Tag: International Monetary Fund

Blackouts and soaring prices: Pakistan’s economy is on the brink | CNN Business

Islamabad/London
CNN
—

Muhammad Radaqat, a 27-year-old greengrocer, is worried. He doesn’t know how much an onion will cost next week, let alone how he’ll be able to afford the fuel he needs to heat his home and keep his family warm.

“All we’re being told by the government is that things are going to get worse,” Radaqat told CNN.

His anxiety reflects the mood of a nation racing to ward off an economic meltdown. Faced with a shortage of US dollars, Pakistan only has enough foreign currency in its reserves to pay for three weeks of imports.

Thousands of shipping containers are piling up at ports, and the cost of essentials like food and energy is skyrocketing. Long lines are forming at gas stations as prices swing wildly in the country of 220 million.

A nationwide power outage last month made people even more alarmed. It brought Pakistan to a standstill, plunging residents into darkness, shutting down transit networks and forcing hospitals to rely on backup generators. Officials have not identified the cause of the blackout.

Pressure is growing on Prime Minister Shehbaz Sharif’s government to unlock billions of dollars in emergency financing from the International Monetary Fund, which sent a delegation to the country this week for talks.

Pakistan’s currency, the rupee, recently dropped to new lows against the US dollar after authorities eased currency controls to meet one of the IMF’s lending conditions. The government had been resisting the changes the IMF requested, such as easing fuel subsidies, since they would cause fresh price spikes in the short term.

“We need the IMF agreement to go through as soon as possible for us to save the ship,” said Maha Rehman, an economist and the former head of analytics at the Centre for Economic Research in Pakistan.

Pakistan is experiencing what economists call a balance-of-payments crisis. The country has been spending more on trade than it has brought in, running down its stock of foreign currency and weighing on the rupee’s value. These dynamics make interest payments on debt from foreign lenders even more expensive and push the cost of importing goods higher still, requiring even bigger drawdowns in reserves that compound the distress.

The country is also grappling with rampant price increases. The country’s central bank has hiked its key interest rate to 17% in a bid to clamp down on annual consumer inflation of almost 28%.

Some issues the country faces are specific to Pakistan. Political instability and efforts to prop up its currency, for example, have weighed on investment and exports, according to Tahir Abbas, head of investment research at Arif Habib, the country’s largest securities brokerage.

Historic floods last summer have also led to huge bills for reconstruction and aid, adding to strains on the government budget. The World Bank has estimated that at least $16 billion is needed to cope with damage and losses.

Yet global factors are making the situation worse. The economic slowdown has weighed on demand for Pakistan’s exports, while a sharp rally in the value of the US dollar last year piled pressure on countries that import significant volumes of food and fuel. Prices for these commodities had already spiked due to the pandemic and Russia’s war in Ukraine, requiring larger outlays.

The IMF has warned repeatedly that this could stress vulnerable economies. While it forecasts that emerging market and developing economies will see a modest uptick in growth this year as the dollar comes off its highs, global inflation falls and China’s reopening spurs demand, the ability to manage debt loads remains a concern.

It estimated this week that 15% of low-income countries are already in debt distress, while another 45% are at high risk of struggling to meet their obligations. An additional 25% of emerging market economies are also at high risk. Tunisia, Egypt and Ghana have all sought IMF bailouts worth billions of dollars in recent months.

“The combination of high debt levels from the pandemic, lower growth and higher borrowing costs exacerbates the vulnerability of these economies, especially those with significant near-term dollar financing needs,” the IMF wrote in its world economic outlook this week.

For Pakistan to avoid default, talks with the IMF to restart its stalled assistance program must succeed, according to investors and economists. The IMF’s delegation arrived on Tuesday and is set to stay through Feb. 9.

“Availability of the IMF loan is critical,” said Ammar Habib Khan, a senior non-resident fellow at the Atlantic Council.

But Farooq Tirmizi, the CEO of Elphinstone, a startup geared at Pakistani investors, said that even if the IMF program resumes, it won’t fix all the problems, since the main issues plaguing Pakistan are “not economic, but political, with a government in place that is not willing to make structural changes.”

Pakistan’s economic crisis was at the center of a political showdown between Sharif and his predecessor, Imran Khan, last year. Khan was ousted by a no-confidence vote in April after Sharif accused him of economic mismanagement.

The situation has remained turbulent since then. Pakistan has gone through three finance ministers in less than a year. The last two were part of the current government, raising questions about whether Sharif can hold onto power. The country is expected to hold a general election this summer.

The tumult comes as Pakistan faces a fresh wave of attacks by militants. Earlier this week, a suicide bomb ripped through a mosque in the city of Peshawar, killing at least 100 people. It was one of the deadliest attacks in the country in years.

People are suffering in the meantime. Farmers who lost cotton, date, sugar and rice crops to flooding still need help. The World Bank predicted in October that as many as nine million Pakistanis could be pushed into poverty without “decisive relief and recovery efforts to help the poor.”

High inflation is only boosting pain for households struggling to make ends meet. Food prices in January rose 43% year over year, according to data released this week.

Attention focused recently on a man in the southern province of Sindh who lost his life in a scramble to obtain a bag of subsidized flour handed out by local authorities. He was crushed to death by the crowd alongside him.

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February 2, 2023
Bangladesh to get $4.7bn IMF package

The funding comes under a new programme which aims to help vulnerable middle-income countries and island states.

The International Monetary Fund’s (IMF) executive board has approved a support programme for Bangladesh worth $4.7bn at current exchange rates, making the South Asian country the first to access its new Resilience and Sustainability Facility (RSF).

The funding announced on Monday includes $3.3bn under the IMF’s Extended Credit Facility and Extended Fund Facility programmes and $1.4bn under the new RSF, which aims to help vulnerable middle-income countries and island states.

The board approval of a staff agreement reached last November allows the immediate disbursement of about $476m to Bangladesh, the IMF said.

The IMF said the 42-month borrowing package “will help preserve macroeconomic stability, protect the vulnerable and foster inclusive and green growth”.

The fund said it includes reforms focused on creating fiscal space to enable greater social and developmental spending, strengthening Bangladesh’s financial sector, boosting fiscal and governance reforms, and building climate resilience.

The IMF announced the new RSF facility in October last year to provide policy support and affordable longer-term financing for low-income and vulnerable middle-income countries in addition to the existing lending toolkits that these countries had access to. RSF facilities come with a 20-year maturity and a 10-1/2-year grace period during which no principal is repaid.

The funding from the RSF will help support the country’s climate change adaptation and mitigation efforts, the IMF said.

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January 30, 2023
Is debt cancellation the way forward for Sri Lanka?

Colombo, Sri Lanka – More than 180 prominent economists and development experts from around the world have made a global appeal to Sri Lanka’s financial lenders to forgive its debt, even as other experts are not convinced it is the best way forward for the island nation.

According to World Bank estimates, Sri Lanka has an external debt burden of more than $52bn as of December. Of that, nearly 40 percent is owed to private creditors, including financial institutions, while the rest is owed to bilateral creditors where China (52 percent), Japan (19 percent) and India (12 percent) are the largest ones.

Colombo defaulted on its debt repayments in April and negotiated a $2.9bn bailout with the International Monetary Fund (IMF).

But the IMF will not release the cash until it feels that the island nation’s debt is sustainable.

Now several prominent academics and economists, including Thomas Piketty who wrote the bestseller Capital, Harvard University economist Dani Rodrik and Indian economist Jayati Ghosh have issued a statement (PDF) calling for the cancellation of Sri Lanka’s debt by all external creditors and measures to stem the illicit outflow of capital from the country. The statement was put together by the “Debt Justice” campaign group, a global movement to “end unjust debt and the poverty and inequality it perpetuates”.

The private investors who lent at high interest rates to corrupt politicians must face the consequences of their risky lending by cancelling the debt, the academics said in the statement.

The academics have accused private creditors of contributing to Sri Lanka’s first-ever sovereign debt default as they accrued “a massive profit” by charging a premium to lend. Therefore, they said, the private lenders who benefitted from higher returns must be “willing to take the consequences” of their actions, meaning cancelling the debt and forfeiting the loans.

But not everyone agrees with this suggestion.

WA Wijewardene, a former deputy governor of the Central Bank of Sri Lanka, says that should the debt cancellation plan actually go through, it might lead to the collapse of the current global financial system.

Many of the academics who have signed the said statement are not economists, he told Al Jazeera.

“It is a galaxy of academics belonging to the social sciences field. As such, it needs to be critically appraised because, if accepted for Sri Lanka, it in fact provides a blueprint for a new world economic order.”

He added: “The present economic order is an interdependent, interconnected system. If you break this, the world will collapse. You don’t know what would happen thereafter.”

The ongoing economic crisis has left at least 8 million Sri Lankans as ‘food insecure’ [File: Eranga Jayawardena/AP Photo]

Wijewardene told Al Jazeera that he was surprised that Dani Rodrik, “who was a strong advocate for Washington Consensus, ie neo-liberal economic reform throughout the world” and Thomas Piketty, “who is from the opposite camp,” are on the same platform calling for debt cancellation.

Instead, he said, these academics and economists “should argue for the accountability to be established”.

“Money borrowed has been wasted or appropriated by rulers, leaving [out] people who haven’t benefitted from them. Those rulers should be made accountable for the losses and we should fight to establish a governance system in which they should be prosecuted for their crimes,” he said.

Wijewardene added that the cancellation of debt would not benefit the people but “the corrupt, despot” leaders.

“Corrupt despots have already benefitted from the money borrowed. When debt is cancelled, they don’t have to repay and can continue to borrow more and use that money for private gains. This is known as the moral hazard problem in economics; that when someone has taken responsibility for your liabilities, you have no incentive to take even the minimum precautions to minimise it,” he said.

Time for bilateral creditors to step up

For now, Nandalal Weerasinghe, the head of the Sri Lanka Central Bank, has urged China and India to come to an agreement over reducing the country’s debt.

“We don’t want to be in this kind of situation, not meeting the obligations, for too long. That is not good for the country and for us. That’s not good for investor confidence in Sri Lanka,” Weerasinghe told the BBC recently.

On Friday, India’s Foreign Minister S Jaishankar, while on a two-day visit to Sri Lanka, said that New Delhi had extended financing assurances to the IMF to clear the way for Sri Lanka to move forward but did not specify what those assurances were.

India’s Foreign Minister S Jaishankar (left), seen shaking hands with Sri Lankan President Ranil Wickremesinghe, told Sri Lanka that his country has given financial assurances to the IMF to facilitate a bailout plan [File: Sri Lankan President’s Office via AP]

On the heels of India’s assurance, China has offered a two-year moratorium, according to Sri Lanka’s Sunday Times newspaper.

In a letter to President Ranil Wickremesinghe, the Exim Bank of China, responsible for much of the loans given to Sri Lanka, said the two-year moratorium would be a short-term suspension of the debts owed to China while asking all Sri Lanka’s creditors to get together to work out medium-term and long-term commitments.

China is yet to make any official statement in this regard.

The assurances come on the eve of a Paris Club meeting of Sri Lanka’s creditors to discuss debt restructuring measures as a prelude to the IMF funds.

The chances of China acceding to requests for a loan waiver are slim as similar demands will then come from other parts of the developing world where China is an active lender, said Dhananath Fernando, the chief executive officer of Advocata Institute, an economic policy think tank in Sri Lanka.

“When you offer a debt relief to one country, it is like a court order. Other countries will also like to get the same relief,” he told Al Jazeera.

Moreover, taxpayers in any country would not be happy to completely write off loans offered to another country, a sentiment pointed out by IMF Managing Director Kristalina Georgieva.

“It is the notion, and is actually very broadly shared by many officials and citizens in China, that China is still a developing country and therefore … they expect to be paid back because it is a developing country,” she said in a media roundtable earlier this month.

“So, a haircut in the Chinese context is politically very difficult,” but China understands that the equivalent of that can be achieved by stretching maturities, reducing or eliminating interest rates, and payments to ultimately reduce the burden of debt, she added.

Dismissing the call for debt cancellation as “impractical”, Advocata Institute’s Fernando said that all the creditors will eventually have to agree on either a haircut (reducing the debt payment), coupon clipping (asking the lenders to reduce or waive off interest rates on bonds), extending the maturity of the loans or a combination of all three.

The Japanese embassy in Colombo had not responded by press time to an Al Jazeera request for comment.

Trade unions join call to cancel debt

Meanwhile, supporting the call for debt cancellation, a trade union representing garment factory workers, a key employer and income generator in Sri Lanka, said the economic restructuring measures required by the IMF as part of its debt relief plan will have the Sri Lankan government privatise state-owned enterprises, impose new taxes and increase the tax rates.

None of these measures “would provide an answer to Sri Lanka’s present debt crisis,” said Anton Marcus, co-secretary of the Free Trade Zones and General Services Employees Union, in a statement. The academics’ call “should be further lobbied by all labour rights campaigners and global trade union federations when Sri Lanka’s export manufacturing and service sector is hard-pressed for orders that threaten employment on large scale, in a country that is burdened with spiralling cost of living,” Marcus said.

The World Food Programme estimates that 8 million Sri Lankans — out of a 22 million population — are “food insecure” with hunger especially concentrated in rural areas.

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January 23, 2023
Executions aren’t new in Iran, but this time they’re different | CNN
Editor’s Note: A version of this story appears in today’s Meanwhile in the Middle East newsletter, CNN’s three-times-a-week look inside the region’s biggest stories. Sign up here.

New York and Amman
CNN
—

The Islamic Republic of Iran has long ranked among the world’s top executioners. But with the recent death sentences handed down to protesters, critics say the regime has taken capital punishment to a new level.

Last weekend, Iran executed two more protesters charged with killing security personnel, causing an international outcry. Critics said that the executions were a result of hasty sham trials.

The regime executed 314 people in 2021, 20% more than the previous year, rights group Amnesty International said in a report from May 2022. Many of those had to do with drug-related crimes.

This year, a number of protesters are entangled in Iran’s court system, many of whom face a particularly unjust judicial process, according to activists.

Human rights activists have warned there’s a real risk that many of them could become another number in the growing list of those executed by the Islamic Republic. At least 43 people are currently facing execution in Iran, according to a CNN count, but activist group 1500Tasvir says the number could be as high as 100.

“Defendants are systematically deprived of access to lawyers of their choice during the trial, are subjected to tortured and coerced confessions and then rushed to the gallows,” Tara Sepehri Far, an Iran researcher at Human Rights Watch, told CNN.

United Nations human rights chief Volker Türk on Tuesday accused Iran of “weaponizing” criminal procedures, saying it amounts to “state sanctioned killing”

With this round of protests, critics say, the authorities are using charges that carry the death penalty more liberally than they have before, widening the application of such laws to cover protesters.

According to Iranian state media, dozens of government agents, from security officials to officers of the basij paramilitary force, have been killed in the protests. Activist groups HRANA and Iran Human Rights say that 481 protesters have been killed.

Security personnel have died in previous protests as well, Sepehri Far said, “but it is crucial to point out in this (time) round Iranian authorities are using the death penalty way beyond (the) intentional killing of security officers.”

The regime appears to have capitalized on the executions, using them as a deterrent to people eager to speak out and flood the streets, as was seen after the death of 22-year-old Mahsa Jina Amini in the custody of the nation’s morality police.

“The trials and executions are yet another piece of the repression machine serving to demonstrate power and control and spread fear and publicize (the) government’s narrative about protesters,” Sepehri Far explained.

Iran has used Islamic Sharia law to prosecute protesters with crimes carrying the death penalty, namely “waging war against God” or “moharebeh” and “corruption on earth,” according to the UN Office of Human Rights.

The process has been criticized within the country too.

Mohsen Borhani, a professor at Tehran University and an expert in Islamic jurisprudence, has also challenged the use of such religiously based charges against protesters. In a television debate last month, he argued that the protesters executed were charged with waging war against God when their role in the protests did not in fact merit such a charge.

The brandishing of weapons by protesters, he said, was meant to intimidate, not injure security personnel. “This is fundamentally out of the realm of moharebeh because the person’s opposition is towards the government, not civilians.”

Sepehri Far said that Mohsen Shekari, one of the first protesters to be executed, was accused of injuring an officer. “Others have received the death penalty for extremely vague charges such as destruction and arson of public property or using a weapon to spread terror,” she said.

Activists say Iranian authorities have developed sophisticated methods of spreading disinformation on how, why and when executions will be carried out. Civil rights activist Atena Daemi said in a tweet, for example, that several Iranian news outlets had reported that activists on death row had been released, news that was refuted by the prisoners’ families.

Activists have said that condemning the protests is not enough. The European Union has taken note, and as the bloc continues to discuss imposing a fourth round of sanctions on Iran, some members have supported moves to classify its Islamic Revolutionary Guard Corps (IRGC) as a terrorist organization.

Saudi Arabia to lift restrictions on pilgrim numbers for 2023 Hajj season

Saudi Arabia aims to host a pre-pandemic number of Muslim pilgrims for the Hajj in 2023, the Saudi Ministry of Hajj and Umrah said in a tweet on Monday. No age limits will be imposed on Hajj pilgrims this season, which starts on June 26.
Background: The kingdom had limited the number of pilgrims to 1,000 in 2020 and in 2021 increased the quota to almost 60,000, but only for residents of Saudi Arabia. In 2022, the kingdom authorized one million Muslims to perform the rites. The holy sites in the cities of Mecca and Medina normally host over 2 million people during the pilgrimage.

Why it matters: Performing the Hajj is one of the five pillars of Islam which all able-bodied Muslims are required to perform at least once in their lives. Saudi Arabia has identified the pilgrimage as a key component of a plan to diversify its economy. According to Mastercard’s latest Global Destination Cities Index, Mecca attracted $20 billion in tourist dollars in 2018.
Egypt commits to IMF to slow projects, increase fuel prices

Egypt committed to a flexible currency, a greater role for the private sector and a range of monetary and fiscal reforms when it agreed to a $3 billion financial support package with the International Monetary Fund (IMF), Reuters reported, citing an IMF staff report released on Tuesday. Among its pledges is one to slow investment in public projects, including national projects, so as to reduce inflation and conserve foreign currency, without specifying where cuts might fall. Egypt also said it would allow most fuel product prices to rise until they were in line with the country’s fuel index mechanism to make up for a slowdown in such increases over the last fiscal year.
Background: In a letter of intent to the IMF, Egypt said it sought support after the war in Ukraine increased existing vulnerabilities amid tighter global financial conditions and higher commodity prices. Under the support, the IMF will provide Egypt with about $700 million in the fiscal year that ends in June.

Why it matters: Egypt is already suffering from economic hardship and rising inflation that has caused discontent at home. The 2011 revolution was partly triggered by economic matters and the cost of living.
Saudi Arabia plans to use domestic uranium for nuclear fuel

Saudi Arabia plans to use domestically-sourced uranium to build up its nuclear power industry, Reuters cited Energy Minister Prince Abdulaziz bin Salman as saying on Wednesday. He added that recent exploration had shown a diverse portfolio of uranium.
Background: Saudi Arabia has a nascent nuclear program that it wants to expand to eventually include uranium enrichment, a sensitive area given its role in nuclear weapons. Riyadh has said it wants to use nuclear power to diversify its energy mix.

Why it matters: Atomic reactors need uranium enriched to around 5% purity, but the same technology in this process can also be used to enrich the heavy metal to higher, weapons-grade levels. This issue has been at the heart of Western and regional concerns about Iran’s nuclear program. It is unclear where Saudi Arabia’s ambitions end, since Crown Prince Mohammed bin Salman said in 2018 that the kingdom would develop nuclear weapons if Iran did. The neighboring United Arab Emirates has committed not to enrich uranium itself and not to reprocess spent fuel.
German exports to Iran rose by 12.7% last year, Reuters reported. Despite a significant deterioration in political ties between the two countries due to Iran’s brutal crackdown on protesters, trade ties remained intact, with the value of trade climbing to $1.6 billion between January and November. Berlin is currently pushing for a fourth package of European Union sanctions on Iran.

The Gulf nation of Oman become the latest in the small group of countries that are considering a move to a four-day workweek.

The government has said that it is studying the possibility of expanding weekends to three days instead of two, citing other nations’ success in pilots to test the move.

Salem bin Muslim Al Busaidi, an undersecretary at the labor ministry, told local media that the nation’s workforce has already increased flexibility, adopting remote work, part-time work and other initiatives to modernize the work environment.

Several countries have experimented with a four-day work week, including Iceland, Spain and Ireland, and the trials suggest that the move improves productivity.

Oman’s neighbor, the UAE, has seen some of the most dramatic changes to the country’s work environment. Besides shifting the country’s weekend to Saturday and Sunday instead of Friday and Saturday, the country adopted a four-and-a-half-day workweek in 2022.

The UAE emirate of Sharjah took that a step further by adopting a four-day work week across all government sectors and allowing private companies to do the same.

The emirate reported a 40% drop in traffic accidents in the first 8 months, a boost in employee productivity, and a drop in gas emissions due to the decrease in commutes, according to local media.

The onset of Covid-19 drastically changed the working environment of the Gulf region as companies were forced to adapt to new ways of working under restrictions.

By Mohammed Abdelbary
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January 11, 2023
Ukraine’s debts: US aims to get IMF to reexamine loan fees

WASHINGTON — A provision in the recently signed defense spending bill mandates that the United States work to ease Ukraine’s debt burden at the International Monetary Fund, which could create tensions at the world’s lender-of-last-resort over one of its biggest borrowers.

The National Defense Authorization Act requires American representatives to each global development bank, including the IMF, where the U.S. is the largest stakeholder, to use “ the voice, vote, and influence ” of the U.S. in seeking to assemble a voting bloc of countries that would change each institution’s debt service relief policy regarding Ukraine.

Among other things, the U.S. is tasked with forcing the IMF to reexamine and potentially end its surcharge policy on Ukrainian loans. Surcharges are added fees on loans imposed on countries that are heavily indebted to the IMF.

The U.S. interest in changing the policy comes as it has distributed tens of billions for Ukrainian military and humanitarian aid since the Russian invasion began in February. Most recently, Ukraine will receive $44.9 billion in aid from the U.S. as part of a $1.7 trillion government-wide spending bill.

Inevitably, some U.S. grant money is spent servicing IMF loans.

“I can see why the Senate would want to relax the surcharge for Ukraine,” Peter Garber, an economist who most recently worked at the global markets research division of Deutsche Bank, wrote in an email. “As the principal bankroller of economic aid for Ukraine, the US would not want to deliver funds only to have them go right to the coffers of the IMF.”

Economists Joseph Stiglitz at Columbia University and Kevin P. Gallagher at Boston University wrote in February about surcharges, saying that “forcing excessive repayments lowers the productive potential of the borrowing country, but also harms creditors” and requires borrowers “to pay more at exactly the moment when they are most squeezed from market access in any other form.”

Other economists say the fees provide an incentive for members with large outstanding balances to repay their loans promptly.

Even with the aid, the beleaguered Ukrainian economy is expected to shrink by 35 percent, according to the World Bank, and the country will owe roughly $360 million in surcharge fees alone to the IMF by 2023.

The effort to wrangle the IMF’s 24 directors, who are elected by member countries or by groups of countries, to end the surcharges may not be so easy.

Just before Christmas, the directors decided to maintain the surcharge policy. They said in a Dec. 20 statement that most directors “were open to exploring possible options for providing temporary surcharge relief,” but others “noted that the average cost of borrowing from the Fund remains significantly below market rates.”

Prominent economists studying the war’s impacts pointed out in a December report — “Rebuilding Ukraine: Principles and Policies,” by the Paris- and London-based Centre for Economic Policy Research — that “some significant voting members may have interests that are not aligned with having Ukraine succeed economically.”

Securing consistent financing to Ukraine could become harder as the war rages on. There are growing fears of a global recession and concerns that European allies are struggling to deliver on their financing promises. In addition, the GOP is set this coming week to take control of the House, with the top Republican, Rep. Kevin McCarthy, saying his party will not write a “blank check” for Ukraine.

Mark Weisbrot, co-director of the liberal Center for Economic and Policy Research in Washington, said the surcharge issue affects not just Ukraine, but also other countries facing debt crises. Among them: Pakistan, hit by flooding and humanitarian crises, as well as Argentina, Ecuador, and Egypt, who together are on the hook for billions in surcharges.

“There is no logic to the IMF imposing surcharges on countries already in crisis,” Weisbrot said, “which inevitably happens because the surcharges are structured to hit countries already facing financial problems.”

He said the issue will become more urgent as Ukraine’s debt grows and the war drags on.

Jeffrey Sachs, an economist and director of the Center for Sustainable Development at Columbia University, said “these surcharges should certainly be eliminated,” adding: “The IMF undercuts its core lender-of-last-resort role.”

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December 31, 2022
Tunisia’s political experiment threatens economic collapse

NICE, France — Tunisia’s increasingly authoritarian president appears determined to upend the country’s political system. The strategy is not only threatening a democracy once seen as a model for the Arab world, experts say it is also sending the economy toward a tailspin.

The International Monetary Fund has frozen an agreement meant to help the government get loans to pay public sector salaries and fill budget gaps aggravated by the COVID-19 pandemic and the fallout from Russia’s war in Ukraine.

Foreign investors are pulling out of Tunisia, and ratings agencies are on alert. Inflation and joblessness are on the rise, and many Tunisians, once proud of their country’s relative prosperity, now struggle to make ends meet.

An election debacle a week ago has made matters worse: Just 11% of voters took part in a first-round vote for a new parliament meant to replace a legislature disbanded last year by President Kais Saied. Opposition figures, including from the popular Islamist movement Ennahdha, are demanding that he step down, and unions are threatening a general strike.

Saied himself designed the elections to replace and reshape the parliament, as part of broad reforms that bolster his powers and that he says will solve Tunisia’s multiple crises. But voter disillusionment with the ruling class amid dire economic troubles contributed to a near-boycott of the election.

Tunisia’s Western allies, like the United States and France, have expressed concern and urged the president to forge an inclusive political dialogue that would benefit the sluggish economy. Tunisia was the birthplace of Arab Spring democratic uprisings 12 years ago.

Saied rejected criticism over the low voter turnout, saying what really matters is the second round of voting Jan. 19. He says his reforms are needed to rid the country of the corrupt political class and Tunisia’s foreign enemies. He lashed out at his political foes in the Ennahdha party, which had the largest number of lawmakers in the previous parliament, and ordered the arrest this week of its vice-president and former Prime Minister Ali Larayedeh on terrorism-related charges.

“Saied seems impervious to criticism and intent on bulldozing his way to a new political system no matter how few Tunisians are engaged in the process,” said Monica Marks, a Tunisia expert and professor of Middle East politics at the New York University in Abu Dhabi.

“No Tunisian asked Saied to reinvent the wheel of Tunisian politics, to write a new constitution and revamp the election law,” Marks said. “What Tunisians have been asking for is a more respectful government that meets their bread-and-butter needs and gives them economic dignity.”

Saied’s promises to stabilize the economy helped ensure his landslide victory in the 2019 presidential election.

But he has yet to present an economic recovery plan or strategy for his deeply indebted government to secure funds to pay for food and energy subsidies. The president has sidelined economists in state institutions, stalling the country’s budget and souring the environment for foreign investors.

Tunisians have been hit with soaring food prices and shortages of fuel and basic staples like sugar, vegetable oil and rice in recent months. Inflation has reached 9.1%, the highest in three decades, according to the National Institute of Statistics, and unemployment is at 18% percent, according to the World Bank.

“President Saied naively seems to think that if only he can complete his political roadmap, the economy will fix itself,” said Geoff Porter, a New York City-based North Africa risk assessment analyst, in a recent brief.

Tunisia reached a preliminary agreement with the IMF on a $1.9 billion loan in October. It would enable the heavily indebted Tunisian government to access loans from other donors over a four-year period in return for sweeping economic reforms that include shrinking the public administration sector — one of the world’s largest — and a gradual lifting of subsidies.

The agreement was subject to the IMF executive board’s approval, scheduled for Dec. 19. The state news agency TAP reported that “the government and the IMF have agreed to postpone” the final decision on the loan to give Tunisian officials “more time to present a new reform plan for the country’s sluggish economy.”

Tunisia desperately needs access to the special drawing rights in order to avoid defaulting on external debt and to stabilize the economy, Porter said. He added: “Without the IMF funds, Tunisia’s economic freefall will accelerate.”

Foreign investors operating in Tunisia are worried.

Pharmaceutical manufacturers Novartis, Bayer and GlaxoSmithKline are leaving the country because they are not getting paid by the insufficiently funded state pharmaceutical distributor.

Royal Dutch Shell, which operates two gas fields that accounted for 40% of Tunisia’s domestic production, announced in November it will exit Tunisia by year’s end. Despite hype over the country’s hydrogen sector, nothing has been done to attract investors as the country’s regulatory institutions are paralyzed by Saied’s political moves, Porter said.

The president has also lost the tentative support of the country’s powerful trade union, the UGTT, for the IMF-prescribed reform plan in exchange for a bailout.

UGTT leader Noureddine Taboubi agreed with the government in August to discuss a new “social contract” to help Tunisians in financial distress, the state TAP news agency reported. But Taboubi, whose influential union represents 67% of Tunisia’s work force, mainly employed in the public sector, recently pulled back on his commitment. He renewed his opposition to the IMF’s main demands to receive a loan program: a public sector wage freeze and restructuring of state-owned enterprises.

———

Bouazza ben Bouazza contributed from Tunis, Tunisia.

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December 24, 2022
Tunisia’s political experiment threatens economic collapse

NICE, France — Tunisia’s increasingly authoritarian president appears determined to upend the country’s political system. The strategy is not only threatening a democracy once seen as a model for the Arab world, experts say it is also sending the economy toward a tailspin.

The International Monetary Fund has frozen an agreement meant to help the government get loans to pay public sector salaries and fill budget gaps aggravated by the COVID-19 pandemic and the fallout from Russia’s war in Ukraine.

Foreign investors are pulling out of Tunisia, and ratings agencies are on alert. Inflation and joblessness are on the rise, and many Tunisians, once proud of their country’s relative prosperity, now struggle to make ends meet.

An election debacle a week ago has made matters worse: Just 11% of voters took part in a first-round vote for a new parliament meant to replace a legislature disbanded last year by President Kais Saied. Opposition figures, including from the popular Islamist movement Ennahdha, are demanding that he step down, and unions are threatening a general strike.

Saied himself designed the elections to replace and reshape the parliament, as part of broad reforms that bolster his powers and that he says will solve Tunisia’s multiple crises. But voter disillusionment with the ruling class amid dire economic troubles contributed to a near-boycott of the election.

Tunisia’s Western allies, like the United States and France, have expressed concern and urged the president to forge an inclusive political dialogue that would benefit the sluggish economy. Tunisia was the birthplace of Arab Spring democratic uprisings 12 years ago.

Saied rejected criticism over the low voter turnout, saying what really matters is the second round of voting Jan. 19. He says his reforms are needed to rid the country of the corrupt political class and Tunisia’s foreign enemies. He lashed out at his political foes in the Ennahdha party, which had the largest number of lawmakers in the previous parliament, and ordered the arrest this week of its vice-president and former Prime Minister Ali Larayedeh on terrorism-related charges.

“Saied seems impervious to criticism and intent on bulldozing his way to a new political system no matter how few Tunisians are engaged in the process,” said Monica Marks, a Tunisia expert and professor of Middle East politics at the New York University in Abu Dhabi.

“No Tunisian asked Saied to reinvent the wheel of Tunisian politics, to write a new constitution and revamp the election law,” Marks said. “What Tunisians have been asking for is a more respectful government that meets their bread-and-butter needs and gives them economic dignity.”

Saied’s promises to stabilize the economy helped ensure his landslide victory in the 2019 presidential election.

But he has yet to present an economic recovery plan or strategy for his deeply indebted government to secure funds to pay for food and energy subsidies. The president has sidelined economists in state institutions, stalling the country’s budget and souring the environment for foreign investors.

Tunisians have been hit with soaring food prices and shortages of fuel and basic staples like sugar, vegetable oil and rice in recent months. Inflation has reached 9.1%, the highest in three decades, according to the National Institute of Statistics, and unemployment is at 18% percent, according to the World Bank.

“President Saied naively seems to think that if only he can complete his political roadmap, the economy will fix itself,” said Geoff Porter, a New York City-based North Africa risk assessment analyst, in a recent brief.

Tunisia reached a preliminary agreement with the IMF on a $1.9 billion loan in October. It would enable the heavily indebted Tunisian government to access loans from other donors over a four-year period in return for sweeping economic reforms that include shrinking the public administration sector — one of the world’s largest — and a gradual lifting of subsidies.

The agreement was subject to the IMF executive board’s approval, scheduled for Dec. 19. The state news agency TAP reported that “the government and the IMF have agreed to postpone” the final decision on the loan to give Tunisian officials “more time to present a new reform plan for the country’s sluggish economy.”

Tunisia desperately needs access to the special drawing rights in order to avoid defaulting on external debt and to stabilize the economy, Porter said. He added: “Without the IMF funds, Tunisia’s economic freefall will accelerate.”

Foreign investors operating in Tunisia are worried.

Pharmaceutical manufacturers Novartis and Bayer are leaving the country because they are not getting paid by the insufficiently funded state pharmaceutical distributor.

Royal Dutch Shell, which operates two gas fields that accounted for 40% of Tunisia’s domestic production, announced in November it will exit Tunisia by year’s end. Despite hype over the country’s hydrogen sector, nothing has been done to attract investors as the country’s regulatory institutions are paralyzed by Saied’s political moves, Porter said.

The president has also lost the tentative support of the country’s powerful trade union, the UGTT, for the IMF-prescribed reform plan in exchange for a bailout.

UGTT leader Noureddine Taboubi agreed in August to discuss a new “social contract” to help Tunisians in financial distress, the state TAP news agency reported. But Taboubi, whose influential union represents 67% of Tunisia’s work force, mainly employed in the public sector, recently pulled back on his commitment. He renewed his opposition to the IMF’s main demands to receive a loan program: a public sector wage freeze and restructuring of state-owned enterprises.

———

Bouazza ben Bouazza contributed from Tunis, Tunisia.

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December 24, 2022
IMF agrees to give Ghana $3 billion debt bailout

ACCRA, Ghana — The International Monetary Fund has agreed to give Ghana $3 billion to try to get the West African nation’s debt under control, restore financial stability and help people most at risk from rising prices and other economic problems.

The announcement this week say follows IMF officials’ two-week visit this month to Ghana’s capital Accra, where they discussed support for the country’s policy and reform plans with authorities. Ghana has been struggling with high public debt, rising inflation and a weakening currency.

At a press conference Tuesday, Finance Minister Ken Ofori-Atta said Ghana was “committed to the program and will work towards meeting the demands.” He said the agreement will help restore economic stability, tackle price spikes and strengthen the currency.

“The Ghanaian authorities have committed to a wide-ranging economic reform program, which builds on the government’s Post-COVID-19 Program for Economic Growth (PC-PEG) and tackles the deep challenges facing the country,” Stephane Roudet, IMF’s mission chief to Ghana, said in a statement Monday.

Ghana’s reforms are focused on shoring up public finances while protecting the vulnerable, he said. The changes include creating a medium-term plan to bring in revenue, increasing tax compliance, making the country’s finances more transparent and improving how public industries are handled.

Ghana also announced it will restructure its debt and “committed to strengthening social safety nets, including reinforcing the existing targeted cash-transfer program for vulnerable households and improving the coverage and efficiency of social spending,” Roudet said.

The goal is to restore economic stability and debt sustainability while laying the foundation for stronger growth, the IMF said.

IMF managers and board members still must approve the three-year agreement, which comes under a program providing financial assistance to countries with balance-of-payments problems. Ghana’s partners and creditors also must acknowledge receiving financing assurances, the IMF statement said.

The deal is a “crucial lifeline” and positive step, said Rukmini Sanyal, a Ghana analyst for the Economist Intelligence Unit, a research and analysis division of the Economist Group.

Inflation reached more than 40% in October, the highest it’s been since July 2001 and well above the central bank’s target of 6% to 10%, according to Trading Economics, which provides global economic statistics. Prices accelerated by some 5% for food and more than 10% for non-food items, the company said.

Public debt has jumped from more than 63% of economic output in 2019 to an estimated more than 100% this year, Sanyal said. The exchange rate also is under pressure and Ghana has lost access to international capital markets, provoking a drawdown in foreign exchange reserves, she said.

The IMF says reducing inflation, boosting market confidence and making it easier for Ghana to withstand external shocks were priorities, with work from the Bank of Ghana on monetary policy and exchange rate flexibility and the government launching a domestic debt exchange.

———

Mednick reported from Dakar, Senegal.

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December 13, 2022
Strong Dollar Is ‘Wrecking’ Asia’s 2023 Hopes, Too

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When lexicographers make lists of the top phrases of 2022, the “wrecking ball” moniker economists attached to the dollar is sure to rank prominently.

A dominant theme of the first 10-plus months of the year is how the surging U.S. currency is upending Asia’s trajectory. While that’s true of emerging markets everywhere, trade-reliant Asia is uniquely at risk. This region also has the biggest stockpiles of U.S. Treasury securities, raising the stakes.

Episodes of extreme dollar strength tend to end badly for Asia. The most obvious episode was the region’s 1997-1998 financial crisis. The crash was precipitated by the Federal Reserve’s aggressive 1994-1995 tightening cycle.

At the time, the dollar’s rally acted like a ginormous magnet for capital from all corners of the globe. It morphed the global economy into a zero-sum game, with dollar assets enjoying the ultimate fear-of-missing-out trade.

That left Thailand, Indonesia, South Korea and others starved for capital, and desperately so. Over time, currency pegs to the dollar became impossible to defend. Currency strains also pushed Malaysia and the Philippines to the brink.

The worry is that this dynamic is unfolding again. And at a moment when China is stumbling—unlike in the late 1990s.

Back then, the thing that panicked officials at both the U.S. Treasury Department and International Monetary Fund the most was China weakening the yuan. That would’ve surely kicked off a new round of competitive devaluations and added fresh fuel to the fire.

Today, China is spooking global markets for a very different reason. It isn’t manipulating its currency, so much as investors are voting with their feet and leaving as Asia’s biggest economy weakens.

Making things worse, its troubles are largely self-inflicted. Along with the draconian “zero-Covid” Beijing just can’t quit, the regulatory crackdown on Big Tech is working at cross purposes with President Xi Jinping’s pledges to modernize China Inc.

The strong dollar is luring capital away from China at the worst possible moment for Xi’s government. This dynamic is hitting mainland stock bourses and boosting bond yields. The yuan’s nearly 13% drop this year makes it harder for mainland companies to may dollar-denominated debt payments, increasing default risks.

With commodity prices surging, Asia is increasingly engaging in a “reverse currency war.” The region spent the last 30 years weakening exchange rates to boost exports. Now, the Fed’s rate hikes have officials from Beijing to Jakarta struggling to support currencies.

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“The dollar’s advance has run out of steam, but that doesn’t mean it is over,” says analyst Edward Moya at OANDA.

Trouble is, the zero-sum dynamic is back. The skyrocketing dollar is now posing challenges to advanced and emerging economies alike.

“We appear to be entering the third dollar boom period in the past 50 years,” says Paul Gruenwald, global chief economist at S&P Global Ratings. “There is no easy solution. Passivity endangers inflation targets and credibility, rate rises risk lower output and employment, intervention is likely to burn through precious reserves.”

Gruenwald notes that the 1980s solution—bold global coordination—required lots of political capital from Washington and willing partners around the globe. A repeat of the 1985 deal to weaken the dollar—the “Plaza Accord”—probably isn’t in the cards. When the Bank of Japan intervened last month to support the yen, it acted alone. And it failed.

One reason the dollar trade is so one-sided is a dearth of obvious alternatives. The euro is plodding along at 20-year lows as European growth wanes. The yen, meantime, is down 27% this year as the BOJ keeps its foot on the monetary stimulus accelerator.

The British pound plunged toward parity to the dollar as Prime Minister Liz Truss botches economic policy out of the gate. Last week, Fitch Ratings downgraded the UK’s sovereign debt outlook to negative from stable.

Despite China’s status as the globe’s top trading nation, the yuan isn’t quite ready for prime time. The lack of full convertibility also limits the yuan’s utility as a potential reserve currency.

China also is squandering trust among global investors. Credit growth there recovered faster than anticipated last month as Beijing increased infrastructure investment. Yet indications are that Xi is sticking with his growth-killing Covid lockdowns.

Ironically, the more the Fed’s rate hikes shake up world markets—and the wrecking ball swings—the more global investors are hoarding dollars. In its most recent World Economic Outlook, the International Monetary Fund warned that “in short, the worst is yet to come, and for many people 2023 will feel like a recession.”

The IMF pruned its forecast for 2023 growth by 0.9 percentage points to 2.7%. “Persistent and broadening inflation pressures have triggered a rapid and synchronized tightening of monetary conditions, alongside a powerful appreciation of the U.S. dollar against most other currencies,” IMF economists observe.

The risks of volatile capital flows and debt crises are increasing as this giant wrecking ball swings anew.

William Pesek, Senior Contributor

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October 12, 2022
IMF warns of higher recession risk and darker global outlook

WASHINGTON (AP) — Two principal economists painted very different pictures Thursday of what the global economy will look like in the coming years.

Kristalina Georgieva, managing director of the International Monetary Fund, told an audience at Georgetown University on Thursday that the IMF is once again lowering its projections for global economic growth in 2023, projecting world economic growth lower by $4 trillion through 2026.

“Things are more likely to get worse before it gets better,” she said, adding that the Russian invasion of Ukraine that began in February has dramatically changed the IMF’s outlook on the economy. “The risks of recession are rising,” she said, calling the current economic environment a “period of historic fragility.”

Meanwhile, U.S. Treasury Secretary Janet Yellen, on the other side of town at the Center for Global Development, focused on how the U.S. and its allies could contribute to making longer-term investments to the global economy.

She called for ambitious policy solutions and didn’t use the word “recession” once. But despite Yellen’s more measured view, she said “the global economy faces significant uncertainty.”

The war in Ukraine has driven up food and energy prices globally — in some places exponentially — with Russia, a key global energy and fertilizer supplier, sharply escalating the conflict and exposing the vulnerabilities to the global food and energy supply.

Additionally, the ongoing COVID-19 pandemic, rising inflation and worsening climate conditions are also impacting world economies and exacerbating other crises, like high debt levels held by lower-income countries.

Georgieva said the IMF estimates that countries making up one-third of the world economy will see at least two consecutive quarters of economic contraction this or next year and added that the institution downgraded its global growth projections already three times. It now expects 3.2% for 2022 and now 2.9% for 2023.

The bleak IMF projections come as central banks around the world raise interest rates in hopes of taming rising inflation. The U.S. Federal Reserve has been the most aggressive in using interest rate hikes as an inflation-cooling tool, and central banks from Asia to England have begun to raise rates this week.

Georgieva said “tightening monetary policy too much and too fast — and doing so in a synchronized manner across countries — could push many economies into prolonged recession.” Maurice Obstfeld, an economist at the University of California, Berkeley, recently wrote that too much tightening by the Federal Reserve could “drive the world economy into an unnecessarily harsh contraction.”

Yellen agreed Thursday that “macroeconomic tightening in advanced countries can have international spillovers.”

The two economists’ speeches come ahead of annual meetings next week of the 190-nation IMF and its sister-lending agency, the World Bank, which intend to address the multitude of risks to the global economy.

Georgieva said the updated World Economic Outlook of the fund set to be released next week downgrades growth figures for next year.

Many countries are already seeing major impacts of the invasion of Ukraine on their economies, and the IMF’s grim projections are in line with other forecasts for declines in growth.

The Organization for Economic Cooperation and Development last week said the global economy is set to lose $2.8 trillion in output in 2023 because of the war.

The projections come after the OPEC+ alliance of oil-exporting countries decided Wednesday to sharply cut production to support sagging oil prices in a move that could deal the struggling global economy another blow and raise politically sensitive pump prices for U.S. drivers just ahead of key national elections in November.

Yellen said since many developing countries are facing all challenges simultaneously, from debt to hunger to exploding costs, “this is no time for us to retreat.”

“We need ambition in updating our vision for development financing and delivery. And we need ambition in meeting our global challenges,” she said.

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October 6, 2022
IMF warns of higher recession risk and darker global outlook

WASHINGTON — The International Monetary Fund is once again lowering its projections for global economic growth in 2023, projecting world economic growth lower by $4 trillion through 2026.

Kristalina Georgieva, managing director of the IMF, told an audience at Georgetown University on Thursday that “things are more likely to get worse before it gets better,” saying the Russian invasion of Ukraine that began in February has dramatically changed the IMF’s outlook on the economy.

The ongoing COVID-19 pandemic, rising inflation and worsening climate conditions are also impacting world economies, exacerbating other crises, like food insecurity and high debt levels held by lower-income countries.

“The risks of recession are rising,” she said, adding that the IMF estimates that countries making up one-third of the world economy will see at least two consecutive quarters of economic contraction this or next year.

Georgieva said the institution downgraded its global growth projections already three times. It now expects 3.2% for 2022 and now 2.9% for 2023.

The bleak projections come as central banks around the world raise interest rates in hopes of taming rising inflation. The U.S. Federal Reserve has been the most aggressive in using interest rate hikes as an inflation-cooling tool, though central banks from Asia to England have begun to raise rates this week.

Georgieva said “tightening monetary policy too much and too fast — and doing so in a synchronized manner across countries — could push many economies into prolonged recession.”

Many countries are already seeing major impacts of the invasion of Ukraine on their economies, and the IMF’s grim projections are in line with other forecasts for declines in growth.

The Organization for Economic Cooperation and Development last week said the global economy is set to lose $2.8 trillion in output in 2023 because of the war.

The projections come after the OPEC+ alliance of oil-exporting countries decided Wednesday to sharply cut production to support sagging oil prices in a move that could deal the struggling global economy another blow and raise politically sensitive pump prices for U.S. drivers just ahead of key national elections in November.

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October 6, 2022
Inflation, unrest challenge Bangladesh’s ‘miracle economy’

DHAKA, Bangladesh (AP) — Standing in line to try to buy food, Rekha Begum is distraught. Like many others in Bangladesh, she is struggling to find affordable daily essentials like rice, lentils and onions.

“I went to two other places, but they told me they don’t have supplies. Then I came here and stood at the end of the queue,” said Begum, 60, as she waited for nearly two hours to buy what she needed from a truck selling food at subsidized prices in the capital, Dhaka.

Bangladesh’s economic miracle is under severe strain as fuel price hikes amplify public frustrations over rising costs for food and other necessities. Fierce opposition criticism and small street protests have erupted in recent weeks, adding to pressures on the government of Prime Minister Sheikh Hasina, which has sought help from the International Monetary Fund to safeguard the country’s finances.

Experts say Bangladesh’s predicament is nowhere nearly as severe as Sri Lanka’s, where months’ long unrest led its long-time president to flee the country and people are enduring outright shortages of food, fuel and medicines, spending days in queues for essentials. But it faces similar troubles: excessive spending on ambitious development projects, public anger over corruption and cronyism and a weakening trade balance.

Such trends are undermining Bangladesh’s impressive progress, fueled largely by its success as a garment manufacturing hub, toward becoming a more affluent, middle-income country.

The government raised fuel prices by more than 50% last month to counter soaring costs due to high oil prices, triggering protests over the rising cost of living. That led authorities to order the subsidized sales of rice and other staples by government-appointed dealers.

The latest phase of the program, which began Sept. 1, should help about 50 million people, said Commerce Minister Tipu Munshi.

“The government has taken a number of measures to reduce pressures on low-income earners. That is impacting the market and keeping prices of daily commodities competitive,” he said.

The policies are a stopgap for bigger global and domestic challenges.

The war in Ukraine has pushed higher prices of many commodities at a time when they already were surging as demand recovered with a waning of the coronavirus pandemic. In the meantime, countries like Bangladesh, Sri Lanka and Laos — among many — have seen their currencies weaken against the dollar, adding to the costs for dollar-denominated imports of oil and other goods.

To ease the strain on public finances and foreign reserves, the authorities put a moratorium on big, new projects, cut office hours to save energy and imposed limits on imports of luxury goods and non-essential items, such as sedans and SUVs.

“The Bangladesh economy is facing strong headwinds and turbulence,” said Ahmad Ahsan, an economist and director of the Dhaka-based Policy Research Institute, a thinktank. “Suddenly we are back to the era of rolling power cuts, with the taka and the forex reserves under pressure,” he said.

Millions of low-income Bangladeshis, like Begum, whose family of five can barely afford to eat fish or meat even once a month, still struggle to put food on the table.

Bangladesh has made huge strides in the past two decades in growing its economy and fighting poverty. Investments in garment manufacturing have provided jobs for tens of millions of workers, mostly women. Exports of apparel and related products account for more than 80% of its exports.

But with fuel costs so high, authorities shut diesel-run power plants that produced at least 6% of total production, cutting daily power generation by 1,500 megawatts and disrupting manufacturing.

Imports in the last fiscal year, ending in June, 2022, rose to $84 billion, while exports have fluctuated, leaving a record current account deficit of $17 billion.

More challenges are ahead.

Deadlines are fast approaching for repaying foreign loans related to at least 20 mega infrastructure projects, including the $3.6 billion River Padma bridge built by China and a nuclear power plant mostly funded by Russia. Experts say Bangladesh needs to prepare for when repayment schedules ramp up between 2024 and 2026.

In July, in a move economists view as a precautionary measure, Bangladesh sought a $4.5 billion loan from the International Monetary Fund, becoming the third country in South Asia to recently seek its help after Sri Lanka and Pakistan.

Finance Minister A.H.M. Mustafa Kamal said that the government asked the IMF to begin formal negotiations on loans “for balance of payments and budgetary assistance.” The IMF said it was working with Bangladesh to draw up a plan.

Bangladesh’s foreign reserves have been falling, potentially undermining its ability to meet its loan obligations. By Wednesday they had dropped to $36.9 billion from $45.5 billion a year earlier, according to the central bank.

Usable foreign reserves would be about $30 billion, said Zahid Hussain, a former chief economist of the World Bank’s Dhaka office.

“I would not say this is a crisis situation. This is still enough to meet three months of imports, three and half months of imports. But it also means that … you do not have a lot of room for maneuvering on the reserve front,” he said.

Still, despite what some economists say is excessive spending on some costly projects, Bangladesh is better equipped to weather hard times than some other countries in the region.

Its farm sector — tea, rice and jute are major exports — is an effective “shock absorber,” and its economy, four to five times larger than Sri Lanka’s, is less vulnerable to outside calamities like a downturn in tourism.

The economy is forecast to grow at a 6.6% pace this fiscal year, according to the Asia Development Bank’s latest forecast, and the country’s total debt is still relatively small.

“I think in the current context, the most important difference between Sri Lanka and Bangladesh is the debt burden, particularly the external debt,” said Hussain.

Bangladesh’s external debt is under 20% of its gross domestic product, while Sri Lanka’s was around 126% in the first quarter of 2022.

“So, we have some space. I mean debt as a source of stress on the macroeconomy is not much of a much problem yet,” he said.

Waiting in a line to buy subsidized food, 48-year-old Mohammed Jamal said he was not feeling such leeway for his own family.

“It has become unbearable trying to maintain our standard of living,” Jamal said. “Prices are just out of reach for the common people,” he said. “It’s tough living this way.”

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September 23, 2022