Business

IMF agrees $987m Bangladesh loan to help boost reserves

Consumers at a petrol pump in Bangladesh
Image caption Bangladesh relies heavily on oil imports to meet its growing energy demands

The International Monetary Fund has approved a $987m (£620m) loan for Bangladesh to help boost its foreign exchange reserves.

Dhaka's currency reserves have declined after a rise in global oil prices boosted the cost of crude imports.

As part of the loan, Bangladesh has agreed to increase tax revenues and reduce subsidy costs to boost revenues.

The loan is the largest ever offered under the fund's Extended Credit Facility.

The International Monetary Fund's (IMF) facility helps low-income countries get access to financing. The idea is to help countries smooth any payment issues such as a sudden shift in global markets or currency valuations.

"Macroeconomic pressures have intensified in Bangladesh since late 2010 due to a negative terms-of-trade shock, rising oil and infrastructure-related imports, and accommodative policies," said Naoyuki Shinohara, deputy managing director of the IMF.

Further pressure

Bangladesh's factories manufacture goods for some of the biggest global brands.

However, a slowdown in Europe and the US, which account for more than 80% of Bangladesh's exports, has caused demand to weaken and orders to diminish.

According to the country's Export Promotion Bureau, in March total exports fell by 7.2% from a year earlier.

The IMF said that growth in exports had been "outstripped by that in imports" putting further pressure on the country's finances.

At the same time, remittances by overseas workers, a key contributor to the country's economy, fell by more than $25m in March from the previous month.

The IMF warned that given the current global economic environment and Bangladesh's domestic issues, the country's economic growth may slow to 5.5% in the current financial year.

It had previously projected a growth of 6.1%.

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