IMF Executive Board Concludes 2018 Article IV Consultation with Bangladesh

June 8, 2018

On May 30, 2018, the Executive Board of the International Monetary Fund (IMF) concluded the 2017 Article IV Consultation with Bangladesh. [1]

The Bangladesh economy continues to perform well with robust and stable growth. The strong growth comes with stable inflation, moderate public debt, and greater resilience to external shocks. The country continues to make steady progress in reducing poverty and improving social indicators.

Real GDP growth in FY17 (ending September 30) further accelerated to 7.3 percent from 7.1 percent in the previous fiscal year, led by strong private consumption and investment. Headline inflation slightly picked up towards the end of the fiscal year with higher food prices caused by flood-related disruption in agricultural harvest. The current account turned into a deficit with slower export growth, higher imports, and decline in remittances, while the balance of payments remained in small surplus. The debt-to-GDP ratio has remained stable at around 30 percent with the fiscal deficit well below the 5 percent of GDP budget target.

The macroeconomic situation is expected to remain robust in FY18. Growth is projected at around 7 percent with strong domestic demand. Inflation is expected to remain below 6 percent, close to Bangladesh Bank’s target as flood-related pressure on food prices eases with the rice harvest recovery. The current account deficit is projected to widen to close to 2 percent of GDP with stronger import demand for food, industrial raw materials, and capital machinery, while remittances and exports start to recover. Slow progress in resolving the Rohingya refugee crisis could add to economic, political, and social pressures.

Executive Board Assessment [2]

Executive Directors commended the authorities for their sound macroeconomic policies which have contributed to robust growth, a significant reduction in poverty, and improvement in social indicators. Directors agreed that continued implementation of prudent policies and structural reforms, including enhancing productive investment, will be key to further strengthening strong and inclusive growth over the medium term. Directors commended the authorities for their efforts to host the large number of Rohingya refugees and highlighted the importance of continued financial support from the international community.

Directors welcomed the authorities’ efforts to contain the fiscal deficit and keep the public debt‑to‑GDP ratio broadly stable. Noting the urgent need to increase tax revenues, they encouraged the authorities to undertake tax reforms, especially implementation of the VAT reform and improvements in tax administration. Directors underscored the importance of raising revenues to finance the needed infrastructure investment and social safety nets. They welcomed the progress in implementing the public financial management reform strategy and encouraged sustained efforts in this area.

Directors highlighted the need to remain vigilant to inflation dynamics and tighten monetary policy as needed. They recommended that addressing liquidity problems in individual banks should be done through targeted conditional liquidity support, and considered that a gradual increase in exchange rate flexibility would help buffer the economy against external shocks.

Directors emphasized that stronger banking regulation and supervision is necessary to address banking sector weaknesses. Noting the high non‑performing loans (NPLs), particularly in state‑owned commercial banks (SOCBs), they called for an accelerated resolution of the NPLs, a shift towards risk‑based supervision, and strengthened banks’ internal controls and risk management systems. Directors encouraged the authorities to avoid regulatory forbearance and put in place a robust resolution framework for troubled banks. For the SOCBs, it would be important to enforce the monitoring mechanism and clearly formulate their public policy role with transparent budgetary support. Directors called for steps to further strengthen the AML/CFT framework.

Directors supported continued efforts to develop the capital market to mobilize long‑term financing for investment, which remains limited. In this context, they called for review and reform of the scheme for the national savings certificates by tightening its eligibility and revising the pricing mechanism.

Directors noted that further progress in diversifying exports, increasing female labor participation, and enhancing financial inclusion, especially for women, are critical to sustain strong and inclusive growth. They highlighted the need to increase expenditure on health, better align vocational training to market demands, improve rural infrastructure, and strengthen labor laws. Directors emphasized that climate change poses significant risk to Bangladesh’s economy and this issue requires continued attention and efforts.


Table 1. Bangladesh: Selected Economic Indicators, FY2014–18 1/

I. Social and Demographic Indicators

Population (FY16, millions; estimate)

161 

Infant mortality (2015, per thousand live births)

31

GDP per capita (FY16, U.S. dollars)

1378

Life expectancy at birth (2014, years)

72

Labor force participation rate (FY10, percent; national measure)

59

Adult literacy (2015, percent of people)

62

Poverty headcount ratio (2010, national measure, percent)

32 

Population dependency ratio (2015, percent)

52

Gini index (World Bank estimate)

32

Population growth (FY16, y/y, percent; estimate)

1.3

II. Macroeconomic Indicators

FY14

FY15

FY16

FY17

FY18

Prelim.

Staff proj.

National income and prices (annual percent change)

Real GDP

6.1

6.6

7.1

7.3

7.0

GDP deflator

5.7

5.9

6.7

6.3

6.0

CPI inflation (annual average)

7.3

6.4

5.9

5.4

5.9

CPI inflation (end of period)

7.0

6.3

5.5

5.9

5.9

Nonfood CPI inflation (end of period)

5.4

6.2

7.5

3.7

3.9

Central government operations (percent of GDP)

Total revenue and grants

10.9

9.8

10.1

10.2

10.7

Total revenue

10.4

9.6

10.0

10.2

10.5

Tax

8.6

8.5

8.8

9.0

9.4

Nontax

1.8

1.1

1.2

1.2

1.1

Grants

0.5

0.2

0.1

0.1

0.2

Total expenditure

14.0

13.8

13.4

13.6

14.9

Current expenditure

8.2

7.9

8.3

8.3

8.4

Annual Development Program (ADP)

4.1

4.3

4.4

4.1

5.0

Other expenditures 2/

1.7

1.6

0.8

1.1

1.4

Overall balance (including grants)

-3.1

-4.0

-3.4

-3.3

-4.2

(Excluding grants)

-3.5

-4.1

-3.5

-3.4

-4.3

Primary balance (excluding grants)

-1.5

-2.1

-1.6

-1.7

-2.6

Total central government debt (percent of GDP)

35.3

33.7

33.3

33.2

33.4

Money and credit (end of fiscal year; percent change)

Credit to private sector by the banking system

12.3

13.2

16.8

15.7

14.6

Reserve money 3/

15.4

14.3

30.1

16.3

12.0

Broad money (M2)

16.1

12.4

16.3

10.9

12.9

Balance of payments (billions of U.S. dollars)

Exports, f.o.b.

29.8

30.7

33.4

34.0

35.9

(Annual percent change)

12.1

3.1

8.9

1.7

5.5

Imports, f.o.b.

-36.6

-37.7

-39.9

-43.5

-49.5

(Annual percent change)

8.9

3.0

5.9

9.0

13.9

Current account balance 4/

1.4

3.5

4.3

-1.5

-4.8

(Percent of GDP)

0.8

1.8

1.9

-0.6

-1.8

Capital and financial account balance

3.5

2.4

1.4

4.8

4.2

Of which : Foreign direct investment

1.5

1.8

1.3

1.7

2.0

Overall balance

5.5

5.0

5.0

2.8

-0.7

Gross official reserves (billions of U.S. dollars) 5/

21.4

24.9

30.2

33.5

32.8

In months of prospective imports of goods and services

5.8

6.5

7.2

7.0

6.4

Exchange rate (taka per U.S. dollar; period average)

77.7

77.7

78.3

79.1

…

Exchange rate (taka per U.S. dollar; end-period)

77.6

77.8

78.4

80.6

…

Nominal effective rate (2010=100; period average)

89.7

95.4

100.4

101.2

…

Real effective rate (2010=100; period average)

107.9

120.7

133.1

139.3

…

Memorandum item:

Nominal GDP (billions of taka)

13,437

15,158

17,329

19,758

22,414

Sources: Bangladesh authorities; World Bank, World Development Indicators; and IMF staff estimates and projections.

1/ Fiscal year begins July 1.

2/ Includes non-ADP capital spending, net lending, food account surplus (-)/deficit (+), and extraordinary expenditures.

3/ Reserve money excludes liabilities arising from banks' foreign currency clearing accounts at Bangladesh Bank (BB) and nonbank deposits at BB.

4/ Imports are based on customs data.

5/ Excludes deposits held in offshore accounts of resident financial institutions, noninvestment grade sovereign bonds, and foreign exchange overdrafts provided by BB to domestic banks.

[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

[2] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm.

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