IMF: Inflation, budget deficit to widen in FY22

The International Monetary Fund on Sunday warned that the government’s targets on inflation, budget deficit, and current account deficit will be exceeded in the current fiscal year due to pandemic related overspending.

Urging the government for a fuel price mechanism, the multilateral lending agency emphasised the need for a fiscal policy framework and enhanced revenue to offset the negative trend in the economy.

The IMF Article IV Mission made the new forecast in a press conference held at the InterContinental Dhaka on Sunday.

At the programme, IMF division chief in its Asia and Pacific Department Rahul Anand told reporters, “Reflecting the non-food price inflation and recent fuel price increases, inflation is projected to be slightly higher than the authorities’ target.

“The fiscal deficit is projected to reach 6.1 percent of the GDP in FY22 as pandemic-related spending increases. With the projected pick up in the imports of capital goods, industrial raw materials, and commodities, the current account deficit is expected to widen in FY22.”

Adding that the public debt will remain sustainable over the long-term, Anand continued, “Increasing revenue and enhancing fiscal policy frameworks are necessary to scale up inclusive and productivity-enhancing investments, while safeguarding fiscal sustainability.

“Modernising revenue administration, streamlining tax expenditure, separating National Savings Certificates (NSC) from direct budget financing, and adopting a fuel pricing mechanism will help accommodate additional social, developmental and climate related spending.”

The International Monetary Fund has come up with a revised projection that the economic growth of Bangladesh will pick up to 6.6 per cent in the current fiscal year as the impact of Covid-19 abates.

In October, the Washington-based multilateral lender projected that the growth would be 6.5 per cent in FY22.

Supporting recovery while addressing vulnerabilities remain vital, Anand told the media, adding that the drop in Covid-19 deaths and the rebounding economic activities are the reasons behind the increase in its projection.

However, the government had targeted to achieve a growth of 7.2 per cent for the Fiscal Year 2021-22.

Anand further said, “Despite being hit by multiple waves of the Covid-19 pandemic, quick and decisive actions by the authorities, supported by the external environment, led to a much quicker rebound than Bangladesh’s regional peers.

“Growth is expected to pick up to 6.6 per cent in FY22. As the external environment improves and the domestic vaccination program progresses, growth is projected to increase to 7.1 per cent in FY23.”

Responding to a question, Anand said Bangladesh was growing very fast before the Covid-19 pandemic, but the country faced various Covid-19-induced challenges such as the sharp decline in remittances in recent times, and restricted domestic activities, leading to the fall in GDP.

He pointed out that the challenges were both on the external and internal fronts.

The external demand has picked up but the Omicron variant of virus – which is riding across the globe – is posing a threat, Anand said, adding that there is so much uncertainty as it is not clear how the Omicron variant will impact Bangladesh’s exports and remittance.

He also urged the central bank to monitor inflationary pressures and for remedies to normalise those as the economy rebounds.

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

The IMF mentioned that it stands ready to support the government’s reform efforts through policy advice and capacity building, including monetary and fiscal policies, financial sector supervision and regulation, and macroeconomic statistics.

An IMF delegation led by Rahul Anand is visiting Dhaka from December 5 to hold discussions on the 2021 Article IV Consultation with Bangladesh.

The team has met with the Bangladesh Bank governor, the finance secretary, the chairman of the National Board of Revenue, and other senior government officials, as well as representatives of the business and banks, labour unions, and development partners.

Responding to another query, Anand said the global commodity and oil prices have gone up, and this will cause price pressures on consumers.

On falling reserve, the mission head said last year was an exceptional year for remittance earnings.

“The record amount of remittance was earned amid the pandemic due to several reasons, including the two per cent incentive and travel restrictions which triggered immigrants to send more remittance,” he added.