IMF Executive Board Completes Fourth Review Under the Extended Credit Facility Arrangement for Bangladesh and Approves US$140.9 Million DisbursementPress Release No. 14/249
May 29, 2014
The Executive Board of the International Monetary Fund (IMF) today completed the fourth review of Bangladesh’s economic program under a three-year arrangement supported by the Extended Credit Facility (ECF). The Executive Board’s decision enables the immediate disbursement of an amount equivalent to SDR 91.423 million (about US$140.9 million) to Bangladesh. This would bring total disbursements under the arrangement to SDR 457.115 million (about US$704.3 million). The decision was taken without a formal Board meeting.1
The three-year ECF arrangement for Bangladesh was approved by the Executive Board on April 11, 2012 (Press Release No. 12/129) for a total amount equivalent to SDR 639.96 million (about US$986 million), or 120 percent of quota.
Bangladesh has made further progress in strengthening macroeconomic stability under the ECF-supported program. While economic activity was affected by unrest and uncertainty in the run-up to the January 2014 general elections, international reserves have continued to increase, the ratio of public debt to GDP is on a downward path, and underlying inflation has been easing. All performance criteria under the ECF arrangement for end-December 2013 were met. There has also been progress on structural reforms, and all structural benchmarks for this review were completed.
Looking ahead, with greater calm after the elections, domestic demand is expected to recover, and real GDP growth is projected to increase to 6¼ percent in Fiscal Year (FY)15 (July 2014 – June 2015). The main risk for growth would be a resurgence of unrest. Inflation is expected to decline in FY15 on continued policy restraint, though higher wages and adjustments in administered prices pose upside risks. The current account of the balance of payments is projected at a surplus of 1.3 percent of GDP in FY14, and is expected to move into a moderate deficit in FY15.
Macroeconomic policies under the authorities’ program are set to remain focused on safeguarding stability and building policy buffers. With inflation risks tilted to the upside in the near term, monetary policy should remain prudent. Fiscal policy will be anchored on a continued gradual reduction of the public debt-to-GDP ratio, while allowing for increased public investment and social spending. Continued fiscal prudence will also help provide greater room for credit growth to finance a recovery in private investment.
Bangladesh has one of the lowest tax-to-GDP ratios in the world, and it is critical to strengthen revenues so as to broaden fiscal space for priority development spending, while resisting pressures to provide further tax benefits. Implementation of the new VAT remains the foremost priority, complemented by reforms to strengthen revenue administration.
The program also embodies reforms to improve public financial management, including by formalizing monthly treasury cashflow forecasts, strengthening financial reporting by state-owned enterprises, and tightening debt management procedures.
Bangladesh Bank is expected to continue strengthening financial supervision, while avoiding regulatory forbearance. Its steps to tighten regulations on related lending and closely monitor banks’ stock market exposures are welcome. Strengthening the state-owned commercial banks remains another focus of financial reforms, centered on improving governance, automating financial reporting, and recapitalizing these banks.
The authorities are moving ahead with their plan for gradual liberalization of foreign exchange regulations, complemented by a streamlining of trade tariffs and regulations. Steps have also been taken to improve working conditions in the garment industry, including through a sizeable increase in the minimum wage, and to strengthen the targeting and efficiency of social safety net programs. Continued progress on these fronts should contribute to promoting high, sustained, and inclusive growth.
1 The Executive Board takes decisions without a meeting (based on lapse-of-time procedures) when it is agreed by the Board that a proposal can be considered without convening formal discussions.