The IMF board that sat last Friday for approval of the loans also approved Bangladesh's request for waiver of the unmet conditions of quantitative and structural performance criteria.

It, however, once again urged the Bangladesh government to further adjust the oil prices.

Following the Executive Board discussion, Takatoshi Kato, IMF deputy managing director and acting chair, said, "The energy sector state-owned enterprises (SOEs) continue to be a source of fiscal risk. The increases in global oil prices were only partially passed through to domestic prices, resulting in significant financial losses to the energy sector SOEs that are not sustainable. Further oil price adjustments will be needed. In this connection, the authorities plan to identify measures to mitigate the impact of price adjustments on vulnerable groups.

Under the structural performance criteria, Bangladesh could not fulfil some conditions related to the National Board of Revenue (NBR) and Nationalised Commercial Bank (NCBs).

Under the PRGF arrangement, Bangladesh also agreed to perform according to certain macroeconomic criteria like ceilings on the government's net domestic financing and non-concessional loan, revenue target etc.

According to one of the criteria, the government's net bank borrowing was supposed to be limited to Tk 4 billion. But as of mid-December 2005, the borrowing exceeded Tk 40 billion, which however came down to Tk 22.89 billion by January 15.

Another performance criteria demanded a Tk 154 billion revenue collection in the first half of fiscal year 2005-06. But, the NBR managed to earn Tk 145.42 billion, 5.5 percent short of the target.

Kato said, "While revenue performance has improved, it has still slightly fallen short of the targets set under the programme. Efforts need to be stepped up to address the chronic revenue shortages, including by accelerating reforms in revenue administration and reducing tax exemptions and incentives in the context of the FY07 budget."

He also said, "The implementation of fiscal policy has continued to be prudent, and the authorities remain committed to protecting fiscal sustainability. However, determined efforts to improve revenue collections are vital for funding development expenditure and social spending aimed at poverty reduction without jeopardising fiscal sustainability.

"The proposed monetary programme in Bangladesh Bank's monetary policy statement is consistent with the authorities' inflation and international reserves objectives. Given still high money and credit growth, however, the Bangladesh Bank will likely need to use open market operations more actively to tighten the monetary stance further and to raise interest rates on treasury securities in order to contain inflation.

"Despite some improvements, the continued poor financial condition of the NCBs underlines the urgency for decisive actions in this area. The implementation of the bank-by-bank resolution strategies will require strong political support, close monitoring, and technical assistance."

The IMF board also reviewed Bangladesh's poverty reduction strategy paper, "Unlocking the Potential--the National Strategy for Accelerated Poverty Reduction (NSAPR)".

Kato said, "A full poverty reduction strategy, titled "Unlocking the Potential--the National Strategy for Accelerated Poverty Reduction (NSAPR)", was finalised and published. The authorities' policies under the PRGF arrangement have been designed to enable Bangladesh to make progress in achieving its economic and poverty reduction goals. Meeting these challenges will require steadfast implementation of structural reforms and credible actions to enhance governance. Accelerated implementation of reforms of the NCBs, tax administration, and the trade system will also contribute to improved governance and the investment climate. In view of the authorities' limited technical capacity, continued donor assistance will be required for successful implementation of the NSAPR.

"Bangladesh's economy has performed well under the PRGF-supported programme. The economy has continued to expand, and inflation has been kept in check. Nonetheless, Bangladesh remains a country with a high degree of poverty, serious capacity constraints, and heavy reliance on donor inflows. The authorities will need to maintain sound policies and steadily pursue key structural reforms and capacity building for many years to achieve the objectives outlined in the poverty reduction strategy. After some slippage, key reform measures in tax administration and in the nationalised commercial banks (NCBs) have been implemented."