Bangladesh needs structural reforms to attract investment: IMF DMD

Past reforms have placed Bangladesh today in a better position in macroeconomic management than many low and middle income countries, but further reforms are needed to attract more private investment to sustain higher levels of growth, says a visiting senior IMF executive.

Sharing her thoughts with an audience of economics students and teachers Tuesday on Bangladesh's overall economic situation in the context of global uncertainties, IMF Deputy Managing Director Antoinette Monsio Sayeh said Bangladesh requires structural reforms to address weaknesses in financial sector, increase efficiency of state-owned commercial banks and develop capital market into a reliable source for long-term investments.

Besides, she said, "You need policies to improve corporate governance and the financial sector's efficiency to attract a higher amount of foreign direct investment."

Stating that Bangladesh has one of the lowest revenue-GDP ratio in the world, the IMF executive, who had already met the prime minister, finance minister and central bank chief to discuss the $4.5 billion loan package, pointed out that the government does not collect sufficient revenue to finance public investment necessary for physical infrastructures and social programmes to make people's life better.

"To achieve its revenue goal Bangladesh needs to reform key tax policies, increase tax compliance and broaden tax base," Sayeh told the audience at Dhaka University's social science auditorium.

She hoped the IMF board would accept on 30 January the loan programme, which is geared to help Bangladesh maintain macroeconomic stability and support green growth in the long term as well as overcome balance of payment pressure from imports.

Bangladesh would be the first country in Asia to benefit from the IMF's new concessional lending scheme – resilience and sustainability fund – with a longer maturity period.

In the past decade, Bangladesh has achieved impressive economic growth and social development, making steady progress in reducing poverty and across many social indicators, the senior official from the IMF headquarters said, hoping that the country would build on past successes and continued reforms to make the economy more resilient.

The global economy is facing extraordinary challenges from the war in Ukraine which has driven up global inflation at a much higher level, pushing up the cost of living across the world. Though global growth is expected to pick up towards the end of the year, a high degree of uncertainties remains ahead.

As an impact of global scenario, Bangladesh's recovery is somewhat slower than originally thought due to slowdown in global demand and supply chain disruption, Sayeh viewed. Inflation rose to its highest level in years and trade gap widened, leading taka to lose its value steeply and foreign exchange reserves to decline.

Given the continued uncertainties in the global environment, managing inflation, rebuilding reserves and economic stability are now the top priorities for Bangladesh, the IMF official listed.

She appreciated Bangladesh's achievements in development indicators, economic inclusion and increase in per capita income that helped the country "make progress towards the goal of becoming an upper middle income country by 2031".

"Bangladesh also stands out on the development indicators. It has done very well compared with other South Asian economies in health and closing the gender gap," she said, citing the country's success in eliminating gender disparity in primary and secondary education and reducing maternal mortality.

Addressing climate issues remains a key long-term agenda for Bangladesh as it is among the top 10 countries most affected by extreme weather events such as cyclones and floods, which, Sayeh stated, not only cause financial and infrastructural damage, but also result in a large climate migration.

To tackle this challenge, Bangladesh requires a wide range of measures and investment from sources beyond the budget, the IMF executive stressed.

Antoinette Monsio Sayeh responded to queries from teachers and students.

In reply to a question on withdrawal of subsidy and its impact on inflation, the IMF DMD said since subsidies were found to be helping the rich more than the poor, those should be targeted to address the needs of the poor.

Replying to a point on reforms raised by professor of economics Dr Selim Raihan that reforms are promised but often not implemented, Sayeh stressed that it should be made sure that what is agreed will be taken forward.

Ownership of reforms needs to be built among the public, she viewed. She appreciated Bangladesh for coming to the Fund "in the very proactive way" when it recognised that the pressures from the global economy were likely to continue and impact it adversely. "Bangladesh came early and made an early request, did not wait for a crisis," she explained.

Before delivering her experience to teachers and students, she had a meeting with Prof Dr Akhteruzzaman, vice-chancellor of the University of Dhaka.

The session was chaired by Masuda Yasmeen, professor and chairman of the Economics Department, where Dr Zia Rahman, dean of the social science faculty, was present.

The session was conducted by Prof Firdousi Naher of the Economics Department.