BD Continues To Face Economic Challenges: IMF

The International Monetary Fund has said that the economy of Bangladesh has continued to face economic challenges.

IMF Mission Chief for Bangladesh, Rahul Anand, made the remark in his opening speech at the press briefing on Bangladesh on Thursday (December 14). The text was uploaded on the IMF website on Friday (December 15).

‘External headwinds, coupled with initially inadequate domestic policy response, have made macroeconomic management challenging. An unprecedented reversal of the financial account deteriorated the overall balance of payments in FY2023, leading to continued pressures on FX reserves and the Taka,’ said Rahul Anand.

In response to these shocks, he said, the authorities have taken several measures to deal with macroeconomic challenges.

‘Bangladesh Bank has tightened monetary policy, allowed greater exchange rate flexibility, and unified the multiple exchange rates. The authorities also kept the fiscal primary balance within the program target,’ he said.

‘Thanks to these efforts by the authorities, and despite the difficult macroeconomic environment, the overall program performance has been broadly satisfactory. I am happy to report that most program targets and reform commitments were met,’ he said.

‘In the near-term, the focus should be on containing inflation and rebuilding external resilience. This would require a calibrated monetary policy tightening, which is supported by prudent fiscal policy stance. At the same time, a more flexible exchange rate system will help alleviate foreign exchange pressures and rebuild external buffers,’ he said.

‘In addition,’ he said, ‘we also need to focus on growth–boosting reforms. By that, we mean reforms that target the most binding structural constraints on Bangladesh’s economic activity.’

He said that the IMF outlined some areas to address for Bangladesh.

‘First, raising tax revenues and rationalizing non-priority expenditure is key. This will allow the authorities to increase investment in social development and climate spending. Continued efforts to enhance public financial and investment management are also needed to increase spending efficiency and mitigate fiscal risks,’ he said.

‘Second, modernizing the monetary policy framework and improving policy transmission will foster macroeconomic stability. Further reforms to modernize the exchange rate framework and strengthen FX reserve management would enhance external resilience,’ Rahul Anand said.

‘Third, reform priorities should also focus on addressing vulnerabilities in the financial sector by strengthening banking regulation, supervision, and governance. We would also encourage deepening of capital markets to help mobilize private financing to support growth objectives,’ he said.

‘Further trade liberalization and enhancements to the investment climate will boost foreign direct investment and help diversify exports. Raising productivity, including through education and skills development, as well as further increasing female labor participation will further boost growth potential,’ he said.

‘And finally, I noted climate spending earlier. Building resilience to climate change and natural disasters is a priority for achieving high, inclusive, and green growth. To do that, improving efficiency in climate spending and mobilizing climate financing will be crucial,’ the IMF Mission Chief for Bangladesh said.

‘Based on our discussions with authorities and the progress so far, we are encouraged that the authorities remain fully committed to taking necessary steps to restore near-term macroeconomic stability and accelerate economic reforms, while also protecting the vulnerable and delivering on the climate agenda,’ he said.

Mentioning that the authorities are also making good progress on implementing reforms to boost growth, he hoped, ‘We look forward to the authorities’ accelerated implementation of these reforms, which will help Bangladesh to successfully graduate from the LDC status in 2026 and achieve its aspiration of reaching the upper-middle income status in 2031.’

The IMF on December 12 decided to disburse around $681 million to help Bangladesh in tackling the current economic downturn. Bangladesh received the fund as the second tranche under the $4.7 billion IMF loan progamme started in the early this year against the backdrop of the severe shortage of dollars and the high inflation.