the Bangladesh Bank through a state-owned commercial bank for a loan of over $900 million to build a power plant without any feasibility study.

Former caretaker government adviser Mirza Azizul Islam said that borrowing from the forex reserve to implement development projects was not a viable option.

Forex reserve money can be borrowed by the government only for deficit financing in an extraordinary crisis, he said.

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