IMF suggests Bangladesh monitor inflation, normalise monetary policy
IMF hailed Bangladesh for quickly addressing the economic fallout of the Covid-19 pandemic
IMF recommends:
- Closely monitoring inflation
- Normalising monetary policy
- Prompt and decisive policy response to pandemic
- Exercising fiscal prudence
- Maintaining a low risk of debt distress
The International Monetary Fund (IMF) says Bangladesh needs to closely monitor inflation developments and stand ready to normalise monetary policy, while it concluded the Article IV consultation with Bangladesh.
The IMF has projected the headline consumer price index (CPI) inflation at 5.9% in FY22, driven by higher international commodity prices.
The Washington-based organisation, which basically works to foster global monetary cooperation, remarks that Bangladesh has made substantial progress in its first 50 years of independence.
Since 2010, per capita real GDP growth, averaging 5% annually, has resulted in a steady decline in poverty, with increasing access to education and healthcare, IMF said in its annual talks with Bangladesh.
It also said macroeconomic policies in recent years have been successful in keeping inflation stable, debt-to-GDP low, and external buffers adequate.
IMF directors recognised Bangladesh's impressive economic growth and social development.
For FY22, the IMF projected 6.6% economic growth supported by a robust rebound in exports and stimulus packages.
The IMF hailed Bangladesh for quickly and decisively addressing the economic fallout of the pandemic with the support packages worth Tk1.9 trillion (or 6% of GDP).
But it noted the risks, including from the uncertain path of the pandemic, low vaccination rates, and vulnerabilities to climate change.
It also projected the fiscal deficit to peak at 6.1% of GDP in FY22 as the authorities increased pandemic-related spending.
IMF directors commended the authorities for exercising fiscal prudence and maintaining a low risk of debt distress, while noting that Bangladesh's capacity to repay the fund remains sound.
They underscored that modernising revenue administration and implementing tax policy reforms would help raise revenues to sustainably increase development, social, and climate spending.
Revenue measures should be accompanied by measures to rationalise spending and improve spending efficiency.
The IMF suggests phasing out caps on interest rates to improve credit allocation and recommends increasing exchange rate flexibility.
The agency says pandemic increased existing vulnerabilities in the banking sector that could impair medium-term growth; banks must ensure "adequate" capital buffers.
To lift Bangladesh's growth potential, structural policies should focus on diversifying exports, increasing FDI, enhancing productivity, investing in human capital and addressing corruption.