(Bloomberg) -- Bangladesh won final approval from the International Monetary Fund for the disbursement of $690 million in loans, increasing the economy’s buffers to counter risks.

The IMF’s executive board approved the loan in two tranches, the Washington-based lender said in a statement on its website on Tuesday. To restore economic stability, Bangladesh needs tighter monetary policy, neutral fiscal policy and greater exchange rate flexibility, it said.

“Despite a difficult external environment, program performance has been broadly on track, reflecting the authorities’ strong commitment,” Antoinette Sayeh, the IMF’s deputy managing director, said in the statement.

The IMF funds are critical in preserving Bangladesh’s dwindling foreign-exchange reserves and in easing pressure on the currency. The South Asian nation is fighting a dollar liquidity squeeze, which prompted Fitch Ratings to cut the nation’s sovereign rating outlook in September. 

The currency, which is tightly controlled, has weakened about 6% this year, among the worst performers in Asia. 

Bangladesh is a major exporter of clothing, and one of South Asia’s fastest growing economies. The IMF loan comes ahead of national elections in January, where Prime Minister Sheikh Hasina is seeking to extend her term in office. Critics have raised concerns about her government’s authoritarian turn after it arrested thousands of opposition supporters.  

The disbursement came after the IMF executive board completed its first review of the 42-month, $4.7 billion Extended Credit Facility, Extended Fund Facility and Resilience and Sustainability Facility programs approved in January, and followed a staff-level agreement secured in October.

The IMF has now disbursed a total of $1.2 billion under the agreement, it said. 

Key economic forecasts from the IMF’s statement:

  • Gross domestic product growth projected to remain at 6% in fiscal year 2024
  • Fiscal deficit seen at 4.6% of GDP in the period, remaining broadly unchanged from previous year
  • Current-account deficit is likely to remain compressed at around 0.75% of GDP
  • Foreign exchange reserves are expected to increase gradually in the near term and are projected to reach about four months of prospective imports in the medium term

 

--With assistance from Ronojoy Mazumdar and Arun Devnath.

©2023 Bloomberg L.P.