IMF seeks removal of Bank Company Act’s Section 18(A) as condition for new loan package

The International Monetary Fund (IMF) has sought a time-bound action plan for comprehensive banking sector reforms, specifically raising structural objections over the newly added Section 18(A) of the Bank Company Act, finance ministry sources said.

The global lender has placed these conditions as part of ongoing negotiations for a completely new loan package formally requested by the government on June 1.

A senior official of the ministry told UNB on Tuesday in anonymity that the IMF has expressed strong reservations regarding Section 18(A) of the Bank Company Act�"a controversial provision incorporated into the legislation that creates a legal window to return the ownership of forced-merged or restructured banks back to their previous owners. The multilateral lender views this clause as a masked loophole that compromises structural governance and weakens accountability within the financial sector.

To satisfy the IMF conditions and ensure financial sector discipline, the government has taken a decision in principle to drop Section 18(A) from the law entirely.

In addition to stripping the controversial provision, the IMF has sought explicit, definitive plans from the government to sharply bring down non-performing loans (NPLs), execute the merger of weak financial institutions, and completely halt state and political interference in commercial bank management.

Beyond the banking arena, the global financial institution has locked down tough fiscal conditions on the revenue side. The IMF is pushing for the enforcement of a uniform 15 percent Value Added Tax (VAT) rate across the board and the broad application of a turnover tax.

While ministry officials noted that the government aligns with the idea of a single-rate VAT system, it plans to negotiate the cap between 10 to 12 percent. 

Furthermore, authorities are reluctant to immediately impose the turnover tax, arguing that it penalizes enterprises based on total volume even if they are incurring losses. The government plans to roll it out only after upgrading the National Board of Revenue's (NBR) accounting infrastructure.

An IMF delegation is scheduled to visit Dhaka in mid-July to evaluate the country's economic readiness and structural compliance. The mission's appraisal will lay the groundwork for final discussions during the IMF-World Bank Group Annual Meetings in Thailand this October, paving the way for the potential signing of the new loan agreement by December.

Bangladesh's long-term borrowing capacity under the standard IMF quota rules stands at up to US$4.64 billion SDR, translating to approximately $6.15 billion at current exchange rates.�"UNB