Press Release: Statement at the Conclusion of an IMF Mission to Bangladesh
April 28, 2008Press Release No. 08/92
An International Monetary Fund (IMF) team led by Mr. Thomas Rumbaugh, Advisor in the Asia and Pacific Department of the IMF, visited Bangladesh during April 22-27 to review recent economic developments and the outlook for the FY091 budget. The mission met with Chief Advisor Fakhruddin Ahmed, Finance Advisor Mirza Azizul Islam, Finance Secretary Mohammad Tareque, Bangladesh Bank Governor Salehuddin Ahmed, National Board of Revenue (NBR) Chairman Abdul Mazid and other senior government officials.
The mission issued the following statement on April 27, 2008, in Dhaka:
"The economy has withstood multiple shocks in the current fiscal year. While growth slowed earlier in the year, recent improvements in export performance and agricultural production are contributing to a rebound. With exports recovering and a strong Boro crop being harvested, real GDP growth of 5½-6 percent appears possible for FY08. Inflation, driven thus far by food prices, has remained around 10 percent and will continue to be a policy challenge for the government going forward.
"The external position had been adversely affected owing to much higher imports, including a spike in food imports following damage to the agricultural crop caused by the floods and cyclone Sidr. However, with robust private remittances and additional foreign assistance, including $218 million provided under the IMF's Emergency Natural Disaster Assistance, the international reserve position has stabilized and should be maintained at about 3 months of import coverage.
"Improved revenue performance in FY08 has provided needed fiscal space to address subsidies and safety net concerns. Significant additional safety net measures are planned for the FY09 budget. This increased spending to help protect vulnerable groups from the impact of high commodity prices is appropriate. To finance this spending, however, continued improvements in revenue and reducing substantial state-owned enterprise (SOE) losses through price adjustments will be necessary. There is considerable scope to further increase revenue through improved administration by reducing exemptions, expanding the coverage of income tax and VAT, and increasing the number of registered taxpayers. In the near future, fundamental changes to tax legislation will be needed to establish a simple and transparent tax system.
"Financial sector development is critical to support sustained growth. There have been significant improvements in the primary market for government securities, but further development of the secondary market is necessary for a broader bond market that is needed to finance future growth. Further improvements in state-owned commercial banks (SCBs) are also needed. Now that the banks have been corporatized, the boards need to be strengthened and staffed with people who have financial sector experience. The monetary authorities will also need to remain vigilant in monitoring inflation. If economic activity and credit demand pick up, a monetary policy response may be required to keep inflationary pressures in check.
"Recent global financial market turmoil has had only a very small impact on Bangladesh. This is because of limited linkages with international financial markets. As the economy develops, however, financial markets will become increasingly integrated and exposed to global markets. It is therefore important that supervisory and regulatory capacity be improved to keep pace with global developments."
1 Fiscal year begins July 1.