UPDATE 1-IMF approves $987 mln loan for Bangladesh
(Adds details from conference call)
WASHINGTON, April 11 (Reuters) - The International Monetary Fund on Wednesday approved a three-year $987 million loan deal for Bangladesh, saying budget and inflationary pressures had increased recently due to rising subsidy costs.
The IMF said it would immediately disburse $141 million of the loan.
It forecast economic growth in Bangladesh will slow to 5.5 percent in fiscal year 2012, down from 6.7 percent in 2011, though it should rebound next year.
The IMF said headline inflation, while moderating recently, remained high, with non-food inflation reaching nearly 14 percent in March. It said inflation was set to decline to single digits by the end of 2012 through "restrained" fiscal and monetary policies.
"The near- to medium-term outlook hinges on timely progress on policy adjustments and structural reforms envisaged under the authorities' program," the IMF said in a statement.
David Cowen, IMF mission chief to Bangladesh, said the program focused on fiscal and financial reforms, "restrained" monetary policy, and trade and investment, including cutting trade barriers.
He said the government's subsidy bill in fiscal year 2012 would likely be in the vicinity of 2.8 percent of gross domestic product and could rise over the next two years.
"A lot of these subsidies are off-budget, showing up as quasi-fiscal losses by energy and fertilizer-related" state-owned enterprises, Cowen said.
"Those losses have been covered by a variety of means, mainly through borrowing from state or commercial banks and to a lesser extent from outside borrowing, specifically suppliers credit for oil," he added.
The government last month said electricity prices would rise by about 8 percent for wholesale and retail consumers, to curb losses by the country's power company.
Cowen said the authorities had agreed to make some of the subsidies as part of the budget.
He also said the main banking sector reform in the first year will focus on amendments to the Bank Companies Act, the main legislation governing commercial banks in Bangladesh.
The authorities, he said, are taking steps to strengthen governance of individual banks. They also intend to amend the companies act to ensure that oversight responsibilities of banks are clear.
Cowen said the IMF was aware that the central bank, Bangladesh Bank, had approved new licenses for commercial banks.
"Our main concern is that Bangladesh Bank follows procedures and regulations it set out for licensing new banks," said Cowen. "We haven't had a chance to discuss the matter with Bangladesh Bank since the licenses were approved, but to our knowledge they have followed their own procedures," he added.
(Reporting By Lesley Wroughton; Editing by Leslie Adler)
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