Press Release: IMF Executive Board Approves US$217.7 million in Emergency Assistance for Bangladesh

IMF News, April 2, 2008

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Canonical URL: Press Release: IMF Executive Board Approves US$217.7 million in Emergency Assistance for Bangladesh

The Executive Board approved SDR 133 million (about US$217.7 million) in emergency assistance to Bangladesh.
Purpose: to assist the government's efforts to deal with the impact of severe damage from a November 2007 cyclone that followed severe monsoon-related flooding.
Emergency assistance features:
- Repayment: in eight equal quarterly installments over 3¼ to 5 years from the disbursement date.
- Rate of charge: subsidized to 0.5 percent per annum for PRGF-eligible countries hit by natural disaster, subject to resource availability.

Cyclone Sidr and two preceding floods resulted in at least 4,400 deaths.
Total damage is estimated at US$2.7 billion, or 3.7% of Bangladesh's GDP.
Major damage concentrated in agriculture, housing and infrastructure.
Balance of payments pressure due to a sharp rise in disaster-related imports, including large volumes of food.

Government actions cited:
- Allocated food to expand the Vulnerable Group Feeding Program and provide for open market sales of rice.
- Budgetary funds allocated to augment social safety nets and to fund additional subsidies for fertilizer and fuel.
- Increased revenue collections, reallocation of funds within the budget, and additional donor assistance kept the budgetary impact within the parameters of the FY2008 budget.
IMF assistance objective: support Bangladesh's international reserve position to finance needed imports while allowing international reserves to remain at about three months of import coverage.
Emphasis on ensuring pledged aid commitments from donors are effectively mobilized and efficiently used for recovery and reconstruction.

Damage to the agricultural sector will reduce economic growth in FY2008.
Recovery expectations: a recovery in agricultural production, reconstruction activity, and an improved business climate should allow growth to recover in FY2009 to Bangladesh's medium-term potential growth path.
Risks and considerations:
- Limits to implementation capacity during relief and reconstruction.
- Potential inflationary pressures.
- Authorities intend to contain domestic financing of the government to budgeted levels.

Continued support from the international community, including IMF emergency assistance, is crucial for financing imports and supporting reserves.
Government intentions and reforms highlighted:
- Develop a specific Disaster Response Fund.
- Explore other means of financial support.
- Establish a dialogue with development partners on a risk mitigation agenda related to global climate change.
- Maintain macroeconomic stability and pursue reforms in revenue administration and policy, expenditure management, energy pricing, and state-bank reform.

Press Release No. 08/70, April 2, 2008