Bangladesh the Latest South Asian Country Seeking IMF Bailout

Another inflation nation . . .

Bangladesh has reached a provisional agreement with the International Monetary Fund (IMF) for a C$6.1-billion, 3.5-year bailout to help stabilize its economy. Before the pandemic, the country had performed impressively, driven mainly by its export-oriented garment manufacturing sector. But it has been hit by the same inflationary forces that have lashed other economies around the world. Specifically, food and energy prices have spiked – the latter so much that the government resorted to shortening school hours to conserve fuel, much of which is imported. Inflation in more developed economies is also suppressing the purchase of Bangladeshi exports, and its foreign exchange reserves have shrunk by more than C$13.5 billion since last year, down to around C$48.3 billion.

Internal factors . . .

Some observers say that while international inflationary pressures are a factor in Bangladesh’s economic predicament, domestic causes should not be overlooked. These include overspending on big infrastructure projects, loan defaults and mismanagement in the banking sector, and corruption, including in the energy sector. Critics say the government is underplaying the seriousness of the crisis, possibly to avoid tarnishing the ruling party’s image ahead of general elections about a year from now. But as a condition of IMF assistance, the government may be unable to avoid implementing certain economic reform measures that are unlikely to be popular with many Bangladeshis.

Plenty of crises to go around . . .

Bangladesh is the third country in South Asia to require an economic bailout this year, alongside Pakistan and Sri Lanka. The IMF recently resumed payment on an C$8-billion rescue package for Pakistan after assistance was stalled due to political turmoil and the previous government’s failure to comply with IMF conditions. Now, political turmoil has flared up again, with former Prime Minister Imran Khan staging continuous protests against the current government. During one of these rallies last week, Khan was the target of an assassination attempt. Slow recovery from the devastating floods in June is also jeopardizing Pakistan’s economic stability. And the United Nations warned this week that in Sri Lanka, another of the region’s highly distressed economies, food insecurity is reaching alarming levels, with the number of people needing immediate humanitarian assistance climbing to nearly 3.5 million.

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