The International Monetary Fund (IMF) has advised exercising caution while implementing various measures to revive near-term macroeconomic stability in Bangladesh, a focus on containing inflation and rebuilding external resilience.
The global lender has also emphasised adopting a neutral fiscal policy and enhancing transparency in revenue policies, currency exchange rates flexibility as supportive policies, and financial reforms on addressing vulnerabilities in the financial sector.
On Wednesday, the IMF board approved the second tranche of $681 million for Bangladesh, under the $4.7 billion loan scheme, and made recommendations to help the country restore near-term macroeconomic stability amidst forex crunch, banking sector volatility, and skyrocketing inflation.
The agency stressed on strengthening banking regulation, supervision, governance, and deepening capital markets.
This IMF-supported programme will lay the foundations to unlock Bangladesh’s growth potential, harness its demographic dividend and support long-term inclusive and green growth, it added.
IMF added, “Bangladesh economy has been buffeted by multiple shocks. Spillovers from Russia’s war in Ukraine and global monetary tightening have interrupted a strong post-pandemic recovery, with real GDP growth slowing to 6 percent in FY23 and headline inflation reaching a decade high of 9.9 per cent year-on-year in August 2023.
“Due to strict import compression, the current account (CA) deficit narrowed considerably to a third fourth of GDP in FY23 compared to 4.1 per cent of GDP in FY22. However, an unprecedented reversal of financial account, driven by global uncertainties and inadequate policy response, has kept forex reserves and the Taka under pressure.”
Following the Executive Board’s discussion, Deputy Managing Director and Acting Chair Antoinette Sayeh said, “Bangladesh’s economy is navigating multi-faceted economic challenges. Despite a difficult external environment, program performance has been broadly on track, reflecting the authorities’ strong commitment.
“The fund-supported programme is helping restore macroeconomic stability and protect the vulnerable, while accelerating macro-critical structural reforms to bolster growth potential and delivering on the climate agenda.”
Sayeh added, “Near-term policies should continue to focus on containing inflation and rebuilding external resilience. This requires a calibrated monetary policy tightening, supported by a neutral fiscal stance, and greater exchange rate flexibility to alleviate foreign exchange pressures and rebuild buffers.
“Ongoing reforms to modernise the monetary policy framework will improve policy transmission and foster macroeconomic stability. Gradually transitioning to a more flexible exchange rate regime and strengthening forex reserve management would enhance external resilience.”
Sayeh stressed, “Raising tax revenues and rationalizing expenditures will allow increasing social, developmental, and climate-related spending. Continued efforts to enhance public financial and investment management are needed to increase spending efficiency and mitigate fiscal risks.
“Financial reforms should focus on addressing vulnerabilities in the financial sector, by strengthening banking regulation, supervision, and governance. Deepening capital markets will help mobilise financing to support growth objectives.”
She then said, “Further trade liberalisation and enhancements to the investment climate will help bolster export diversification and foreign direct investment. Raising productivity, including through education and upskilling, along with increasing female labor participation, is pivotal to boost growth potential.
“Building resilience to climate change and natural disasters is a priority for achieving high, inclusive, and green growth. In this context, strengthening institutions, improving climate spending efficiency, and mobilizing climate financing remain crucial.”
IMF also underscored the importance of addressing structural challenges to support strong, inclusive, and green growth.
The agency also commended Bangladesh’s efforts to further modernise the monetary policy framework, which will enhance policy transmission and help reduce inflation.
Directors also welcomed the adoption of a unified exchange rate and stressed that a gradual transition to a more flexible regime is needed to enhance the economy’s resilience to external shocks.
