DHAKA, Jan 9: The Bangladesh government has decided to request the International Monetary Fund for a $300 million loan under its compensatory financing facility (CFF) to shore up low level of foreign exchange reserve, informed sources said.

The IMF provides compensatory financing facility as a short-term loan to the low-income countries for temporary balance of payment support. It carries a five-per cent rate of interest annually and is relatively free of hard conditions, including those of structural reforms. Such loans are to be repaid in four to five year’s time. The government has already decided to seek loan from the IMF under the poverty reduction growth facility (PRGF) and is in the midst of preparing its poverty reduction strategy Paper (PRSP). Since the process would involve longer period and the government would require some balance of payment supporting funds immediately, it is applying for the CFF.

This has also acquired some urgency following the payment of $290 million made on Tuesday to settle accounts with the Asian Clearing Union (ACU) and the foreign exchange reserves reached an uncomfortable level of $1.06 billion — hardly adequate to meet six weeks import bills.

The present government inherited a low level of foreign exchange reserves — around $1 billion — when it took over office on 10 October 2001.

The reserves came under continuous pressure due to fall in the country’s export earnings and also in remittances from the Bangladeshis working abroad as global recession gradually began to affect the economies of the developed countries.

Funds remitted by the expatriate Bangladeshis rose by 21 per cent in November last year compared to the corresponding period in the year before while imports came down by six per cent in July-October period of FY2002 (July 2001-June 2002) as compared to the same period last fiscal year.

The remittances increased, banking sources claim, due to external receipt last December against UN Peacekeeping Mission of Bangladesh and additional funds remitted by the Bangladeshi workers ahead of Eid festival.

Currently an IMF mission led by Luis Valdisieso, IMF’s Adviser for Asia-Pacific region is on a week-long visit to Dhaka and the top government officials are likely to discus with the team members about CFF.

The IMF mission, informed sources told Dawn, will discuss with Finance and Planning Minister M. Rahman and other top officials issues relating to the preparation of the poverty reduction strategy paper, which will form the basis of all discussions during the forthcoming Paris meeting in early April next.