IMF asks govt to roll back from Covid-related policy relaxations

The International Monetary Fund has said the government should assess the impact of its policies on the level of Non-Performing Loans (NPLs) in the country’s banking sector, and roll back from policy relaxations allowed during the pandemic.

The suggestion came when IMF Division Chief Rahul Anand for the Asia and Pacific Department was talking to the journalists at a press conference held in InterContinental Dhaka on Sunday.

The IMF official said the NPLs get in the way in lending as it shoots up the cost of lending; Bangladesh needs a lot of investment as the county’s growth stories depends largely on investment.

“When the pandemic happened, general relaxation and forbearance were appropriate at the beginning to support the economy but now the economy is coming back and our advice is in orderly exit from all the relaxation given to the banks as well as to the corporate,” according to the IMF official.

The global lender welcomes the authorities’ effort to amend five acts including Bank Companies Act, Loan Court Act, and Bankruptcy Act, and wants their best practices on a par with international standard.

The IMF emphasised addressing the structural weaknesses in corporate governance, regulatory, supervisory, and the legal framework to stem NPL growth.

It said an absence of reforms to financial sector will risk limiting the medium-term growth prospect, and suggested ensuring classification and provisioning requirements that should be in line with the Basel Standards -- an important first step towards NPL resolution.

“Recent price changes of the national savings certificates are welcome, but efforts to reform the scheme and develop the bond market are important to boost capital markets,” as per the IMF statement.

More decisive reforms are needed to facilitate Bangladesh’s transition out of the LDC status and to maintain competitiveness in the post-pandemic world.

To support private sector-led growth, underpinned by exports and investments, structural reforms should focus on improving governance, diversifying exports, increasing productivity, and building climate resilience to lift growth potential.