Staff Statement at the Conclusion of the Mission for the 2013 Article IV Consultation and Third Review Under the Extended Credit Facility Arrangement with BangladeshPress Release No. 13/392
October 6, 2013
An International Monetary Fund mission (IMF), led by Mr. Rodrigo Cubero, visited Dhaka during September 22-October 6 to hold discussions on the 2013 Article IV Consultation with Bangladesh1, and to conduct the third review under a three-year Extended Credit Facility (ECF) arrangement, approved on April 11, 2012 in a total amount equivalent to SDR 639.96 million (see Press Release No. 12/129). The mission met with the Minister of Finance, Finance Secretary, Banking Secretary, Bangladesh Bank Governor, other senior officials, as well as representatives of the business and banking sectors, labor unions, and international development partners. The mission wishes to thank the authorities for their excellent cooperation and warm hospitality during its stay in Dhaka.
At the conclusion of the visit, Mr. Cubero made the following statement:
“Substantial progress has been achieved in strengthening macroeconomic policies under the IMF-supported ECF arrangement, reflecting the authorities’ continued commitment to the implementation of their reform program. Bangladesh is now in a better position to withstand adverse shocks, with international reserve levels double the lows in late 2011 and inflation pressures easing, a result of prudent monetary and fiscal policies. Quantitative targets under the ECF arrangement are on track, with all performance criteria met at end-June 2013. There has also been significant progress in structural reforms. The new value-added tax (VAT) law has now moved into the implementation phase, while amendments to the Bank Companies Act (BCA) have strengthened the legal framework for banking system governance and supervision.
“However, unrest and political uncertainty in the run-up to elections are affecting economic activity by disrupting supply and curbing investment appetite, with real GDP growth now expected to moderate below 6 percent in the fiscal year 2014 (FY14; July 2013-June 2014). And, while the external position remains strong, exports and remittances have also slowed, posing downside risks to the outlook. Preserving strong policy anchors will prove essential to mitigate the impact of potential shocks on the economy.
“The mission and the authorities have reached staff-level agreement on the quantitative targets and policies for the completion of the third review under the ECF arrangement. Discussions and understandings centered on policies to safeguard achievements so far and put the economy on a sound footing for continued strong growth and poverty reduction:
- Maintaining fiscal prudence. The authorities remain committed to a budget deficit (excluding grants) target of 4.3 percent of GDP in FY14. To support this goal while boosting fiscal space for social and development spending, the authorities will be increasing tax collections by strengthening tax administration capacity. Recruitment at the National Board of Revenue and recent automation of tax identification numbers for income tax are welcome steps in this regard. Timely procurement of information systems for the new VAT, supported by donor funding, will also be critical. On the expenditure side, the authorities will address weaknesses in the operational efficiency and financial management of state owned enterprises (SOEs), ensuring reporting transparency and proper safeguards for transfers of central government resources to SOEs. In addition, better targeting and greater transparency will improve the impact and efficiency of social safety net programs.
- Consolidating debt management. The recent reforms to channel new non-concessional external borrowing through the Standing Committee on Non-Concessional Borrowing are welcome. Better oversight of debt contracting will help to take full advantage of concessional borrowing opportunities and direct more expensive resources to high social-return investment projects, keeping overall debt levels contained.
- Strengthening the financial sector. To buttress the financial position of the state-owned commercial banks, the authorities are putting in place a comprehensive set of measures, supported by the stronger regulatory and supervisory powers of Bangladesh Bank under the amended BCA. The measures include enforcement of stronger corporate governance, credit risk management, and internal audit and controls in those banks, complemented by gradual recapitalization.
- Promoting growth and improved labor conditions. The authorities continue to work toward strengthening the investment climate, including through a reduction in trade protection and a gradual streamlining of customs procedures and foreign exchange regulations. The mission welcomes the government’s plans—in coordination with development partners, the business community, labor unions, and international buyers—to improve the working conditions and strengthen the safety standards for workers in Bangladesh. These are critical to ensure sustained strong and inclusive growth, particularly in the garment industry.
“This staff-level agreement is subject to review by the management and Executive Board of the IMF. Upon the Executive Board’s completion of this review, which is expected in early December 2013, SDR 91.4 million (about US$140.5 million) would be made available to Bangladesh, bringing total disbursements under the arrangement to SDR 365.7 million (about US$562.3 million).”
1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members. 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. 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.