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IMF Devises Strategies To Instill Order In The Financial Market And Enhance Revenue

Muammar

IBX-Jakarta. The IMF has established six fresh criteria for Bangladesh aimed at restoring stability in the financial market and bolstering revenue generation. These criteria supplement the existing benchmarks required under the $4.7 billion loan program, subject to evaluation during the upcoming review scheduled for May. Upon meeting nearly all prerequisites, Bangladesh received the second installment of $689 million on December 12, with the funds credited to the Bangladesh Bank’s account.
Before disbursing an installment, the IMF evaluates a nation’s performance based on performance criteria, indicative targets, and these new benchmark conditions. These new conditions for Bangladesh encompass tax, debt, monetary, and exchange rate policies, as indicated by IMF documents. Under one of these targets, the finance ministry is expected to disclose tax expenditures relating to personal income tax, corporate income tax, and value-added tax as part of the upcoming fiscal year’s budget. Tax expenditure refers to rebates, discounts, exemptions, reduced tax rates, and excluded income when computing the total taxable income.
Additionally, the National Board of Revenue (NBR) will implement a plan to enhance tax compliance for VAT and income taxes. Furthermore, the finance ministry is required to publish an updated medium-term debt management strategy covering three years starting from the current fiscal year by June. Regarding monetary policies, the Bangladesh Bank is tasked with granting automatic access to standing lending and deposit facilities for all banks, subject to accepted collateral availability. The central bank will streamline open market operations (OMOs), reserve averaging provisions, and reserve maintenance periods.
By March, the central bank will prepare a guidance note outlining assessment criteria for various risks, employing a comprehensive set of objective and qualitative indicators. Moreover, the finance ministry is expected to present the Finance Companies Act 2020 to parliament, aligning it with international best practices, a target previously missed in the initial review of the loan program. The government will also transition to a periodic formula-based price adjustment mechanism for petroleum products. Zahid Hussain, a former World Bank lead economist in Dhaka, believes that implementing paperwork-related benchmarks will be feasible. However, he anticipates challenges in implementing conditions tied to monetary and exchange rate policies, citing the need for certain adjustments. Specifically, meeting conditions related to net international reserves and tax collections by March presents potential difficulties. Higher import bills, contrasted with moderate export and remittance earnings, caused a decline in forex reserves to a historic low in the previous review, where tax receipts also remained stagnant.
Bangladesh must ensure a minimum reserve of $19.27 billion by March, requiring an additional $4 billion after meeting expenses, according to Hussain. He expresses doubt about the possibility of recovering the anticipated $5 billion in export proceeds post-elections. The tax collection target for March stands at Tk 276,170 crore, a goal deemed challenging due to persistent struggles in raising taxes. The NBR has consecutively failed to meet tax collection targets for eleven years in a country boasting one of the world’s lowest tax-to-GDP ratios.
Source: IMF charts ways to discipline money market, boost revenue | The Daily Star
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