The International Monetary Fund intervenes in Bangladesh to avert Crisis
On January 30, the International Monetary Fund (IMF) announced the approval of an assistance plan for Bangladesh worth about $4.7 billion dollars. Among these, 3.3 billion will be mobilized through the Extended Credit Facility and the Extended Fund Facility. These instruments serve the purpose of compensating the disequilibrium of the balance of payments. The remaining 1.4 billion will be paid through the innovative Resilience and Sustainability Facility, designed to sustain those countries which are considered to be vulnerable to threat arising from climate change and epidemics.
The Sheikh Hasina-led government has called for the release of funds on a precautionary basis in order to avert a possible crisis situation like the one experienced in Sri Lanka in the summer of 2022 and more recently in Pakistan. According to the IMF statement, the plan aims to “preserve the macroeconomic stability” of the country. The agreement is relevant to Bangladesh and the region as a whole. Indeed, the funds are aimed at revitalizing the economy of a key player in South Asia, one of the areas hardest hit by the perfect storm represented by the pandemic crisis and the general rise in commodity prices (not just energy) that followed the outbreak of the Russian-Ukrainian war.
The country’s current vulnerability is related to the collapse of foreign exchange reserves, which has prompted the government to reduce imports. In addition, the current crisis is linked to the depreciation of the Taka and inflation, which rose 8.57 percent in January and was driven by the increase in oil and gas prices, which rose 50 percent and 150 percent, respectively, in less than a year. In this complicated situation, on the one hand Dacca is expected to manage the funds by avoiding forms of corruption. On the other, the country is supposed to use the current opportunity to make the economic system more solid and attractive. Meanwhile, to avoid a very high price in terms of electoral consent, the Bangladeshi government should be able to mitigate the social impact of the conditionalities measures imposed by the IMF, namely the cut to subsidies and the increase of tax revenue. The complex situation in Bangladesh is being followed with particular attention by all the major players in the Indo-Pacific region, China above all.
Not surprisingly, the new Chinese Foreign Ministry Qin Gang, decided to have a “technical” stop in Bangladesh, before reaching Africa during his first diplomatic mission. In that circumstance, the Chinese Minister met with its counterpart Abul Kalam Abdul Momen, to discuss about political and commercial relations between the two countries. Indeed, Beijing purpose is to reinforce the strategic partnership with Dacca. It comes without saying that China is concerned by the collapse of foreign exchange reserves, since its export in Bangladesh on an annual basis worths around 13 billion dollars.
Over last few years, the PRC sought to strengthen its presence in Bangladesh by including the country in the Belt and Road Initiative. Consequently, China proposed the construction of a “deep-sea port” on the Eastern coast. Nevertheless, this activism was not well-perceived by India and Japan. Indeed, the two countries would not benefit from an expansion of Chinese interests in the Bay of Bengal. Moreover, the most recent economic troubles encouraged US diplomacy to take active participation through two visits carried out in January by Officials of State Department and the National Security Council, in Bangladesh.
In this context of tough competition, the vulnerabilities of Bangladesh have an impact that goes beyond the national borders and affect the regional strategies of the most active actors in the Asia-Pacific area. Precisely for this reason, it is likely that the country will remain at the center of international agendas and that the fight for influence will exacerbate in the medium-long period.