Press Release No. 18/80

IMF Staff Completes 2018 Article IV Visit to Bangladesh

March 7, 2018

• Macroeconomic performance is set to remain robust in the coming year and inflation broadly stable.
• Continued efforts to increase revenue collection are necessary to provide the much-needed fiscal space for boosting public investment and social spending.
• Priority should be placed on broadening the tax base, implementing the delayed VAT reform, and revising direct taxes.

An International Monetary Fund (IMF) staff team, led by Mr. Daisaku Kihara, visited Dhaka from February 25-March 8 to hold discussions on the 2018 Article IV Consultation with Bangladesh.

At the conclusion of the visit, Mr. Kihara made the following statement:

“Steady monetary policy management and fiscal discipline have contributed to continued macroeconomic stability. Driven by domestic demand, real GDP growth exceeded 7 percent for a second consecutive year in FY2017, while inflation increased slightly, mainly due to higher food prices. With lower remittances and higher imports of capital goods and food, the current account moved into deficit. Foreign reserves remain adequate. Macroeconomic performance is set to remain robust in the coming year and inflation broadly stable.

“Various challenges remain to sustain the impressive economic performance of recent years. Efforts to harness the country’s growth potential while ensuring economic and financial stability will require creating fiscal space for infrastructure investments and social safety nets, making the financial sector more efficient, enhancing the business environment, and strengthening governance.

“Against this backdrop, IMF staff and the authorities held fruitful discussions on policy measures to preserve macroeconomic stability and secure strong and inclusive growth over the medium term.

“Monetary policy should be vigilant against inflation accelerating above the target after a recent pick-up in food inflation. Macro-prudential policies should aim to keep private credit growth in line with the authorities’ target. Fiscal policy should keep the public debt ratio stable, while strengthening public investment management. The Rohingya refugee crisis could add spending pressures and continued financial support from donors will be essential.

“ Continued efforts to increase revenue collection are necessary to provide the much-needed fiscal space for boosting public investment and social spending. Public investment in infrastructure is especially important to improve the business environment, attract FDI, and diversify exports. Priority should be placed on broadening the tax base, implementing the delayed VAT reform, and revising direct taxes. Further improvements in tax administration will boost revenues as well as reduce compliance costs and enhance transparency.

“Mobilizing long-term capital for growth will depend on policies to make the financial sector more efficient. This will require enhancing banking sector regulation and supervision, in particular for the state-owned commercial banks, avoiding regulatory forbearance, improving corporate governance, and implementing judicial reforms to expedite loan recovery. Tighter eligibility criteria and a move towards market-based pricing will reduce reliance on National Savings Certificates and help strengthen financial intermediation and deepen capital markets.

“Bangladesh has made remarkable progress in achieving inclusive growth, which has led to a substantial decline in poverty, but challenges remain. The extent of financial inclusion in society is commendable, and the authorities should continue to strengthen the legal and regulatory framework of the banking sector and implement the upcoming financial inclusion strategy. Finally, higher expenditure on education and improvements in rural infrastructure should continue to boost the current low female labor force participation rates by enhancing job prospects, reducing the time spent on domestic tasks, and increasing safety.

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

The team met with the Minister of Finance, the Bangladesh Bank Governor, the Finance Secretary, the Chairman of the National Board of Revenue, and other senior officials, as well as representatives of the business and banking sectors, labor unions, think tanks, and development partners.