Bangladesh Seeks I.M.F. Loan as Inflation Rocks South Asia


DHAKA, Bangladesh — Just a week after introducing scheduled power outages in response to the soaring cost of fuel in Bangladesh, the government said it was seeking help from the International Monetary Fund, joining two other nations in South Asia to do so in recent months.

Government officials said the country was running low on foreign reserves, the problem that prompted both Sri Lanka and Pakistan to pursue I.M.F. assistance.

“We can’t print dollars; we have to earn them,” A.H.M. Mustafa Kamal, the finance minister of Bangladesh, said Wednesday. “We earn dollars by the hard work of our people who work or do business abroad. They are the driving force of our economy.”

Both money sent from Bangladeshis living overseas and exports have fallen amid fears of a global recession.

High inflation caused by Russia’s invasion of Ukraine is dealing a hard blow to developing countries whose economies run on imported fuel. As trade deficits widen, governments are struggling to shore up enough foreign reserves to import increasingly expensive diesel, gasoline and cooking gas.

In Sri Lanka, where drivers have to wait in line for days to refuel, the government defaulted on its debt in April, prompting a crisis that led to the president’s ouster this month. Observers fear that other countries may face similar turmoil.

“Sri Lanka’s government was the first to fall. There have already been protests related to food and fuel prices in at least 17 countries because of inflationary pressures,” Samantha Power, administrator of the United States Agency for International Development, said Wednesday in New Delhi during meetings on the global food crisis. “If history is any guide, we know that Sri Lanka’s government will likely not be the last to fall.”

Nepal, among the poorest countries in the region, had not fully recovered from the shocks of the pandemic and a drop in Mount Everest tourism when global inflation hit, further depleting its foreign reserves.

Nepal’s government spends about a fifth of its budget on imported diesel, gas and other petroleum products, and has seen its indebtedness to India — its sole source of fuel — rise to dangerous levels.

Government fuel rationing has sent consumer prices even higher.

Rajendra Tamang, a taxi driver in the capital, Kathmandu, said fuel prices have nearly doubled from a year ago.

“Once the fuel price is hiked, the price of everything — tea to clothes and travel — goes up. Food prices have also increased. House rent is increasing,” he said.

“But my earning is decreasing. People refuse to take a cab unless they have an emergency,” he added.

Similarly in India, a widening deficit is draining foreign reserves.

The country’s foreign exchange reserves shrunk $7.5 billion in the week that ended July 15, more than 6 percent less than the same period last year, according to central bank data.

India has tried to confront the problem by continuing to import cheaper Russian oil and banning wheat exports, measures that have kept the country from experiencing the scarcity affecting some of its neighbors.

But inflation is starting to be felt.

India’s Parliament was rocked by protests this week after opposition leaders demanded a discussion on rising food prices. On Tuesday, Rahul Gandhi, an opposition leader from the Indian National Congress party, was briefly detained after he staged a protest outside the Parliament against rising prices and unemployment.

Pakistan this month reached a preliminary agreement with the I.M.F. for the revival of a $6 billion bailout program as the country neared the brink of a balance of payments crisis.

The deal broke a deadlock in discussions that had dragged on for months and came after Pakistan’s Prime Minister, Shehbaz Sharif, introduced tough economic measures to meet I.M.F. demands, including raising electricity rates, increasing fuel prices and ending government subsidies.

Those moves have prompted public outcry and deepened the country’s political crisis as it struggles with a cratering economy, depreciating currency and double-digit inflation.

While other countries in South Asia reported sharp economic declines in 2020, Bangladesh was an outlier. Its powerhouse garments-for-export industry, the second-largest in the world, helped keep the economy growing.

But the invasion of Ukraine, and the surge of commodity prices, have proven a greater challenge.

The government began scheduled power cuts last week, and has shut off diesel-run power plants indefinitely because of the high cost of diesel. It has also ordered gas stations to close at least once a week.

Rising fuel prices are cutting into the garment industry’s profit margins.

Showkat Osman Heera, a manager at Lyric Industries, a garment manufacturer in Bangladesh, said frequent power cuts mean diesel generators must be used to keep assembly lines running.

“Before the recent power crisis, we needed only 100 to 150 liters of diesel a day; now we need more than 1,000 liters,” Mr. Heera said. “We did not miss any shipments yet, but if this situation continues, we may face real trouble.”

Mr. Kamal, the finance minister, said last week that Bangladesh would not need I.M.F. support, downplaying the country’s economic vulnerability. He did not explain his about-face on Wednesday.

Rashed Al Mahmud Titumir, head of the Department of Development Studies at the University of Dhaka, said the country was facing a difficult situation.

“Bangladesh’s economy suffered two external shocks recently: the Covid-19 pandemic and the invasion of Russia to Ukraine,” he said. “Bangladesh has little capacity to withstand or absorb this kind of external shock.”

Saif Hasnat reported from Dhaka, Bangladesh, and Emily Schmall from New Delhi. Reporting was contributed by Karan Deep Singh in New Delhi, Christina Goldbaum in Sacramento and Bhadra Sharma in Kathmandu, Nepal.



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