Bangladesh Begins Talks with IMF on 6 Trillion Won Support...Concerns Over South Asia's Chain Financial Crisis

From the 26th, $5 Trillion Loan Talks
Economic Crisis Due to COVID-19 and Rapid Exchange Rate Surge
World Bank Lowers Economic Growth Forecast

Bangladesh submerged due to heavy rain in the northeastern region last June.
[Image source=Yonhap News]

[Asia Economy Reporter Lee Ji-eun] On the 27th, the Nihon Keizai Shimbun reported that Bangladesh has begun support negotiations regarding its request for a loan of approximately 6 trillion won from the International Monetary Fund (IMF). This comes amid growing concerns over a chain of defaults among South Asian countries, as Pakistan and Sri Lanka have consecutively sought assistance from the IMF this year.

According to the Nihon Keizai Shimbun, Bangladesh plans to hold discussions with the IMF delegation by October 9th, aiming for a working-level agreement related to the Resilience and Sustainability Trust (RST) fund. Bangladesh had previously requested a loan of $4.5 billion (about 6.37 trillion won) from the IMF in July.

The RST that Bangladesh seeks support from is a long-term fund for vulnerable support, distinct from bailout funds deployed to countries facing default risks. It is established to help low- and middle-income countries address long-term issues such as climate change and poverty, characterized by a 20-year maturity and low interest rates.

Bangladesh, which had maintained high growth rates of 7-8% annually led by the garment industry, was hit hard economically by the spread of COVID-19. The tourism industry stagnated, and the sharp rise in raw material prices due to the Russia-Ukraine war, combined with the rapid depreciation of the Bangladeshi Taka, triggered the economic crisis. The exchange rate, which was 95 Taka per dollar until mid-last month, surged from late September and has now exceeded 100 Taka.

The Nihon Keizai Shimbun cited statistics from the Bangladesh Bank, reporting that Bangladesh's foreign currency reserves stood at $36.4 billion in September, down about 7% from the previous month. Compared to the peak in August last year, the reserves have decreased by 24%.

The Nihon Keizai Shimbun stated, "Bangladesh's foreign currency reserves still exceed the minimum necessary scale for economic stability, which is three months' worth of monthly imports," but added, "The government’s suspension of fuel imports has led to frequent power outages."

With Bangladesh, a South Asian economic powerhouse, also receiving a loan from the IMF, concerns over a chain of defaults among South Asian countries are growing in the market.

Earlier, Pakistan agreed in July to receive an additional $1.17 billion in support from the IMF, and Sri Lanka also secured $2.9 billion in assistance. The Sri Lankan government declared a temporary default, stating it would defer external debt repayments until the IMF bailout negotiations concluded in April.

The Nihon Keizai Shimbun noted, "With record inflation close to 70% year-on-year continuing in Sri Lanka, it is uncertain whether the country can escape the crisis even with IMF support." Laos is also facing a situation where public debt amounts to $14.5 billion, equivalent to 88% of its GDP.

In response, the World Bank recently lowered its economic growth forecasts for South Asian countries. Bangladesh’s economic growth forecast, previously expected to be 6.7% from July this year to June next year, was revised down to 6.1%.

The Nihon Keizai Shimbun expressed concern, stating, "If economic difficulties deepen while Prime Minister Sheikh Hasina’s long-term rule continues, it could escalate into a political crisis."

This content was produced with the assistance of AI translation services.