## 1bgdea2023001

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### Executive summary — background, objectives, and near-term outcomes
- Background and context:
  - Russia’s war in Ukraine caused rising global commodity prices, supply disruptions, slowing external demand, a sharp widening of the current account deficit, depreciation of the Taka, and a rapid decline of foreign exchange reserves.
  - High inflation, slow growth, and demand-compression measures disproportionately impacting the poor.
  - Bangladesh on track to graduate from LDC status by 2026 and aspires to reach upper middle-income status by 2031; faces gaps in social and development spending, tax revenue mobilization, export scale/diversification, FDI inflows, and the investment climate.
  - Climate change is an added macroeconomic risk exposing the economy to large shocks.
- Program request and modalities:
  - Authorities requested a 42-month Fund-supported program under the ECF/EFF and concurrent RSF.
  - Proposed ECF/EFF access: ECF: 77.1 percent of quota (SDR 822.82 million); EFF: 154.3 percent of quota (SDR 1,645.64 million).
  - Proposed RSF access: SDR 1,000 million (93.8 percent of quota), the maximum nominal limit.
  - Staff view: risk of debt distress is low and capacity to repay the Fund is adequate.
- Near-term and medium-term aims:
  - Near-term: restore macroeconomic stability, relax financing constraints to prevent disruptive adjustment, rebuild FX reserves.
  - Medium-term: accelerate macroeconomic reforms (revenue mobilization, public sector management, monetary and financial modernization), scale up social and development spending in a fiscally sustainable manner, and lay foundations for upper middle-income status by 2031.
  - Expected outcome: increase net international reserves (NIR) to around 4 months of prospective imports between FY23 and FY26 and stabilize debt at 42 percent of GDP.

### Recent macroeconomic developments and outlook (selected key figures)
- Inflation and reserves:
  - Headline inflation rose to 9.5 percent year-on-year in August 2022.
  - Gross FX reserves (BPM6 definition) declined to US$25.7 billion as of end-November 2022 from US$40.7 billion in August 2021.
  - Taka depreciation: 23 percent year-to-date (as of the report period).
- Balance of payments and current account:
  - Current account (CA) deficit widened to 4.1 percent of GDP in FY22 from 1.1 percent of GDP in FY21.
  - FY23 projected CA deficit: 3.2 percent of GDP (with strict import controls).
- Growth and fiscal outlook:
  - FY23 real GDP growth projected to slow to 5.5 percent.
  - Average headline inflation in FY23 expected to increase to 8.9 percent.
  - Overall fiscal deficit expected to widen to 5.6 percent of GDP in FY23.
- Financing and reserves:
  - Financing gap of about US$9.1 billion expected over FY23 and FY26.
  - Public and publicly guaranteed external debt-to-GDP on a declining path under the baseline; overall public debt-to-GDP expected to stabilize at around 42 percent of GDP.
  - All external debt and debt service indicators remain below relevant thresholds under the baseline.

### Main risks and staff assessment
- Main program risk: limited scope to relax fiscal or monetary policy in response to adverse real shocks given narrowing fiscal space, high inflation, and reserve losses.
- Additional downside risks:
  - Intensifying spillovers from Russia’s war in Ukraine and further commodity price shocks.
  - Larger-than-expected slowdown in major trading partners (Europe and the United States together account for nearly 80 percent of total external demand).
  - Local COVID-19 outbreaks.
  - Elevated non-performing loans (NPLs).
  - Slow progress on the Rohingya crisis leading to donor fatigue.
  - Continuous threat of natural disasters.
- Upside: swift implementation of priority reforms could improve growth potential and strengthen climate resilience.

### Program financing, sequencing, and expected disbursements
- ECF/EFF 42-month arrangement intended to catalyze other financing and support reserve rebuilding while enabling relaxation of strict demand/import management measures.
- RSF concurrent to address adaptation challenges and catalyze additional official and private finance.
- Proposed ECF/EFF total access: SDR 2,468.46 million (231.4 percent of quota) — SDR 822.82 million ECF, SDR 1,645.64 million EFF.
- Proposed RSF total access: SDR 1,000.00 million — 93.8 percent of quota.
- Schedule highlights (Table 7a and 7b):
  - Board approval: January 30, 2023 — SDR 352.35 (33.0) disbursement under ECF/EFF.
  - RSF disbursements include 166.67 million SDRs on November 1, 2023 and multiple tranches summing to 1,000.00 million SDRs.

### Policy measures implemented and considered (fiscal, monetary, exchange rate, and demand management)
- Tightening and demand-management measures already applied:
  - Energy and input price increases (fuel, fertilizer, gas and electricity).
  - Import controls and transitory restrictions on some non-essential imports (including tightened cash margin requirements).
  - Slowed implementation of import-intensive development projects; closure of diesel-fueled power plants; rolling blackouts; reduced in-office hours; shortened school week.
- Monetary policy:
  - Bangladesh Bank increased the repo rate by 100 basis points cumulatively during May and December 2022 to 5.75 percent and signaled further tightening bias for FY23.
  - Unsterilized FX sales reduced liquidity; yields on government securities rose.
- Exchange rate policy:
  - Greater exchange rate flexibility allowed to reduce FX pressures; market conditions produced multiple exchange rates for different participants.
  - Commitment to unify multiple exchange rates and allow interbank transactions at market-determined rates (SB for end-June 2023).
- Fiscal policy emphasis under program:
  - Create fiscal space for priority spending while stabilizing debt.
  - Strengthen financial sector to mobilize productive investment.
  - Boost productivity and exports to generate good quality jobs.
  - Modernize monetary, fiscal, and financial systems ahead of LDC graduation.

### Key fiscal and revenue measures (targets, reforms, and sequencing)
- Tax revenue mobilization targets:
  - Additional 0.5 percent of GDP annually in FY24 and FY25 and 0.7 percent of GDP in FY26.
  - Authorities committed to identify and adopt in the FY24 budget tax revenue measures amounting to 0.5 percent of GDP (SB for end-June 2023); FY25 and FY26 to incorporate additional measures of 0.5 and 0.7 percent of GDP respectively.
- Tax administration reforms:
  - Establish Compliance Risk Management Units (CRMUs) within the National Board of Revenue (SB for end-December 2023).
  - Strengthen information sharing between income tax, VAT, and customs; expand automation; increase at-source tax collection; adopt a modernized Customs Act.
- Subsidies and pricing:
  - Gas and electricity subsidies expected to rise to 0.9 percent of GDP in FY23.
  - Introduction of a periodic formula-based fuel price adjustment mechanism (SB for end-December 2023).
  - Authorities committed not to increase untargeted subsidies on natural gas-generated energy and electricity as a percentage of GDP during the program period and to explore options to gradually reduce them while strengthening social safety nets.
- NSC and debt management:
  - Plan to reduce net NSC issuance to below ¼ of total net domestic financing by FY2026 (SB for end-December 2023).
  - MTDS updated to shift away from expensive domestic financing toward concessional external financing and long-term market financing; annual MTDS updates and quarterly debt bulletin.

### Monetary policy modernization and central bank operations
- Monetary policy framework modernization:
  - Move away from reserve money to interest rate as an operational target by the end of the program period.
  - Adopt an interest rate corridor system with automatic standing lending and deposit facilities (SB for end-July 2023).
  - Improve liquidity forecasting and management; relax lending interest rate restrictions and remove all caps over the program period.
  - Program anchor: indicative ceiling on reserve money as main operating target of BB.
  - BB to implement recommendations of the 2022 IMF Safeguards Assessment to strengthen autonomy and governance.
- NIR and reserves management:
  - Program targets a modest buildup in Net International Reserves (NIR) as a QPC (floor) in the first year, with further increases to cover 4 months of prospective imports over the medium term.
  - BB to compile and report official Gross International Reserves (GIR) as per BPM6 (SB for end-June 2023).

### Financial sector reforms, NPL strategy, supervision, and capital markets
- COVID-19 support measures expired in December 2022; unwinding may lead to realization of losses.
- NPL identification and resolution:
  - Align NPL classification with international best practices; restart reporting rescheduled loans in the annual financial stability report (SB for end-June 2023).
  - Adopt IFRS9 by 2027 and publish banks' distressed assets; develop bank-specific NPL resolution and capital restoration strategies.
  - MOUs to target reducing average NPL ratios to below 10 percent for SOCBs and below 5 percent for PCBs, and increase capital adequacy ratios and provisioning coverage to statutory minimum by 2026.
- Supervision and governance:
  - Complete pilot risk-based supervision action plan (SB for end-June 2023); extend RBS to the wider banking sector including Islamic banking procedures.
  - Develop macroprudential strategy and conduct scenario-based macroprudential stress tests.
  - Submit Bank Company (Amendment) Act 2020 and Finance Companies Act 2020 to Parliament (SB for end-September 2023).
- Capital markets and NSC reforms:
  - Expand mandate of the credit information bureau (CIB) and allow data sharing with private borrowers.
  - Reform NSCs toward marketable wholesale instruments; develop secondary market for government securities; roadmap for bond market development via IMF/World Bank TA.

### Climate policy, RSF objectives, and climate-related reform measures
- RSF objectives:
  - Complement ECF/EFF reforms by supporting climate resilience and catalyzing additional finance.
  - Current annual climate-related government spending is under 1 percent of GDP against needed 3 to 4 percent of GDP over the next 15 years.
  - RSF resources expected to expand fiscal space to finance priorities in BDP2100 and NAP, crowd in financing, substitute for more expensive domestic debt, improve public debt dynamics, and reduce BoP pressures from import-intensive climate investment.
  - Authorities plan to mobilize an additional US$8 billion through public green bonds under BDP2100 and private green financing under MCPP.
- Climate vulnerability and projected impacts:
  - Projected damage from tropical cyclones estimated between 1.5 and 6 percent of GDP.
  - Slow-onset climate change forecast to result in total economic costs of 2 percent of annual GDP by 2050 under business-as-usual and up to 9.4 percent in 2100.
  - Flooding damages range between US$6 billion and US$25.3 billion by 2050 under RCP 4.5 and 8.5 (1.5 percent and 6 percent of annual GDP).
  - National climate-related budget allocation increased from US$1.4 billion in FY16 to US$2.9 billion in FY22 (about 7.3 percent of the total budget in FY22); current climate-related government spending just under 1 percent of GDP.
- Mitigation and adaptation measures:
  - Updated NDC: reduce GHG emissions by 6.7 percent (own efforts) and up to 21.9 percent (with international support) below BAU in 2030.
  - COP26 cancellation of 10 coal-fired power plant projects approximating US$12 billion; target 40 percent of electricity from RE by 2041.
  - Natural gas tariffs hiked by 23 percent on average in June 2022; bulk electricity tariffs raised by 20 percent in November 2022.
  - Cabinet approved NAP on 31st October 2022.
- Mobilizing climate finance and institutional strengthening:
  - RSF reforms guided by World Bank’s CCDR and IMF’s C-PIMA to prioritize financing for BDP2100, scale up climate-smart investment, strengthen PFM and PIM practices, and leverage financing instruments.
  - IMF CD and other DPs’ CD to support implementation.

### Climate-responsive PIM reforms and RM (reform measures) timeline (selected RMs)
- PIM and Green Book actions:
  - RM1: adopt a sustainable public procurement policy paper and action plan — End-September 2023.
  - RM2: adopt a periodic formula-based price adjustment mechanism for petroleum products — End-December 2023 (target implied).
  - RM3: BB adopt guidelines for reporting and disclosure of climate-related risks in line with TCFD — End-December 2023.
  - RM4: adopt a national disaster risk financing strategy integrating social assistance measures — End-June 2024.
  - RM5: MoF adopt methodology to analyze macro-fiscal risks from climate change and publish in MTMPS — End-June 2024.
  - RM6: issue circular updating Green Book to integrate climate methodologies for project appraisal — End-December 2024.
  - RM7/RM8/RM9/RM10/RM11: series of measures through End-December 2025 to update PPP policy, issue annex to Green Book, establish public asset register module in iBAS++, conduct climate stress testing, and align green bond policy and taxonomy with NAP (specific dates and RM numbers preserved in source).
- Program linkages:
  - RSF disbursements and part of ECF/EFF disbursements to be used for budget support to expand government resource envelope for climate priorities and social/capital spending while reforms take hold.

### Debt profile, DSA results, and debt management priorities
- Total public and publicly guaranteed (PPG) debt in FY22: US$166.1 billion — around 39.0 percent of GDP.
  - External PPG debt: US$72,288 million — 43.5 percent of total debt — 17.0 percent of GDP.
  - Domestic debt: US$93,839 million — 56.5 percent of total debt — 22.1 percent of GDP.
  - NSC component: US$39,119 million — 23.5 percent of total debt — 9.2 percent of GDP.
- Debt service (FY22):
  - Domestic debt service payments: US$31.9 billion (7.5 percent of GDP).
  - External payments to multilaterals: US$1.5 billion (0.4 percent of GDP); to bilaterals: US$0.6 billion (around 0.1 percent of GDP).
- DSA and risk assessment:
  - Joint Bank-Fund DSA: Risk of external debt distress: Low; Overall risk of debt distress: Low.
  - Baseline: external and overall debt indicators below thresholds; overall public debt-to-GDP projected to stabilize around 42.1 percent by FY33.
  - Stress tests: PV of debt-to-exports could temporarily breach thresholds under extreme scenarios (export shock); breaches judged temporary and of small magnitude.
- Policy implications:
  - Raise revenue-to-GDP ratio to provide non-debt financing for climate-resilient infrastructure.
  - Reduce reliance on expensive domestic financing (NSCs); continue MTDS to shift toward concessional external financing and long-term market financing.
  - Develop local capital markets and attract FDI.

### Quantitative performance criteria, indicative targets, and selected numeric program targets (first two reviews)
- Floor on net international reserves (NIR, millions of US$):
  - Mar-2023 IT: 22,947
  - Jun-2023 PC: 24,462
  - Sep-2023 IT: 25,316
  - Dec-2023 PC: 26,811
- Floor on primary balance (including grants) (Taka, cumulative? preserved as in source):
  - Mar-2023 IT: -1,483.4
  - Jun-2023 PC: -1,686.4
  - Sep-2023 IT: -822.0
  - Dec-2023 PC: -1,141.1
- Indicative targets (selected):
  - Ceiling on reserve money (RM): 3,575.0 (Mar-2023 IT); 3,951.0 (Jun-2023 PC); 3,892.0 (Sep-2023 IT); 4,004.0 (Dec-2023 PC).
  - Floor on tax revenue: 2,073.8 (Mar-2023 IT); 3,456.3 (Jun-2023 PC); 615.6 (Sep-2023 IT); 1,436.4 (Dec-2023 PC).
  - Floor on priority social spending (domestically financed): 605.0 (Mar-2023 IT); 1,033.0 (Jun-2023 PC); 155.0 (Sep-2023 IT); 309.9 (Dec-2023 PC).
  - Floor on capital investment (domestically financed): 389.9 (Mar-2023 IT); 1,141.1 (Jun-2023 PC); 49.8 (Sep-2023 IT); 222.8 (Dec-2023 PC).

### External financing requirements and prospective financing (exact figures)
- Gross Financing Requirements:
  - FY2023: 15,462.5
  - FY2024: 22,224.1
  - FY2025: 21,132.8
  - FY2026: 19,939.4
- Current account deficit excluding grants:
  - FY2023: 13,507.5
  - FY2024: 19,924.1
  - FY2025: 18,573.9
  - FY2026: 17,664.8
- Public sector loan amortization:
  - FY2023: 1,955.0
  - FY2024: 2,300.0
  - FY2025: 2,558.9
  - FY2026: 2,274.6
  - Of which IMF: 253.1 FY2023; 329.3 FY2024; 247.9 FY2025; 131.5 FY2026.
- Identified Financing Sources (selected):
  - Net foreign direct investment: 2,943.6 FY2023; 4,693.5 FY2024; 6,040.8 FY2025; 7,833.7 FY2026.
  - Public sector loan disbursements: 9,721.1 FY2023; 10,622.0 FY2024; 11,495.6 FY2025; 11,379.6 FY2026 (Of which RSF: 0.0 FY2023; 425.7 FY2024; 425.7 FY2025; 425.7 FY2026).
- Financing Gap:
  - FY2023: 2,217.8
  - FY2024: 2,600.0
  - FY2025: 2,100.0
  - FY2026: 2,164.6

### Data, monitoring, and reporting requirements (selected)
- Program exchange rate: Bangladesh taka (Tk) 104.95 per U.S. dollar (as agreed at approval in January 2023).
- Continuous performance criterion: ceiling on accumulation of new external payment arrears: 0.0 (applied continuously).
- Reporting requirements (selected daily/monthly/quarterly):
  - Daily exchange rates, daily GIR and detailed GIR composition — Bangladesh Bank — Daily, next working day.
  - Fiscal outturn and revenue by type — MOF (FD)/CGA — Monthly, within six weeks of the end of each month.
  - Stock of outstanding external debt — MOF (ERD)/BB — Quarterly, within eight weeks of the end of the quarter.
  - Financial soundness indicators and bank-specific risk metrics — BB — Monthly/Quarterly within specified lags.
  - BBS to publish quarterly national accounts by end-December 2023 (SB).

### Climate adaptation investment analysis (DIGNAD model results and implications)
- DIGNAD model scenarios (illustrative):
  - Scenario 1: No policy change — standard capital investment years 1–5; natural disaster in year 6 yields nearly 5 percentage point decline in GDP.
  - Scenario 2: Adaptation investment — additional 3 percent of GDP in adaptation infrastructure in years 1–5; financing mix about one-third concessional public borrowing and remainder PPPs/private.
  - Scenario 3: Adaptation investment with PIM reforms — same additional investment as Scenario 2 plus improved PIM efficiency (~20 percent improvement to 65 percent).
- Simulation insights:
  - Investing an additional 3 percent of GDP in adaptation infrastructure for five years would save about 3 percent of GDP in output losses when disaster hits and support recovery.
  - Public debt expected to stabilize below 45 percent of GDP, similar to baseline, with adaptation contributing to a declining debt trajectory over the long run.
  - Improving PIM efficiency toward Asian emerging economies median further strengthens resilience and public debt paths.

### Selected vulnerability and climate statistics (preserved figures)
- NIIP at end-FY22: -15.4 percent of GDP (from -12.4 percent at end-FY21 and -10.8 percent at end-FY18).
- Gross foreign assets: 11.5 percent of GDP; Gross liabilities: 26.9 percent of GDP.
- Current account (FY22): 4.1 percent of GDP deficit.
- Flooding projected damages by 2050: between US$6 billion and US$25.3 billion (1.5 percent and 6 percent of annual GDP).
- Slow-onset climate change projected costs: 2 percent of GDP by 2050; up to 9.4 percent in 2100.
- Natural disaster historical direct losses averaged around 5.6 percent of GDP annually over past three decades.
- Tropical cyclone average annual losses: about US$1 billion per year (0.7 percent of GDP).
- Internal displacement: 4.1 million people in 2019; internal climate migrants could rise to 13.3 million by mid-century.

### Staff appraisal — policy priorities and sequencing
- Priorities to achieve resilient, inclusive, sustainable growth:
  - Increase fiscal space to scale up social and development spending (tax policy and administration reforms targeting additional revenue of about 1.7 percent of GDP over the program).
  - Modernize fiscal and monetary policy frameworks (interest rate corridor, phase out rate caps, improve communication).
  - Strengthen financial sector and address high NPLs and SOCB weaknesses.
  - Improve public investment management (PIM) and integrate climate considerations into project appraisal and procurement.
  - Mobilize climate finance (public green bonds, private green financing) and strengthen financial sector climate-risk assessment.
- Sequencing:
  - Prioritize urgent reforms (revenue measures, reserve rebuilding, monetary framework steps, key RSF RMs) and gradually scale up implementation across the 42-month program.
  - IMF capacity development to support implementation across revenue, PFM/PIM, monetary, financial supervision, and climate-related reforms.

*Source: Executive Summary and selected chapters, 1bgdea2023001.*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Background and Context
- Bangladesh’s robust economic recovery from the COVID-19 pandemic was interrupted by Russia’s war in Ukraine, causing:
  - Rising global commodity prices, supply disruptions, and slowing external demand.
  - A sharp widening of the current account deficit, depreciation of the Taka, and a rapid decline of foreign exchange reserves.
  - High inflation, slow growth, and stringent demand-compression measures disproportionately impacting the poor.
- Bangladesh is on track to graduate from the Least Developed Country (LDC) status by 2026 and aspires to reach upper middle-income status by 2031, but faces persistent structural gaps in social and development spending, tax revenue mobilization, export scale/diversification, FDI inflows, and the investment climate.
- Climate change is an added risk that exposes the economy to large shocks threatening macroeconomic stability.

### Program Objectives and Modalities
- Authorities requested a 42-month Fund-supported program under the ECF/EFF to bolster the external position and restore macroeconomic stability.
- Proposed ECF/EFF access:
  - ECF: 77.1 percent of quota (SDR 822.82 million).
  - EFF: 154.3 percent of quota (SDR 1,645.64 million).
- Proposed RSF access to meet large climate financing needs:
  - RSF: SDR 1,000 million (93.8 percent of quota), the maximum nominal limit.
- Rationale for RSF maximum access: strength and breadth of proposed reforms, BoP need tied to reform implementation, and sound capacity to repay the Fund.
- Bangladesh’s risk of debt distress is assessed as low and capacity to repay the Fund is adequate.

### Near-term Program Policies and Expected Outcomes
- Near-term aims:
  - Restore macroeconomic stability.
  - Relax financing constraints to prevent disruptive adjustment.
  - Rebuild FX reserves.
- Medium-term aims:
  - Accelerate overdue macroeconomic reforms: revenue mobilization, public sector management, modernization of monetary and financial systems.
  - Lay foundations for reaching upper middle-income status by 2031.
  - Scale up social and development spending in a fiscally sustainable manner.
- RSF measures will complement ECF/EFF reforms by addressing climate challenges and catalyzing additional finance.
- Program disbursements and reforms are expected to increase net international reserves (NIR) to around 4 months of prospective imports between FY23 and FY26 and stabilize debt at 42 percent of GDP.

### Staff Views and Risks
- The Letter of Intent and Memorandum of Economic and Financial Policies demonstrate program ownership and appropriate policies.
- Main program risk: limited scope to relax fiscal or monetary policy in response to additional adverse real shocks, given narrowing fiscal space, high inflation, and reserve losses.
- Additional risks (tilted to the downside):
  - Intensifying spillovers from Russia’s war in Ukraine and further commodity price shocks.
  - Larger-than-expected slowdown in major trading partners (Europe and the United States together account for nearly 80 percent of total external demand).
  - Local COVID-19 outbreaks.
  - Elevated non-performing loans (NPLs) that could dampen growth.
  - Slow progress on the Rohingya crisis leading to donor fatigue.
  - Continuous threat of natural disasters.
- Upside: swift implementation of priority reforms could improve growth potential and strengthen climate resilience.

### Recent Macroeconomic Developments and Outlook (Selected Key Figures)
- Inflation and reserves:
  - Headline inflation rose to 9.5 percent year-on-year in August 2022.
  - Gross FX reserves (BPM6 definition) declined to US$25.7 billion as of end-November 2022 from US$40.7 billion in August 2021.
  - Taka depreciation: 23 percent year-to-date (as of the report period).
- Balance of payments and current account:
  - Current account (CA) deficit widened to 4.1 percent of GDP in FY22 from 1.1 percent of GDP in FY21.
- Monetary policy response:
  - Bangladesh Bank increased the repo rate by 100 basis points cumulatively during May and December 2022 to 5.75 percent and signaled further tightening bias for FY23.
  - Unsterilized FX sales reduced liquidity; short-term and long-term government yields rose sharply.
  - Greater exchange rate flexibility allowed, but market conditions produced multiple exchange rates for different participants.
- Fiscal and growth outlook:
  - FY23 real GDP growth projected to slow to 5.5 percent due to demand management measures.
  - Average headline inflation in FY23 expected to increase to 8.9 percent.
  - Overall fiscal deficit expected to widen to 5.6 percent of GDP in FY23 due to lower tax revenues and elevated expenditures, including subsidies.
  - Given strict import controls, CA deficit expected to improve to 3.2 percent of GDP in FY23.
- Financing needs and debt:
  - A financing gap of about US$9.1 billion is expected to emerge over FY23 and FY26.
  - Public and publicly guaranteed external debt-to-GDP ratio on a declining path under the baseline; overall public debt-to-GDP ratio expected to stabilize at around 42 percent of GDP.
  - All external debt and debt service indicators remain below relevant thresholds under the baseline; the present value of debt-to-exports ratio could temporarily breach its threshold in an extreme scenario.

### Policy Measures Implemented and Considered
- Tightening and demand-management measures already applied:
  - Energy and input price increases: fuel, fertilizer, gas and electricity prices raised.
  - Import controls and transitory restrictions on some non-essential imports (including tightened cash margin requirements for payment by bank deposits on selected non‑essential imports).
  - Slowed implementation of import-intensive development projects; closure of diesel-fueled power plants; rolling blackouts; reduced in-office hours; shortened school week.
- Exchange rate policy:
  - Greater exchange rate flexibility allowed to reduce FX pressures.
- Monetary policy:
  - Repo rate increases and indicated further tightening bias.
- Fiscal policy and reforms under the program will emphasize:
  - Creating fiscal space for priority spending while stabilizing debt.
  - Strengthening the financial sector to mobilize productive investment.
  - Boosting productivity and exports to generate good quality jobs.
  - Enhancing the investment climate and modernizing monetary, fiscal, and financial systems to prepare for LDC graduation.

### Program Financing and Sequencing
- ECF/EFF: 42-month arrangement intended to catalyze other financing and support reserve rebuilding while enabling relaxation of strict demand/import management measures.
- RSF: concurrent program to address adaptation challenges and catalyze additional official and private finance, including climate mitigation efforts.
- The baseline macro-fiscal assumptions include the authorities’ climate spending of around 0.6-0.7 percent of GDP historically, plus additional climate investment of 0.3-0.8 percent of GDP annually supported by RSF and other financing catalyzed through development partners; RSF disbursements would help reduce the present value of debt and debt-servicing burdens by substituting for more expensive domestic debt.

*Source: Executive Summary, 1bgdea2023001 - EXECUTIVE SUMMARY*

### Box 1. Supporting Inclusive, Sustainable, and Green Growth in Bangladesh

### Box 1. Supporting Inclusive, Sustainable, and Green Growth in Bangladesh

### Challenges and context
- Strong growth over the past decade contributed to a remarkable reduction in poverty, but a large part of the population still lives in extreme poverty and remains highly vulnerable to covariate shocks such as COVID-19.
- Government spending to address covariate risks remains low and lags peers; coverage of social assistance programs has increased but total spending and benefit adequacy have been subdued and most of the population is underserved.
- Low government revenue has constrained public expenditure on developmental objectives.

### Financing needs and policy mix
- Bangladesh needs an additional US$928.5 billion in financing to implement the SDGs between 2017 and 2030, of which the public sector is expected to contribute about a third.
- Bangladesh will require additional financing of 3–4 percent of GDP annually for climate-related investments.
- Closing financing gaps on government borrowing alone (about 14 percent of GDP per year) would set public debt on a rapid rise and increase vulnerability.
- Staff view: a modest increase in the fiscal envelope supported by concessional borrowing, domestic revenue mobilization, and complementary reforms can improve economic and social outcomes without exacerbating imbalances.
- With strong implementation of reforms, gross investment (private and public) is expected to rise by about 4 percent of GDP during the program period without jeopardizing external stability.

### Fiscal reforms and sequencing (objectives and targets)
- Program envisages tax revenue mobilization efforts of additional 0.5 percent of GDP annually in FY24 and FY25 and 0.7 percent of GDP in FY26, contributing to higher social spending and public investment.
- Fiscal outlook under the program: overall fiscal deficit expected to improve from 5.6 percent of GDP in FY23 to 5 percent of GDP by program-end; primary deficit around 3.3 percent; consistent with public debt remaining below 45 percent of GDP through FY43.
- Key reform priorities to create fiscal space:
  - Strengthen domestic revenue mobilization and public administration and spending efficiency.
  - Rekindle financial sector reforms and jumpstart private investment.
  - Attract FDI inflows.

### Tax policy and administration reforms
- Tax policy measures:
  - Rationalize tax expenditures, simplify tax-rate structure, and broaden the tax base.
  - Shift tax burden from trade-related taxes toward income and value-added taxes.
  - Authorities committed to identify and adopt in the FY24 budget tax revenue measures amounting to 0.5 percent of GDP (SB for end-June 2023); FY25 and FY26 would incorporate additional measures of 0.5 and 0.7 percent of GDP respectively.
- Tax administration measures:
  - Establish Compliance Risk Management Units (CRMUs) within the National Board of Revenue (NBR) (SB for end-December 2023) and implement a compliance improvement plan.
  - Strengthen information sharing between income tax, VAT, and customs wings; support risk-based audits.
  - Progressively expand and integrate automation, increase at-source tax collection, and adopt a modernized Customs Act.

### Social protection, subsidies, and energy pricing
- Gas and electricity subsidies are expected to rise to 0.9 percent of GDP in FY23.
- Introduction of a periodic formula-based fuel price adjustment mechanism (SB for end-December 2023) to help ensure no structural subsidies for petroleum products.
- Authorities will explore options to gradually reduce gas and electricity subsidies while strengthening social safety nets.
- Reform priorities in social protection: improve targeting, broaden coverage in rural and urban areas, adopt government-to-person (G2P) systems, and expand social insurance.
- Program anchors: ITs on social and development capital spending under the program to support increased social safety nets and development spending.

### NSC reforms, debt, and cash management
- Authorities have introduced tiered interest rates, capping issuances, and increased tax on earned interest for NSCs; Public Debt Act (September 2022) criminalizes provision of false information by NSC investors.
- With IMF TA, authorities will develop a formal plan to reduce net NSC issuance to below ¼ of total net domestic financing by FY2026 (SB for end-December 2023), to be gradually implemented.
- Medium-Term Debt Strategy (MTDS) updated to shift away from expensive domestic financing toward concessional external financing and eventually long-term market financing; MTDS to be updated annually with timely publication of a quarterly debt bulletin and, once capacity built, an annual debt portfolio report.
- Cash management enhancements:
  - Continued expansion of Treasury Single Account (TSA) coverage with a policy note to guide integration of bank accounts outside the TSA (SB for end-December 2023).
  - Expand use of electronic funds transfer (EFT) to cover 60 percent of central government transactions.
  - Develop iBAS++ functionalities to reduce leakages and improve commitment controls.

### Public investment management and fiscal transparency
- With IMF TA, roll out Sector Strategy Papers and Multi-Year Public Investment Program tools to 10 priority spending sectors during the program to improve project selection and support a consolidated medium-term budget framework that incorporates capital spending under the Annual Development Program.
- Publish fiscal risk statement covering major risks from SOEs, guarantees and PPPs as part of FY2025 budget documentation.
- Publish an SOE sector report covering 50 largest SOEs in 2025.
- Commitments to timelier fiscal reports, improved data compliance with international accounting and auditing standards, and implementation of risk-based internal audits.

### Financial sector, green finance, and regulatory reforms
- Strengthen the supervisory role of Bangladesh Bank (BB) and adopt risk-based supervision; complete pilot risk-based supervision action plan and finalize implementation plan.
- Adopt plan for banking sector to adopt IFRS9 by 2027 and publish banks' distressed assets in line with Basel III standards.
- Foster green finance and integrate climate-risk analysis into financial sector surveillance:
  - Adopt guidelines for banks and financial institutions on reporting and disclosure of climate-related risks in line with TCFD recommendations.
  - Conduct and publish climate stress testing and update guidance.
  - Update green bond financing policy and green taxonomy to align with the NAP.
- Adopt an updated PPP policy and framework that integrates climate risks and issue circular on project selection criteria aligned with the NDC and NAP.

### Monetary and exchange rate policy
- Monetary policy stance guided by inflation outlook; program anchor includes an indicative target (ceiling) on the level of reserve money as main operating target of BB.
- BB stands ready to continue calibrated tightening to counter possible second-round effects and re-anchor inflation expectations while safeguarding growth.
- Program targets a modest buildup in Net International Reserves (NIR) as a QPC (floor) in the first year, with further increases to cover 4 months of prospective imports over the medium term.
- Greater exchange rate flexibility to help accumulate reserves and strengthen external buffers.

### Program implementation, sequencing, and support
- Strong ownership, sustained support from development partners, and appropriate prioritization and sequencing of reforms are crucial; the program prioritizes the most urgent reforms and gradually increases pace during the program period.
- IMF capacity development will support implementation of reforms.
- Data points on expectations:
  - Twelve-month ahead inflation expectations increased to 9.4 percent (September 2022 survey) against BB’s implicit medium-term inflation objective ceiling of 5.6 percent for FY2023.

*Source: IMF FAD Expenditure Assessment Tool (EAT), World Health Organization.*

### 22.      Continued progress toward modernizing monetary policy framework and operations is

### 22.      Continued progress toward modernizing monetary policy framework and operations is

### Monetary policy framework and operations
- The current eclectic monetary policy regime may not be effective in meeting the challenges of a more diversified and open economy after the LDC graduation.
- Bangladesh Bank (BB) will continue modernizing its monetary policy framework and operations (MEFP, ¶19) to:
  - promote macroeconomic stability,
  - support financial development, and
  - enhance monetary policy transmission.
- With support from IMF TA, authorities are building capacity to:
  - modernize monetary policy formulation,
  - move away from reserve money to interest rate as an operational target by the end of the program period.
- Specific near-term operational steps:
  - Adopt an interest rate corridor system with automatic standing lending and deposit facilities (SB for end-July 2023).
  - Improve liquidity forecasting and management.
  - Relax lending interest rate restrictions and remove all caps over the program period.
  - Strengthen communication and transparency to better signal the monetary policy stance.
- BB will implement recommendations of the 2022 IMF’s Safeguards Assessment to further strengthen BB’s autonomy and governance (MEFP, ¶22).

### Exchange rate policy and FX reserve management
- Authorities commit to unifying multiple exchange rates caused by disorderly FX market conditions and to allow interbank transactions at market-determined rates (MEFP, ¶20).
- BB will:
  - use the market-determined exchange rate for all official FX transactions on behalf of the government (SB for end-June 2023),
  - reverse temporary increases in margins for opening letters of credit on non-essential imports.
- Reserves management actions:
  - Strengthen reserves management and start compiling and reporting official Gross International Reserves (GIR) as per BPM6 (SB for end-June 2023).
- Monetary and exchange rate policy reforms under the program will be properly sequenced to exploit synergies.

### Financial sector policies — orderly exit from COVID support and NPL strategy
- COVID-19 support measures expired in December 2022; their unwinding may lead to gradual realization of losses in the banking system.
- BB will continue to support individuals and businesses most at risk under its regular financial support scheme (MEFP, ¶23).
- NPL identification and resolution:
  - Align NPL classification with international best practices; restart reporting rescheduled loans in the annual financial stability report along with NPLs (SB for end-June 2023).
  - Fully adopt Basel III standards for measurement of banks’ financial statements and provision framework and adopt IFRS 9 to better understand the problem extent.
  - Develop bank-specific NPL resolution and capital restoration strategies, establish monitoring and enforcement frameworks underpinned by memorandums of understanding (MOUs).
  - MOUs will target reducing average NPL ratios to below 10 percent for state-owned commercial banks (SoCBs) and below 5 percent for private commercial banks (PCBs), while increasing capital adequacy ratios and provisioning coverages of SoCBs and PCBs to statutory minimum by 2026.

### Financial sector supervision, governance, and capital markets
- Supervision and monitoring:
  - Complete pilot risk-based supervision action plan (SB for end-June 2023).
  - Prioritize actions to provide adequate and timely supervisory data and forward-looking analysis of bank balance sheet risks per IMF TA recommendations.
  - Extend pilot on risk-based supervision to the wider banking sector and incorporate Islamic banking procedures in assessment tools and the inspection manual.
  - Develop a macroprudential strategy and conduct scenario-based macroprudential stress tests (MEFP ¶26).
- Governance and regulatory reforms:
  - Independent committee examining nomination and appointment policies for SoCB directors; it will suggest policy recommendations (MEFP, ¶25).
  - Authorities plan to submit to Parliament:
    - the Bank Company (Amendment) Act 2020 and the Finance Companies Act 2020 (SB for end-September 2023),
    - the Bankruptcy (Amendment) Act 2020 and the Money Loan Court (Amendment) Act 2003 by June 2024,
    - the Negotiable Instrument (Amendment) Act 2020 by June 2025 (MEFP, ¶27).
  - These reforms aim to modernize the financial sector, improve legal environment for credit and business, enhance insolvency regime, and facilitate loan recovery.
- Capital market development:
  - Expand mandate of the credit information bureau (CIB) and allow data sharing with private borrowers (MEFP, ¶26).
  - Gradually reform NSCs and replace them with marketable wholesale instruments, implement MTDS, and develop secondary market for government securities (MEFP, ¶28).
  - Roadmap for bond market development via joint TA between IMF and World Bank on Local Currency Bond Market Diagnostic (LCBM).

### Macro-structural policies: trade, human capital, governance, data
- Trade and FDI:
  - Trade and FDI remain low; priorities include reducing non-tariff barriers (NTBs), improving trade-related energy and transportation infrastructure, addressing regulatory barriers, and ensuring financing to private sector (MEFP, ¶29).
  - Authorities working with development partners on near-to-medium term trade and FDI reform priorities.
- Human capital:
  - Improve education outcomes, vocational training, and upskilling of female workers to boost labor productivity and reduce informality (MEFP, ¶30).
  - Program will leverage UN and other DPs’ technical and financial support toward gender equality, financial deepening, and human capital development as part of Bangladesh’s SDGs.
- Governance and anti-corruption:
  - Enhance fiscal governance and transparency (¶20) and financial sector efficiency (¶28) to attract investment.
  - Further digitalization of public services and safeguarding independence of the Anti-Corruption Commission and the Comptroller Auditor General.
  - Enhance information collection to identify ultimate beneficial ownership; move toward international best practice for risk-based supervision to strengthen AML/CFT framework (MEFP, ¶31). A detailed roadmap will be developed under IMF TA.
- Data quality and availability:
  - With IMF TA, historical rebased GDP data were published; compiling national account and government finance statistics on a quarterly basis are underway (Annex IV and Table 13).
  - Authorities committed to publish new consumer price index using updated index weights and HIES survey (MEFP, ¶37).
  - Plan to publish national accounts on a quarterly basis when ready (SB for end-December 2023).
  - With IMF support, financial soundness indicators using a standard approach and expanded coverage will be published.

### RSF arrangement — objectives and climate policies
- RSF objectives:
  - Complement ECF/EFF reforms by supporting climate change resilience and catalyzing additional official and private finance.
  - Current annual climate-related government spending is under 1 percent of GDP against needed 3 to 4 percent of GDP over the next 15 years.
  - RSF resources will expand fiscal space to finance priorities in the Bangladesh Delta Plan (BDP2100) and National Adaptation Plan (NAP), crowd in financing, substitute for more expensive domestic financing, improve public debt dynamics, and reduce BoP pressures from import-intensive climate investment.
  - RSF expected to catalyze additional policy- and project-based lending through DPs; WB and ADB are considering new budget support programs.
  - Authorities plan to mobilize an additional US$8 billion through public green bonds under BDP2100 and private green financing under the Mujib Climate Prosperity Plan (MCPP).
  - RSF reforms aim to strengthen institutional setup for large-scale climate investments and enhance financial sector assessment of climate risks.
- Climate vulnerability and projected impacts:
  - Projected damage from tropical cyclones estimated at between 1.5 and 6 percent of GDP.
  - Slow-onset climate change forecast to result in total economic costs of 2 percent of annual GDP by 2050 under a business-as-usual scenario and up to 9.4 percent in 2100.
  - Effects disproportionately affect poor and vulnerable groups and can pressure currency, reserves, and public debt.
- Mitigation measures:
  - Updated NDC commits to reduce greenhouse gas (GHG) emissions by 6.7 percent (with its own efforts), and up to 21.9 percent (with international support) below business-as-usual in 2030.
  - Green transition priorities: scale up renewable energy (RE), promote electric vehicles and clean public transport, enhance energy efficiency in buildings and industrial facilities, and reduce emissions from agriculture and land-use.
  - About 80 percent of Bangladesh’s energy supply comes from fossil fuel, but over two-third of this is natural gas.
  - At COP26, authorities announced cancellation of 10 coal-fired power plant projects approximating US$12 billion in foreign investment and set target of generating at least 40 percent of total electricity from RE sources by 2041.
  - New integrated energy and power sector master plan is being prepared; plans to import RE-based electricity from neighboring countries are being finalized.
  - Recent increases: natural gas and fuel prices increased; natural gas tariffs hiked by 23 percent on average in June 2022; bulk electricity tariffs raised by 20 percent in November 2022.
  - Authorities committed not to increase untargeted subsidies on natural gas-generated energy and electricity as a percentage of GDP during the program period and will consider options to gradually reduce them.
- Adaptation measures and institutions:
  - Cabinet approved the NAP on 31st October 2022, outlining adaptation investment requirements and action roadmap supported by BDP2100 and MCPP.
  - Implementation of National Plan for Disaster Management contributes to adaptation agenda.
  - Since 2014, policy tools established include Climate Fiscal Framework (CFF), climate change budget tagging, sustainable finance policy for banks and financial institutions, and green taxonomy.
- Fossil fuel subsidies (Box 2):
  - Subsidies for gas and electricity expected to reach about 0.9 percent of GDP in FY2023 compared to 0.4 percent of GDP in FY2021.
  - Authorities raised petrol and octane prices by close to 50 percent in August 2022; diesel and kerosene prices by 36 percent on top of 23 percent increases in November 2021.
  - Plans to regularly adjust petroleum product prices via formula-based pricing mechanism (SB for end-December 2023, ¶16 and RM2 for end-December 2023) to lock in zero structural subsidies for petroleum products.
  - Authorities committed to not increase these subsidies during the program and to explore options to gradually reduce them while scaling up social protection schemes (MEFP, ¶33).
- Mobilizing climate finance and institutional strengthening:
  - RSF reforms guided by World Bank’s CCDR and IMF’s C-PIMA aim to:
    - prioritize and allocate financing for BDP2100,
    - scale up climate-smart investment across sectors,
    - strengthen institutional framework via improved PFM and PIM practices,
    - leverage different financing instruments.
  - Reforms focus on boosting resilience of coastal economy and infrastructure, nature-based solutions, mitigating floods and tropical cyclone risks, reducing infrastructure deficit, promoting resilient infrastructure, and supporting climate mitigation policy.
  - IMF capacity development, in conjunction with other DPs’ CD, will support implementation of these reforms.

*Source: 1bgdea2023001 - 22.      Continued progress toward modernizing monetary policy framework and operations is*

### 37.      Policies should prioritize climate-responsive PIM reforms to make infrastructure

### 37.      Policies should prioritize climate-responsive PIM reforms to make infrastructure investment green and resilient.

### Climate‑responsive public investment management (PIM) and infrastructure
- Efficient, green and resilient public investment creates jobs, spurs growth and stimulates private sector investment and other innovative financing.
- Authorities will integrate climate considerations in the appraisal and selection of capital projects to improve prioritization and allocation of resources for the BDP 2100 and scaling up of climate-smart investment as envisaged in the NAP.
  - RM6 for end-December 2024 and RM9 for end-June 2025.
- Authorities will establish a public asset register module of iBAS++ and will incorporate information on climate-related risks/damages and vulnerability of new public assets to the module.
  - RM10 for end-December 2025.
- To help leverage private sector climate finance and ensure PPPs support national climate goals, authorities plan to update the PPP policy and framework to reflect climate risks and opportunities and develop accompanying guidelines for PPP project proponents and developers.
  - RM8 for end-June 2025 and MEFP, ¶34.

### Climate‑related fiscal management and public financial management (PFM)
- Implementation of the CFF is key to Bangladesh’s climate strategies and will lay the foundation for sound and transparent climate-sensitive PFM processes.
- The authorities will adopt a sustainable public procurement policy paper and an associated action plan to integrate climate and green dimensions into the public procurement process.
  - RM1 for end-September 2023.
- The Ministry of Finance (MoF) will develop and implement methodologies for the analysis of macro-fiscal risks from climate change and publish such information in the Medium-Term Macroeconomic Policy Statement (MTMPS).
  - RM5 for end-June 2024.
- To protect the most vulnerable, the authorities will develop a national disaster risk financing strategy that integrates social assistance measures.
  - RM4 for end-June 2024 and MEFP, ¶35.

### Financial sector resilience and climate finance mobilization
- Financial institutions mobilize private climate finance but face significant physical and transition risks.
- Bangladesh Bank (BB) will develop and adopt guidelines for banks and financial institutions on reporting and disclosure of climate-related risks in line with the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD).
  - RM3 for end-December 2023.
- BB will conduct and publish climate stress testing for the overall financial system and update the Guidelines on Stress Testing for banks and financial institutions to include climate change considerations.
  - RM8 for end-December 2024.
- To promote mobilization of climate finance and extend the framework to include climate adaptation, BB will update the green bond policy paper, particularly the annex on green taxonomy to be fully aligned with the NAP’s strategic investment priorities.
  - RM11 for end-December 2025 and MEFP, ¶36.
- Note: Addressing current vulnerabilities and weaknesses in financial sector data reporting and risk management is crucial as a precondition for a proper report, assessment, and management of climate-related risks. The data repository that includes exposures of financial institutions’ credit and investment portfolios to carbon emitting industries/corporates and climate hazards could be established as part of the climate stress testing.

### Program context and policy links to reforms and financing
- Staff recommends a 42-month blended ECF/EFF arrangement, concurrent with an RSF arrangement.
  - Proposed total access is SDR 2,468.46 million (231.4 percent of quota) under the ECF/EFF (of which, SDR 822.82 million or 77.1 percent of quota under the ECF and SDR 1,645.64 million or 154.3 percent of quota under the EFF).
  - RSF access proposed at SDR 1,000 million (93.8 percent of quota, the maximum nominal limit).
- Staff supports use of Fund resources (each RSF disbursement and part of ECF/EFF disbursement) for budget support to expand the government’s resource envelope to help finance climate priorities and boost social and capital spending while planned reforms take hold.

### Risks, safeguards, and capacity considerations
- An updated safeguards assessment (January 2022) found capacity challenges impacting internal audit and financial reporting; BB needs to strengthen currency operations and IT environment.
  - BB is establishing sound procedures for the compilation and reporting of official reserve assets (SB for end-June 2023).
  - BB will engage an international audit firm to conduct external audits, as done under the previous Fund-supported program during 2012–2015.
- Main program risks: limited scope to relax fiscal or monetary policy in the event of adverse real shocks given narrow fiscal space, high inflation, and reserve losses; weaknesses in implementation capacity; political opposition to some reforms; political risk due to national elections tentatively planned for December 2023.
  - Mitigation: continued engagement and conditionality under the program, and contingency fiscal measures such as reprioritization of non‑critical spending.

### Staff appraisal – implications for climate and reform priorities
- Multiple external shocks have weighed significantly on the Bangladesh economy and global headwinds are likely to keep balance of payments under pressure.
- Authorities need to expedite an ambitious reform agenda while addressing immediate challenges to achieve more resilient, inclusive, and sustainable growth.
- Key reform priorities include:
  - Increasing fiscal space to scale up social and development spending.
  - Modernizing fiscal and monetary policy frameworks.
  - Strengthening the financial sector and improving governance.
  - Creating enabling environments for sustainable and private sector‑led growth.
  - Tackling climate change to protect long-term macroeconomic stability.
- Monetary and exchange rate policy guidance: focus on containing inflation and rebuilding reserves; allow greater exchange rate flexibility; modernize monetary policy framework and operations (adopt an interest rate corridor, phase out interest rate caps, improve monetary policy communication).
- Fiscal policy guidance: implement the domestic revenue mobilization strategy relying on both tax policy and revenue administration reforms to expand the budget envelope while maintaining prudent fiscal and debt strategy.
- Strengthening institutions and enhancing climate spending efficiency will help meet climate objectives and mobilize climate finance.

*Source: IMF staff summary of the chapter "Policies should prioritize climate-responsive PIM reforms to make infrastructure investment green and resilient."*

### 54.      Based on the protracted balance of payment needs, substantial climate-related

### 1bgdea2023001 - 54.      Based on the protracted balance of payment needs, substantial climate-related

### Program support and rationale
- Staff supports the authorities’ request for a 42-month arrangement under the ECF/EFF and RSF.
- Objectives of IMF-supported program:
  - Mitigate the adverse impact of the crisis on the people.
  - Support the authorities’ aspirations to become an upper-middle income country.
  - Build resilience to climate change shocks that could threaten macroeconomic stability.

### Recent developments: Pressure from external shock
- Rising global commodity prices has driven domestic inflation to a multi-year high.
- Widening current account deficit observed.
- Despite active FX interventions, the Taka has been under significant pressure.
- Foreign reserves continue to decline.
- Policy rate hike and unsterilized FX interventions have tightened money market liquidity, increasing yields on government securities.

### Fiscal developments (high-level findings)
- Revenue declined in FY2022 due to lower non-tax revenue.
- Spending has moderated after the pandemic.
- Lower-than-targeted fiscal deficit over the past two years has kept public debt levels manageable.
- Persistently low revenues are constraining spending, including much-needed social and development spending.

### Monetary and financial market developments
- Rising inflation has been driven by commodity prices.
- Policy rates were raised.
- Unsterilized FX sales have reduced liquidity in the system.
- Broad money growth has slowed.
- Stock prices have declined.

### Banking sector developments
- Non-performing loans remain elevated, especially in SOCBs.
- SOCBs’ bank capital is also below the required capital adequacy ratio.
- The cap on lending rates and excess liquidity have squeezed the lending margin for banks.
- Private credit growth has picked up, outpacing deposit growth.
- Poor asset quality has led to low bank profits, particularly among SOCBs.

### External sector developments
- Strong rebound of export growth continued in FY2022, but import growth spiked to a multi-year high.
- Worker remittances normalized and continued a secular decline.
- As a result, the current account deficit widened to a historic high.
- Taka has been under pressure, leading to declining reserve coverage.

### Selected quantitative fiscal and macro tables (highlights and exact figures extracted)
- Table 4a: Central Government Operations, FY2019–27 (In billions of taka)
  - FY21 Est. Total revenue and grants: 2,404 2,685 3,305 3,470 3,904 4,596 5,365 6,341 7,139 (row lists FY21 then FY22FY23FY24FY25FY26FY27—preserve ordering as in source)
  - Total revenue: 2,387 2,659 3,286 3,449 3,876 4,549 5,313 6,300 7,134
  - Tax revenue: 2,213 2,220 2,698 3,085 3,456 4,104 4,839 5,796 6,562
  - VAT and supplementary duties: 1,232 1,136 1,419 1,580 1,839 2,231 2,676 3,268 3,700
  - Taxes on income and profits: 669 754 873 1,029 1,159 1,378 1,627 1,952 2,210
  - Customs and excise duties: 266 260 341 384 370 396 426 453 513
  - Nontax revenue: 174 439 588 363 420 445 473 504 571
  - Foreign grants: 172 619 222 84 75 24 15
  - Total expenditure: 4,000 4,219 4,578 4,920 6,391 7,101 8,149 9,446 10,638
  - Current expenditure: 2,223 2,361 2,649 2,867 3,611 3,801 4,184 4,624 5,230
  - Pay and allowances: 549 569 589 615 660 737 824 924 1,047
  - Interest payments: 500 583 706 703 800 880 968 1,065 1,200
  - Annual Development Program (ADP): 1,493 1,554 1,592 1,808 2,294 2,746 3,303 4,032 4,458
  - Overall balance (including grants): -1,596 -1,535 -1,273 -1,449 -2,486 -2,506 -2,784 -3,105 -3,500
  - Net financing total: 1,596 1,535 1,272 1,528 2,486 2,506 2,784 3,105 3,500
  - External net financing (disbursements): 421 529 575 725 1,209 1,177 1,125 1,118 1,190
  - External amortization: -108 -113 -120 -133 -497 -325 -349 -311 -343
  - Domestic financing: 1,283 1,119 818 936 1,775 1,653 2,008 2,298 2,653
  - Banks financing: -607 793 284 495 1,148 1,121 1,443 1,595 1,841
  - Nonbanks financing: 1,890 326 533 442 627 532 565 703 812
  - Of which National Saving Certificate: 504 151 430 221 350 275 252 345 398
  - Notes specify fiscal year begins July 1 and ends June 30; cash basis.

### Financial soundness indicators (Table 6 excerpts, FY2015–FY2021; values preserved)
- Regulatory capital to risk-weighted assets: 10.8 10.8 10.8 12.1 11.6 12.5 11.6
- State-owned commercial banks regulatory capital: 6.4 5.9 7.0 10.3 5.0 9.6 6.8
- Private commercial banks regulatory capital: 12.4 12.4 12.2 12.8 13.6 13.7 13.3
- Nonperforming loans to total loans: 8.8 9.2 9.3 10.3 9.3 7.7 8.2
- State-owned commercial banks NPLs: 21.5 25.1 26.5 30.0 23.9 20.9 20.6
- Loan provisions to total nonperforming loans: 44.8 49.4 50.5 53.7 68.5 72.9 65.9
- Expenditure-Income Ratio overall: 76.3 76.6 74.7 76.6 78.0 79.2 80.2
- Return on equity (BB): 10.5 9.4 10.6 3.9 6.8 4.3 8.3
- Liquidity Ratio overall: 26.5 24.9 19.9 18.2 19.9 26.2 27.3

### Schedule of IMF disbursements and RSF (exact figures)
- Table 7a: Proposed Schedule of Disbursement and Timing of ECF/EFF Arrangement (million SDRs; Percent of Quota)
  - Board approval of the arrangement: January 30, 2023 — 352.35 (33.0)
  - Board completion of first review (end-June 2023): November 1, 2023 — 352.35 (33.0)
  - Second review (end-December 2023): May 1, 2024 — 352.35 (33.0)
  - Third review (end-June 2024): November 1, 2024 — 352.35 (33.0)
  - Fourth review (end-December 2024): May 1, 2025 — 352.35 (33.0)
  - Fifth review (end-June 2025): October 31, 2025 — 352.35 (33.0)
  - Sixth review (end-December 2025): May 1, 2026 — 354.36 (33.2)
  - Total: 2,468.46 million SDRs — Total percent of quota 231.4 (ECF/EFF breakdown total: 822.82 ECF, 1,645.64 EFF; percent of quota: 77.1 ECF, 154.3 EFF)
- Table 7b: Proposed Schedule of Disbursement and Timing of RSF Arrangement
  - Board approval: January 30, 2023 — (no disbursement listed at approval)
  - November 1, 2023 — 166.67 million SDRs (15.8)
  - May 1, 2024 — 83.34 (7.8)
  - November 1, 2024 — 83.34 (7.8)
  - November 1, 2024 — 83.33 (7.8)
  - May 1, 2025 — 83.33 (7.8)
  - May 1, 2025 — 83.33 (7.8)
  - October 31, 2025 — 83.33 (7.8)
  - October 31, 2025 — 83.33 (7.8)
  - May 1, 2026 — 83.33 (7.8)
  - May 1, 2026 — 83.33 (7.8)
  - Total RSF: 1,000.00 million SDRs — 93.8 percent of quota

### Quantitative Performance Criteria and Indicative Targets (Table 8, first two reviews; exact figures)
- Floor on net international reserves (NIR, millions of US$):
  - Mar-2023 IT: 22,947
  - Jun-2023 PC: 24,462
  - Sep-2023 IT: 25,316
  - Dec-2023 PC: 26,811
- Floor on primary balance (PB) (including grants):
  - Mar-2023 IT: -1,483.4
  - Jun-2023 PC: -1,686.4
  - Sep-2023 IT: -822.0
  - Dec-2023 PC: -1,141.1
- Ceiling on accumulation of external payments arrears: 0.0 (applied continuously)
- Indicative targets:
  - Ceiling on reserve money (RM): 3,575.0 (Mar-2023 IT), 3,951.0 (Jun-2023 PC), 3,892.0 (Sep-2023 IT), 4,004.0 (Dec-2023 PC)
  - Floor on tax revenue: 2,073.8 (Mar-2023 IT), 3,456.3 (Jun-2023 PC), 615.6 (Sep-2023 IT), 1,436.4 (Dec-2023 PC)
  - Floor on priority social spending of the Government of Bangladesh (domestically financed): 605.0 (Mar-2023 IT), 1,033.0 (Jun-2023 PC), 155.0 (Sep-2023 IT), 309.9 (Dec-2023 PC)
  - Floor on capital investment undertaken by the Government of Bangladesh (domestically financed): 389.9 (Mar-2023 IT), 1,141.1 (Jun-2023 PC), 49.8 (Sep-2023 IT), 222.8 (Dec-2023 PC)

### External financing requirements and sources (Table 9; FY2023–FY2026, exact figures)
- Gross Financing Requirements:
  - FY2023: 15,462.5
  - FY2024: 22,224.1
  - FY2025: 21,132.8
  - FY2026: 19,939.4
- Current account deficit excluding grants:
  - FY2023: 13,507.5
  - FY2024: 19,924.1
  - FY2025: 18,573.9
  - FY2026: 17,664.8
- Public sector loan amortization:
  - FY2023: 1,955.0
  - FY2024: 2,300.0
  - FY2025: 2,558.9
  - FY2026: 2,274.6
  - Of which IMF: 253.1 (FY2023), 329.3 (FY2024), 247.9 (FY2025), 131.5 (FY2026)
- Identified Financing Sources:
  - FY2023: 13,244.7
  - FY2024: 19,624.0
  - FY2025: 19,032.8
  - FY2026: 17,774.8
  - Capital account balance: 139.6 FY2023; 296.6 FY2024; 332.0 FY2025; 372.3 FY2026
  - Net foreign direct investment: 2,943.6 FY2023; 4,693.5 FY2024; 6,040.8 FY2025; 7,833.7 FY2026
  - Portfolio inflows: 131.5 FY2023; 1,173.4 FY2024; 1,006.8 FY2025; 1,305.6 FY2026
  - Public sector loan disbursements: 9,721.1 FY2023; 10,622.0 FY2024; 11,495.6 FY2025; 11,379.6 FY2026
    - Of which: RSF: 0.0 FY2023; 425.7 FY2024; 425.7 FY2025; 425.7 FY2026
  - Other capital flows (net): -3,115.1 FY2023; 7,109.1 FY2024; 5,938.1 FY2025; 3,242.8 FY2026
  - Change in reserves (+ decrease): 3,423.9 FY2023; -4,270.6 FY2024; -5,780.6 FY2025; -6,359.2 FY2026
- Financing Gap:
  - FY2023: 2,217.8
  - FY2024: 2,600.0
  - FY2025: 2,100.0
  - FY2026: 2,164.6
- Prospective Financing (exact commitments listed):
  - Financing from IMF (ECF/EFF disbursement): 450.0 FY2023; 900.0 FY2024; 900.0 FY2025; 964.6 FY2026
  - World Bank: 250.0 FY2023; 500.0 FY2024; 500.0 FY2025; 500.0 FY2026
  - Asian Development Bank: 500.0 FY2023; 500.0 FY2024; 500.0 FY2025; 500.0 FY2026
  - Other multilateral and bilateral: 1,017.8 FY2023; 700.0 FY2024; 200.0 FY2025; 200.0 FY2026
  - Notes: Of the prospective financing amounts some are pending approval.

### Indicators of Fund Credit (Table 10 highlights, 2022–2046; selected figures preserved)
- Disbursements (millions of SDRs): 0.0 352.4 1,038.1 1,038.0 1,040.0 ... (series continues as in source)
- Outstanding IMF credit (Millions of SDRs): 707.0 1,398.1 2,212.6 3,107.4 3,592.9 3,537.8 3,392.6 3,122.1 2,744.1 2,317.1 1,878.2 1,470.7 1,163.5 948.2 725.0 725.0 625.0 625.0 525.0 425.0 325.0 225.0 125.0 50.0 8.3 0.0 (series as presented)
- Memorandum items:
  - Nominal GDP (billions of U.S. dollars) series begins: 460.8 420.5 469.3 525.3 589.0 663.6 744.1 834.3 935.5 1,048.9 1,176.1 ... (series continues as in source)
  - Exports of goods and services (billions of U.S. dollars) series begins: 59.2 56.0 62.4 68.8 76.1 84.9 97.2 111.4 126.8 144.4 164.6 ... (series continues)
  - Gross international reserves (billions of U.S. dollars) series begins: 33.4 30.0 34.2 40.0 46.4 53.1 59.8 68.4 77.1 86.3 97.1 ... (series continues)
  - IMF quota (millions of SDRs): 1,066.6 (repeated across years in table)

### Proposed structural benchmarks: 12 months after Board approval (exact measures and target dates)
- Revenue mobilization:
  - MoF adopts tax revenue measures yielding an additional 0.5 percent of GDP in the FY24 budget — End-June 2023 — Increase fiscal space for priority spending
  - NBR staffs Compliance Risk Management Units in the customs and VAT wings — End-December 2023 — Increase fiscal space for priority spending
- Public spending efficiency:
  - MoF develops a plan to reduce net NSC issuance to below ¼ of total net domestic financing by FY26 — End-December 2023 — Increase fiscal space for priority spending
  - Government to adopt a periodic formula-based price adjustment mechanism for petroleum products — End-December 2023 — Increase fiscal space for priority spending
- Public financial management:
  - MoF develops a policy note to guide decisions on integrating bank accounts still remaining outside the TSA and on the sequencing of TSA enhancements — End-December 2023 — Improve cash management and strengthen fiscal risk management
- Monetary and exchange rate policy:
  - BB adopts an interest rate corridor system — End-July 2023 — Enhance monetary operations
  - BB compiles and reports official reserve assets as per BPM6 definition — End-June 2023 — Enhance BB transparency and reporting standards
  - BB uses market determined exchange rate for official FX transactions on behalf of the government — End-June 2023 — Increase exchange rate flexibility
  - Bangladesh Bureau of Statistics publishes quarterly GDP — End-December 2023 — Enhance BB’s monitoring and policy making capacity
- Financial sector policy:
  - BB completes the pilot risk-based supervision action plan — End-June 2023 — Establish risk-based banking supervision
  - MOF submits to Parliament the Bank Companies (Amendment) Act 2020 and the Finance Companies Act 2020, drafted in line with best practices — End-September 2023 — Upgrade legal and regulatory framework
  - BB publishes banks' distressed assets in the annual financial stability report — End-June 2023 — Support NPL resolution and enhance transparency

### Proposed Reform Measures under RSF (Table 12; reform measures and target dates)
- RM1: Government to adopt a sustainable public procurement policy paper and an associated action plan to integrate climate and green dimensions — End-September 2023 — RM1 is a top reform priority identified in CCDR.
- RM2: Government to adopt a periodic formula-based price adjustment mechanism for petroleum products — (target date implied in adjacent entries; RM2 described as high urgency, medium feasibility in CCDR).
- RM3: BB to adopt guidelines for banks and financial institutions on reporting and disclosure of climate-related risks in line with the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD) — End-December 2023 — RM3 is a high urgency, medium feasibility in CCDR.
- RM4: Government to adopt a national disaster risk financing strategy while integrating social assistance measures — (RM4 described as high feasibility, medium urgency in CCDR and discussed with the World Bank).
- RM5: MoF to adopt and implement a methodology for embedding climate change in the MTMF, through analyzing macro-fiscal risks from climate change and publishing it in the Medium-Term Macroeconomic Policy Statement (MTMPS) — End-June 2024 — RM5 highlighted as a key need in the updated Climate Fiscal Framework.
- RM6: Government to issue a circular on an update to the Green Book to include supplementary guidance on sector-specific methodologies that integrate climate considerations in the appraisal of major infrastructure projects starting from two key sectors — (RM6 is a critical area identified in C-PIMA study).
- RM7: BB to conduct and publish climate stress testing for the overall financial system and update the Guidelines on Stress Testing for banks and financial institutions to include climate change considerations — End-December 2024 — RM7 is a high urgency, medium feasibility in CCDR.
- RM8: Government to adopt an updated PPP policy and framework that integrates climate-related risks and develop relevant guidelines — (listed as a reform measure in RSF).
- RM9: Government to issue a circular on the adoption of an ... (content truncated in source).

*IMF staff/authoring institution as presented in the source.*

### annex to the Green Book that specifies selection and

### annex to the Green Book that specifies selection and prioritization criteria for major infrastructure projects that is aligned with the NDC and the NAP

### Public investment management (PIM) and Green Book actions
- RM8 and RM9 identified as critical areas in C-PIMA study; discussed with the WB and the ADB for synergies in the PIM reform agenda.
- RM10: Government to establish a public asset register module of the iBAS++ and will incorporate information on climate-related risks and vulnerability of new public assets to the module.
  - Timeline: End-June 2025.
  - Note: RM10 targets critical areas identified in C-PIMA study and have been discussed with the WB and the ADB for synergies in the PIM reform agenda.
- RM11: Bangladesh Bank (BB) to update the Policy on Green Bond Financing, particularly the annex on green taxonomy to be fully aligned with the NAP’s strategic and investment priorities.
  - Timeline: End-December 2025.
  - Feasibility/Urgency: RM11 is high feasibility, medium urgency in CCDR.
- Cross-reference: Green Book refers to the Ministry of Planning, 2022, “Guidelines for formulation, processing, approval and revision of development projects in the public sector.”

### Capacity development priorities linked to program reforms
- Fiscal Reforms
  - Objectives: Mobilizing revenues; rationalizing subsidies; strengthen social safety nets; build climate resilience; improve public spending efficiency; strengthen fiscal transparency and fiscal risk management.
  - Recent CD activities: Strengthening the Treasury Single Account; assessing CD needs in specific areas of revenue administration.
  - Planned/prioritized CD areas:
    - PFM/PIM: Improve budget execution and control; better cash and debt management; increased fiscal transparency; strengthen medium-term public investment planning.
      - Specifics: Public investment management; Cash management and forecasting; Debt management.
    - Revenue: Strengthen domestic revenue mobilization.
      - Specifics: Tax policy (Tax diagnostic; rationalizing tax expenditures and streamlining tax exemptions); Tax administration (increasing tax compliance; broaden the tax base; formulate MTRS).
    - Macro-fiscal planning and forecasting; Medium-term macroeconomic framework tool; Fiscal risk management.
- Monetary and Exchange Rate Reforms
  - Objectives: Modernize monetary policy framework; safeguard exchange rate flexibility.
  - Activities: Develop a forecasting and policy analysis system (FPAS); adopt interest rate corridor; improve liquidity forecasting and management; strengthen transparency and communications; Central Bank Collateral Framework; FX reserve management.
- Financial Sector Reforms
  - Objectives: Address financial sector vulnerabilities; strengthen oversight; support efficient and sustainable capital allocation.
  - Activities: Support implementation of risk-based supervision (RBS); strengthen financial supervision and regulation; develop capital market to support higher investment and improve monetary transmission; develop local currency government securities market (LCBM); reform National Saving Certificates (NSCs) system.
- Climate Reforms
  - Objectives: Make infrastructure investment green and resilient; enhance climate fiscal management; mobilize private climate finance.
  - Activities: Integrate climate risks in macro/fiscal analysis and forecasting; climate stress testing; climate PIMA (integrating climate in project appraisal/selection and PPP framework); sustainable finance and green bond.
- Macro-Structural Reforms
  - Objectives: Strengthen governance; diversify exports.
  - Activities: Statistics (compiling quarterly national accounts; rebasing CPI; balance of payments; FSI); Legal (assessment of AML/CFT supervisory arrangements at BB; further development of risk-based supervision in AML/CFT).

### External sector assessment — key findings and projections
- Overall assessment: Bangladesh’s external position in FY22 is assessed to be broadly in line with the level implied by medium-term fundamentals and desirable policies.
- Drivers: Running current account (CA) deficits aligns with Bangladesh’s level of per capita income, growth prospects, and development needs; CA widened sharply in FY22 amid Russia’s war in Ukraine and increased commodity prices; exchange rate allowed to adjust with large depreciation of the Taka.
- Recommended near-term policy responses:
  - Stem reserve losses as a key near-term priority.
  - Allow greater exchange rate flexibility to strengthen external buffers.
  - Structural reforms to expand trade and foreign investment to boost growth potential and mitigate external vulnerabilities.

### Foreign assets, liabilities, and current account specifics (FY22)
- NIIP at end-FY22: -15.4 percent of GDP (from -12.4 percent at end-FY21 and -10.8 percent at end-FY18).
- Gross foreign assets: 11.5 percent of GDP.
- Debt assets: 0.2 percent of GDP.
- Gross liabilities: 26.9 percent of GDP.
- Debt liabilities: 0.9 percent of GDP.
- Current account (CA):
  - FY22 CA deficit: 4.1 percent of GDP (widened sharply in FY22).
  - Projected CA in FY23: 3.2 percent of GDP.
  - Medium-term projection: CA deficit projected to narrow to around 3 percent of GDP.
- Cyclically-adjusted CA balance (FY22): -3.2 percent of GDP.
  - IMF staff COVID-19 adjustments: 0.4 percent of GDP (travel -0.1; transportation 0.3; shifts in household consumption 0.2).
  - EBA CA regression norm: -1.6 percent of GDP with standard error 0.6 percent.
  - Additional Bangladesh-specific adjustment: -0.2 percent of GDP (migrant share contribution), adjusting EBA CA norm to -1.8 percent of GDP.
  - FY22 EBA model’s CA gap midpoint: -1.0 percent of GDP; CA gap range: -0.4 to -1.6 percent of GDP.
  - Decomposition: o/w Policy gap 1.3; Elasticity -0.15; REER Gap 6.6 percent (IMF staff estimates).

### Real exchange rate (REER) and exchange rate developments
- Five-year average REER appreciation: 1.7 percent.
- FY22 average REER appreciation from FY21 average: about 2.4 percent.
- REER further appreciated by 3.4 percent during Jun-Oct 2022.
- Taka depreciation:
  - 7.9 percent against U.S. dollar in FY22.
  - Further about 11.8 percent Jun-Nov 2022.
- IMF staff assessment:
  - EBA REER index and level models show overvaluation of 29.3 and 28.7 percent, respectively, for FY22 average REER.
  - Considering uncertainties and recent depreciation, IMF staff assesses REER gap to be in the range of 2.6 and 10.6 percent, with a midpoint of 6.6 percent.

### Capital and financial accounts, reserves, and policy guidance
- Capital and financial account balance (FY22): 3 percent of GDP.
- FDI inflows (FY22): 0.5 percent of GDP (up from 0.3 percent in FY21).
- Assessment: FDI flows remain low relative to peers; reforms to reduce tariff barriers, improve investment regime, liberalize foreign exchange regulations as conditions allow, and reduce regulatory burdens are recommended to attract FDI.
- FX reserves:
  - Peak gross FX reserves: about US$40.7 billion in August 2021 (BPM6 definition).
  - Gross FX reserves at end-FY22: US$33.4 billion.
- Policy guidance on reserves and FX:
  - Rebuilding FX reserves is a critical short-term priority.
  - Greater exchange rate flexibility to attract remittances through formal channels; scale back non-monetary use of FX reserves.
  - FX interventions should be limited to addressing disorderly market conditions.
  - Medium-term: support exchange rate flexibility; expand and diversify export earnings; attract FDI inflows to maintain adequate reserves coverage.

### Risk Assessment Matrix — selected risks and recommended policy actions
- Global risks
  - Intensifying spillovers from Russia’s war in Ukraine (Relative Likelihood: H; Expected Impact: M–H)
    - Main impacts: Disruption of wheat exports and fuel supply; higher import prices; reduced food availability; effects on GDP growth and CA balance.
    - Policy actions: Continue to assess spillovers; allow exchange rate flexibility; provide targeted support to vulnerable within available policy space.
  - Commodity price shocks (Relative Likelihood: H; Expected Impact: M–H)
    - Main impacts: Increase CA deficit; higher fiscal burden; pressure on exchange rate and reserves.
    - Policy actions: Provide targeted support to vulnerable; adopt automatic fuel pricing mechanism; preserve reserve adequacy; increase exchange rate flexibility; tighten monetary policy if second-round effects occur.
  - Abrupt global slowdown or recession (Relative Likelihood: M; Expected Impact: M–H)
    - Policy actions: Assess impact; allow exchange rate flexibility; provide targeted support to vulnerable.
  - Local Covid-19 outbreaks (Relative Likelihood: M; Expected Impact: M–H)
    - Policy actions: Monitor transmissions; increase vaccination including booster; provide targeted support to vulnerable households and firms.
  - Natural disasters related to climate change (Relative Likelihood: M; Time horizon MT; Expected Impact: M–H)
    - Policy actions: Strengthen climate adaptation and mitigation; provide relief to affected households.
- Domestic risks
  - Banking system problems including high NPLs (Relative Likelihood: M; Time horizon ST, MT; Expected Impact: M–H)
    - Main impacts: Hamper ability of banks to finance investment; add fiscal burden; undermine growth.
    - Policy actions: Address governance, regulation, supervision, legal system weaknesses; improve NPL resolution frameworks; reassess role of SOCBs.
  - Slow resolution of Rohingya crisis and weakened donor support (Relative Likelihood: M–H; Time horizon ST, MT; Expected Impact: M–H)
    - Policy actions: Increase fiscal space to address refugees while maintaining fiscal sustainability; continue international community support.
  - Higher frequency and severity of natural disasters related to climate change (Relative Likelihood: M–H; Time horizon MT; Expected Impact: M–H)
    - Policy actions: Expand budgetary support for adaptation by investing in climate-resilient infrastructure; mobilize private green financing; continue mitigation to meet NDC targets.

### Climate change risks and macroeconomic impacts
- Vulnerability and projections
  - Bangladesh ranked among the most vulnerable countries to climate change and natural disasters.
  - Under RCP 8.5, projected mean temperature increase by 2100 relative to 1986–2005 baseline: 3.6°C.
  - Climate impacts: More frequent prolonged high heat spells and drought; intensified extreme rainfall and tropical cyclones; sea level rise threatening coastal infrastructure and populations.
  - Distributional impacts: Disproportionate effects on the poor and vulnerable groups.
- Financial sector impacts
  - An extreme flood event estimated to result in financial losses of about US$3–5 billion (3–5 percent of total outstanding loans), with losses projected to increase over time.
- Historical loss estimates and episodes
  - Tropical cyclones: estimated economic losses of about US$1 billion per year (0.7 percent of GDP) on average.
  - Cyclone Sidr (2007) upper estimate losses: US$3.8 billion.
  - Cyclone Gorky (1991) upper estimate losses: US$3.0 billion.
  - 2017 extreme flooding: affected 8 million people; direct costs estimated at US$750 million.

*Source: 1bgdea2023001 - annex to the Green Book*

### 0.3 percent of GDP), turning the overall Balance of

### 1bgdea2023001 - 0.3 percent of GDP), turning the overall Balance of

### Projected damages and climate impacts
- Flooding expected damages range between US$6 billion and US$25.3 billion by 2050 under RCP 4.5 and 8.5 scenarios (or 1.5 percent and 6 percent of annual GDP), respectively.
- Slow on-set climate change projected total economic cost:
  - 2 percent of GDP by 2050 under a business-as-usual scenario.
  - up to 9.4 percent in 2100 consistent with RCP8.5.
- Natural-disaster displacement and asset risks in Bangladesh:
  - 4.1 million people estimated to have been displaced in 2019.
  - By mid-century, internal climate migrants in Bangladesh could rise to 13.3 million.
  - Value of assets at risk is projected to double due to future sea level rise.
- Historical disaster losses:
  - Direct economic losses from natural disasters averaged around 5.6 percent of GDP annually over the past three decades.

### National climate change strategy and policy measures
- Mitigation commitments (updated NDC, 2021):
  - Reduce GHG emissions by 6.7 percent (with its own efforts) below business-as-usual in 2030.
  - Reduce GHG emissions by up to 21.9 percent (with international support) below business-as-usual in 2030.
- Key mitigation and transition actions:
  - Scale up renewable energy (RE), promote electric vehicles and clean public transport, enhance energy efficiency in buildings and industrial facilities, and reduce emissions from agriculture, land-use, and forestry sectors.
  - About 80 percent of Bangladesh’s energy supply comes from fossil fuel; over two-third of this is natural gas.
  - Cancellation at COP26 of 10 coal-fired power plant projects approximating US$12 billion in foreign investment.
  - Target of generating at least 40 percent of total electricity from RE sources by 2041.
  - New integrated energy and power sector master plan being prepared; plans to import RE-based electricity are being finalized.
  - Annual costs of air pollution in Bangladesh estimated at around 9 percent of GDP.
- Adaptation and planning instruments:
  - National Adaptation Plan (NAP) adopted with implementation roadmap and investment plan.
  - Bangladesh Delta Plan (BDP) 2100 outlines adaptive investment needs for water resource management and flood control.
  - Mujib Climate Prosperity Plan (MCPP) targets raising resources for climate risk reduction and just transition.
  - 8th Five Year Plan to anchor medium-term economic policies for climate objectives.
- Institutional frameworks and finance instruments:
  - Climate Fiscal Framework (CFF) adopted in 2014; updated recently to reflect changing climate finance landscape and role of financial/private sector finance.
  - Climate Change Budget Tagging implemented since 2018.
  - Bangladesh Climate Change Trust Fund (BCCTF) operational since 2010, managed by the Bangladesh Climate Change Trust and the Government of Bangladesh.
  - Sustainable finance initiatives:
    - Bangladesh Bank joined SBFN in 2012; set minimum annual target of green finance at 5 percent of total loan disbursement for all financial institutions in 2016.
    - Sustainable Finance Policy for Banks and Financial Institutions issued in 2020.
    - Policy on Green Bond Financing (including Green Taxonomy and Green Bond framework) issued in 2022.
    - Country’s first two corporate green bonds issued in 2022.
    - In practice, only 0.5 percent is green, compared to the 5 percent target.

### Climate-related spending and investment requirements
- Government climate-related budget allocation:
  - Increased from US$1.4 billion in FY16 to US$2.9 billion in FY22.
  - Constitutes about 7.3 percent of the total budget in FY22.
  - Allocation by objective in FY22:
    - Climate-related food security, social protection, and health: 39 percent of total.
    - Climate resilient infrastructure: 26 percent of total.
    - Climate mitigation and low-carbon development measures: 17 percent of total.
- Climate finance sources accessed:
  - Bangladesh established BCCTF and accessed Green Climate Fund, Climate Investment Fund, Global Environmental Facility, and multilateral development bank financing.
  - Private green finance remains nascent (e.g., corporate green bonds).
- Estimates of investment needs (Table 2 summary):
  - 2018 BDP2100: US$38.0 billion by 2030; estimated annual expenditure 2.50 percent of GDP.
  - 2021 NDC Unconditional Mitigation (2021–30):
    - Energy US$30.8 billion; 0.74 percent of GDP.
    - Agriculture, forestry, and other land use US$0.8 billion; 0.02 percent of GDP.
    - Waste US$0.6 billion; 0.01 percent of GDP.
    - Total US$32.3 billion; 0.78 percent of GDP.
  - 2021 NDC Conditional Mitigation (2021–30):
    - Energy US$137.5 billion; 3.31 percent of GDP.
    - Agriculture, forestry, and other land use US$2.5 billion; 0.06 percent of GDP.
    - Waste US$3.8 billion; 0.09 percent of GDP.
    - Total US$143.7 billion; 3.46 percent of GDP.
  - 2022 Mujib Climate Prosperity Plan (2022–30):
    - Accelerated adaptation US$44.1 billion; 1.07 percent of GDP.
    - Just transition of labor; technology transfer US$11.6 billion; 0.28 percent of GDP.
    - Increasing public revenue US$3.9 billion; 0.10 percent of GDP.
    - Climate and disaster risk financing and management US$4.9 billion; 0.12 percent of GDP.
    - 21st century technologies for wellbeing US$4.6 billion; 0.11 percent of GDP.
    - Renewable energy, energy efficiency, and power and transportation resilience US$20.6 billion; 0.50 percent of GDP.
    - Total US$89.7 billion; 2.18 percent of GDP.
  - Total estimated range of consolidated climate-related investment requirements under key plans by 2030: 3.3 to 7.0 percent of GDP.
  - Unconditional NDC mitigation target requires about US$3.2 billion per annum of domestic resources by 2030 (approximately 0.8 percent of FY21 GDP).
  - Conditional NDC target would require additional US$14.4 billion per year (3.5 percent of FY21 GDP) by 2030.
  - BDP2100 delivery of climate resilient water resource management, flood prevention, and water supply and sanitation infrastructure estimated at US$3.8 billion per year by 2030.
  - MCPP adaptation component requires US$6.4 billion per year by 2030; MCPP mitigation component requires US$3.6 billion per year by 2030.
- World Bank CCDR suggestion:
  - Incremental costs of climate-related investment programs would likely reach 3 to 4 percent of GDP annually over the next 15 years.
- Current climate-related government spending:
  - Just under 1 percent of GDP.

### Macro-fiscal implications and benefits of adaptation investment
- Fiscal risks and economic losses:
  - Natural disasters destroy capital and reduce output short run; reconstruction and transfers raise government spending while revenues fall.
  - Potential outcomes: fiscal deficit deterioration, public debt rise, worsened BoP and pressure on reserves and external sustainability.
  - Bangladesh currently assessed at low risk of overall and external debt distress; adverse climate impacts could pose significant fiscal risks.
- IMF DIGNAD model simulation results (illustrative):
  - Investing an additional 3 percent of GDP in adaptation infrastructure for the next five years would:
    - Save Bangladesh about 3 percent of GDP in output losses when disaster hits.
    - Support economic recovery from the pandemic.
    - Public debt expected to stabilize below 45 percent of GDP, similar to baseline without additional adaptation investment, with adaptation contributing to a declining debt trajectory over the long run.
- Importance of public investment management (PIM) efficiency:
  - Improving PIM efficiency toward the median level among Asian emerging economies would:
    - Further strengthen output resilience against natural disasters.
    - Produce more favorable public debt paths relative to the “just-investing” scenario.
  - Execution challenges anticipated for sizeable public adaptation investment due to typical large efficiency losses in public investment.

### Financing needs and gaps
- Government of Bangladesh calls for additional public and private financing of at least 3.3 percent of GDP by 2025 under its climate plans including the 2021 unconditional NDC and the BDP2100.
- Current commitments for climate financing have fallen short of projected financing requirements; current financing plans and commitments are not adequate to fulfill large climate investment needs, entailing financing needs of over 2 percent of GDP annually.

*Source: IMF staff and Bangladesh authorities, extracted from the provided IMF chapter text.*

### 12.      The arrangement under the Fund-supported RSF is expected to support Bangladesh’s

### 1bgdea2023001 - 12.      The arrangement under the Fund-supported RSF is expected to support Bangladesh’s

### RSF objectives and expected macroeconomic effects
- The RSF arrangement is expected to:
  - Support Bangladesh’s imminent climate financing needs and strengthen reform efforts to attract additional climate finance.
  - Provide resources to address climate-related vulnerabilities and support a green economic recovery while maintaining sufficient foreign exchange reserve buffers amid multifaceted external shocks.
  - Substitute for more expensive domestic financing (e.g., very high interest payments from national saving certificate issuance), improving the expenditure composition toward development and social spending.
  - Support institutional reforms to enable large-scale climate investments, lower barriers and risks, and improve the investment environment to help catalyze other financing sources beyond the government budget.

- Specific financing mobilization plans cited by the authorities:
  - Mobilize about US$1 billion through public green bonds under BDP2100.
  - Mobilize around US$7 billion in private green financing under MCPP.

### Market-based climate finance and financial-sector enablers
- Expansion of green financial instruments (sovereign and corporate green bonds) is expected to channel long-term market-based financing toward climate-related investment.
- Strengthening assessment and management of climate risks in the financial sector will facilitate green lending by banks.
- An enabling ecosystem is required, including:
  - Investor and issuer expertise.
  - Data, ratings, and assurance providers to ensure integrity of green finance instruments.
  - Improved climate disclosures, green taxonomies or equivalent approaches.
  - Supervisory guidance on climate risk management and climate risk scenarios.
- Banking-sector target assumption in illustrative figure:
  - Assuming banks were to meet the green finance target at 5 percent of total loan disbursement for all financial institutions.

### DIGNAD model: role of ex-ante adaptation investment
- Model purpose:
  - The Debt, Investment, Growth, and Natural Disasters (DIGNAD) model demonstrates benefits of investing ex-ante adaptation in countries exposed to frequent natural disasters.
  - Investing in adaptation infrastructure initially raises public debt but reduces (i) adverse impact of natural disasters on output, (ii) damages to physical assets, and (iii) post-disaster fiscal costs for rebuilding and lifeline support.

- Calibration and channels of disaster impact:
  - DIGNAD is a dynamic general equilibrium model calibrated to relevant economy features.
  - Natural disasters affect the economy through five channels: (i) damages to public capital, (ii) damages to private capital, (iii) a temporary productivity loss, (iv) a decline in public investment efficiency, and (v) a loss in credit worthiness.

- Scenario analysis for Bangladesh (as presented):
  - Scenario 1: No policy change — invest in standard capital infrastructure in years 1–5; a natural disaster in year 6 yields nearly 5 percentage decline in GDP (in line with historical losses).
  - Scenario 2: Adaptation investment — additional investment in adaptation infrastructure of 3 percent of GDP relative to no additional investment in years 1–5; financing expected to be about one-third concessional public borrowing and the remainder via PPPs or private financing.
  - Scenario 3: Adaptation investment with PIM reforms — same additional public investment as Scenario 2 plus improved public investment management (PIM) efficiency; assumes efficiency improves by around 20 percent, reaching 65 percent (Asian emerging economies efficiency scenario) from Bangladesh’s current level of 46 percent.

### GDP rebasing and macroeconomic implications
- BBS rebased GDP series published in November 2021:
  - Rebasing anchored on 2015/16 prices and expanded survey coverage (Survey of Real Estate, Survey of Travel Agents, Transportation Survey).
  - The rebased nominal GDP features nearly 20 percent disproportionate revisions throughout FY2016–FY2021.

- Key outcomes from rebased series:
  - Real GDP grew by 6.9 percent in FY2021, 1.9 percentage points higher than its previous estimate of around 5 percent — driven by an upward revision to consumption and stronger manufacturing sector growth (manufacturing accounts for 23.4 percent of GDP).
  - During FY2017–FY2020, real GDP growth was revised down by about 0.4 percentage points on average.

- Selected nominal GDP and revision figures (FY2016–FY2021) from BBS tables:
  - GDP at current price (In billion of taka), 2005/06 base: 17,329 (FY2016), 19,561 (FY2017), 22,173 (FY2018), 25,096 (FY2019), 28,428 (FY2020), 32,026 (FY2021).
  - GDP at current price (In billion of taka), 2015/16 base: 20,758 (FY2016), 23,243 (FY2017), 26,392 (FY2018), 29,514 (FY2019), 31,705 (FY2020), 35,302 (FY2021).
  - Difference (%): 19.8 (FY2016), 18.8 (FY2017), 19.0 (FY2018), 17.6 (FY2019), 11.5 (FY2020), 10.2 (FY2021).

- Real GDP growth rates (selected):
  - 2005/06 base: 7.28 (FY2017), 7.86 (FY2018), 8.15 (FY2019), 3.51 (FY2020), 5.01 (FY2021) [table formatting in source].
  - 2015/16 base: 6.59 (FY2017), 7.32 (FY2018), 7.88 (FY2019), 3.45 (FY2020), 6.94 (FY2021).
  - Difference (percentage point): -0.69 (FY2017), -0.54 (FY2018), -0.27 (FY2019), -0.06 (FY2020), 1.93 (FY2021).

- Implications for ratios:
  - Current account balance (Percent of GDP), 2005/06 base: 1.9 (FY2016), -0.5 (FY2017), -3.5 (FY2018), -1.5 (FY2019), -1.7 (FY2020), -1.3 (FY2021).
  - Current account balance (Percent of GDP), 2015/16 base: 1.6 (FY2016), -0.5 (FY2017), -3.0 (FY2018), -1.3 (FY2019), -1.5 (FY2020), -1.1 (FY2021).
  - Fiscal balance (Percent of GDP), 2005/06 base: -3.8 (FY2016), -4.9 (FY2017), -4.8 (FY2018), -6.3 (FY2019), -5.6 (FY2020), -4.2 (FY2021).
  - Fiscal balance (Percent of GDP), 2015/16 base: -3.2 (FY2016), -4.2 (FY2017), -4.1 (FY2018), -5.4 (FY2019), -4.8 (FY2020), -3.6 (FY2021).

- Statistical capacity support:
  - SARTTAC continues to assist authorities with updating CPI and compiling quarterly GDP, PPI, ISP, QIIP, SUT, and IOT.

### Macroeconomic context, vulnerabilities, and financing requests (from Letter of Intent and MEFP)
- Recent macro developments and vulnerabilities:
  - Inflation rose to a decade high of 9.5 percent point-to -point in August 2022.
  - Current account deficit widened sharply to 4.1 percent of GDP in FY22 (July 2021–June 2022) from 1.1 percent of GDP in FY21.
  - Taka depreciated by 21.2 percent during April 30–December 5, 2022.
  - Gross international reserves declined to US$27.5 billion in October 2022 from their peak of US$40.7 billion in August 2021.
  - Remittance flows declined to pre-pandemic levels after a temporary surge.
  - The government estimates annual climate financing needs at 2–3 percent of GDP.
  - Bangladesh is at risk of losing 2 to 9 percent of annual GDP by the mid- and end of the century, respectively, due to climate change.
  - Notre Dame Global Adaptation Index rank: 164 amongst 182 countries.

- Policy actions taken:
  - Monetary tightening: increases in the repo rate and unsterilized FX interventions to reduce banking-system liquidity.
  - Greater exchange rate flexibility.
  - Price increases for fuel, fertilizers, electricity and gas.
  - Restrictions to curb non-essential imports and measures to curtail energy demand (rolling power cuts, reduced school and office hours).

- IMF financing requests (as presented):
  - Request access under ECF: SDR 822.82 million (77.1 percent of quota).
  - Request access under EFF: SDR 1,645.64 million (154.3 percent of quota) over a 42-month period.
  - Immediate disbursement requested upon approval: SDR 352.35 million (33 percent of quota), of which SDR 117.45 million (11 percent of quota) under the ECF and SDR 234.90 million (22 percent of quota) under the EFF.
  - Supplementary RSF arrangement requested: SDR 1,000 million (93.8 percent of quota).

- Program emphasis:
  - Preserve macroeconomic stability and gradually rebuild reserves.
  - Macro-critical structural reforms to lay foundations for achieving upper-middle income status by 2031 and high-income by 2041.
  - Priorities include: (a) raise revenues for higher development and social spending and enhance fiscal governance; (b) modernize monetary policy framework; (c) reduce financial sector vulnerabilities and develop capital markets; (d) improve investment climate and boost productivity; (e) establish an ecosystem to better adapt to climate change.

*Source: Excerpts from the IMF staff report and associated attachments for Bangladesh (relevant sections on RSF, DIGNAD model, GDP rebasing, Letter of Intent, and MEFP).*

### 7. Our reform agenda under the IMF program aims at restoring macroeconomic stability

### 7. Our reform agenda under the IMF program aims at restoring macroeconomic stability

### Overall objectives and program targets
- Program period: FY23–26.
- Inflation: bring down to within the range of 5–6 percent.
- Net international reserves (NIR): increase to 4 months of prospective imports by FY26.
- Strategies: prudent aggregate demand management, increased exchange rate flexibility, structural reforms to bolster competitiveness, and catalyze additional external inflows including FDI.
- Growth strategy: boost growth potential by increasing investments, opening the economy, and enhancing employment opportunities as outlined in the 8th FYP.

### Fiscal policy: objectives, measures, and targets
- Fiscal stance: prudent, aimed at creating fiscal space to sustainably increase social spending and investment.
- Primary fiscal deficit (including grants): target to keep within around 3.3 percent of GDP to contain public debt below 45 percent of GDP over the medium term.
- Contingency: stand ready to adjust fiscal strategy should downside risks materialize.
- Expenditure and revenue strategy:
  - Raise development and social spending while rationalizing subsidies and domestic debt financing costs.
  - Mobilize additional tax revenue of about 1.7 percent of GDP over the course of the program.
- Tax policy and administration reforms:
  - Shift tax burden partially away from trade-related taxes toward income and value-added taxes.
  - Eliminate less effective tax exemptions and simplify tax rate structure to broaden the tax base.
  - IMF TA to identify measures to rationalize tax expenditures to be adopted in FY25 and FY26 budgets.
  - Adopt tax revenue measures yielding an additional 0.5 percent of GDP in the FY24 budget (end-June 2023 structural benchmark (SB)).
  - Finalize a new Income Tax Code by end-2023 to address base erosion and profit shifting by global internet-based entities and transfer pricing.
  - Tax-to-GDP ratio to improve while gradually eliminating para-tariffs and reducing average nominal protection rates on imports in line with LDC graduation strategy.
- Tax administration operational targets:
  - Increase registered taxpayers to 10 million by 2026.
  - Install another 300,000 electronic fiscal devices over the next five years, expected to yield an additional revenue of Taka 105 billion; initial 60,000 planned for FY24.
  - Move toward modern IT-based VAT and income tax administration, greater at-source taxation, and strengthened compliance risk management.
  - Establish compliance risk management units (CRMUs) within customs and VAT wings of National Board of Revenue (end-December 2023 SB); CRMU for income tax as part of reorganization in 2024.
  - Develop and approve a Medium-Term Revenue Strategy in FY24 to improve revenue collection over a 3-5 year horizon.
  - New Customs Act submitted to Parliament to modernize customs administration.
- Subsidy containment:
  - Past adjustments: petrol and octane prices raised by close to 50 percent in August 2022; diesel and kerosene raised by 36 percent on top of 23 percent increases in November 2021.
  - Natural gas tariffs increased by 23 percent on average in June 2022; bulk electricity tariffs raised by 20 percent in November 2022.
  - Budget subsidies for natural gas and electricity expected to remain relatively contained at 0.9 percent of GDP in FY23.
  - Increased subsidies of 0.7 percent of GDP required for fertilizer and food this fiscal year amid large increases in import prices.
  - Plan to eliminate all structural subsidies for petroleum products and move to a periodic formula-based price adjustment mechanism (end-December 2023 SB).
  - Aim to further adjust electricity prices to reduce subsidies.
- Public investment and public financial management:
  - Follow Public Financial Management Action Plan for 2018-2023 to strengthen linkages between FYP, ADP, and MTBF and raise investment portfolio quality.
  - Integrate medium-term budget and ADP processes and produce consolidated MTBF with a medium-term investment program.
  - Roll out Sector Strategy Papers and Multi-Year Public Investment Program tools to 5 sectors by end-2024 and another 5 sectors by end-2025; identify at most top five capital projects per sector.
  - Reinforce staff capacity to prepare Development Project Proposals (DPPs) and appraise projects.
- Debt management and NSC reform:
  - Second Medium-Term Debt Management Strategy (MTDS) to minimize borrowing costs and ensure long-term fiscal sustainability.
  - Reduce reliance on National Savings Certificates (NSCs) and shift toward concessional external financing while developing local bond markets over the longer term.
  - Update MTDS annually with IMF TA; complement with a quarterly debt bulletin and eventually an annual debt portfolio report.
  - NSC reforms initiated: tiered interest rates, capping issuances, increasing tax on earned interest, and criminalization of false information on NSC investments under 2022 Public Debt Act.
  - Fully automate NSC issuances by 2024; formal plan to reduce net NSC issuance to below ¼ of domestic financing by FY26 (end-December 2023 SB).
- Social spending and safety nets:
  - Gradually increase priority social spending and enhance social safety net effectiveness using updated Action Plan to Implement the National Social Security Strategy of Bangladesh (2021–2026).
  - Priorities: align lifecycle transfer programs, improve targeting, expand coverage rural and urban, consolidate programs, adopt G2P systems, expand social insurance.
  - Universal Pension Management Bill 2022 in Parliament to provide pension scheme available to all Bangladeshis and expected to replace various existing social safety programs over time.
- Cash management and public financial controls:
  - Expand coverage of treasury single account (TSA); Ministry of Finance to conduct census of bank accounts outside TSA and develop policy note (end-December 2023 SB).
  - Begin production of regular cashflow forecasts by treasury to be shared with budget department and central bank by FY26.
  - Expand use of electronic funds transfer (EFT) to cover vendor payments and target at least 60 percent of central government transactions by end-2024.
  - Continue enhancing Integrated Budget and Accounting System (iBAS++) to enable commitment controls, reconcile tax receipts and deductions, and support electronic payments.
- Fiscal reporting and transparency:
  - Publish quarterly budget execution reports within 60 days of quarter-end for first three quarters and 90 days for last quarter.
  - Train staff on International Public Sector Accounting Standards; submit annual financial statements for audit within six months of year-end.
  - Institute modern internal audit function with risk-based internal audits.
  - Systematically collect financial data on 100 SOEs to inform a fiscal risk statement starting with FY25 budget; later cover macro-fiscal risks related to climate change and natural disasters.
  - Produce annual SOE sector report covering the 50 largest SOEs in 2025 and formulate an SOE governance framework.

### Monetary policy, exchange rate, and central bank operations
- Monetary policy orientation:
  - Guided by inflation outlook while supporting economic growth.
  - Tighter stance implemented: increased benchmark repo rate by 100 bps since May 2022 and mopped up liquidity via unsterilized FX interventions.
  - BB stands ready to continue calibrated tightening to contain second-round effects and restrain exchange rate pressures while monitoring reserve money.
  - Medium-term inflation target: 5-6 percent.
- Monetary framework modernization:
  - Transition to flexible monetary targeting in the medium term with policy interest rate as operating target, supported by IMF TA and training.
  - Improve analytical and forecasting capacity via model-based Forecasting and Policy Analysis System (FPAS).
  - Transition to an interest rate corridor system with automatic standing lending and deposit facilities (end-July 2023 SB).
  - Improve liquidity forecasting capacity.
  - Relaxed lending interest rate cap on consumer loans (14 percent of total loans); committed to remove other caps over program period.
  - Strengthen communication and transparency: streamline Monetary Policy Statement (MPS) and increase frequency to twice-a-year starting from January 2023; press release and Governor press conference after each policy decision meeting.
- Exchange rate and FX reserve management:
  - Acknowledge transitory multiple exchange rate arrangement; expect market mechanism to ensure transition to single exchange rate as FX availability increases.
  - BB to use market-determined exchange rate for all official FX transactions on behalf of the government (end-June 2023 SB).
  - Increased LC margins for non-essential imports to safeguard FX reserves; plan to gradually reverse measure by December 2023 as FX reserves improve.
  - Commit to a modest NIR buildup in FY23 followed by further significant increase over medium term to cover 4 months of prospective imports.
  - Start compiling and publishing Gross International Reserves (GIR) in line with international standards (end-June 2023 SB).
- Central bank safeguards and operations:
  - Progress on IMF Safeguards Assessment recommendations: publishing financial statements in compliance with IFRS and building staff capacity.
  - Strengthen Internal Audit Department (IAD): five-year plan, appointed chief information security officer, updated terms of reference, adoption of risk-based audit methodology.
  - Commit to unwind non-monetary use of FX reserves gradually and not engage in new non-monetary operations including foreign currency lending.
  - Finalized draft emergency liquidity assistance framework and plan to adopt it during program period.
  - External cyber risk vulnerability assessment initiated since December 2022.
  - Plan to conduct external audit as in previous IMF program.

### Financial sector reforms: stability, supervision, and resolution
- Exit from pandemic support:
  - Support measures fully withdrawn by December 2022, including expiration of soft repayment facility to Large Industries, CMSME, agricultural sectors, and flood-affected borrowers.
  - BB will ensure asset classification reflects current balance sheet risks and that classified assets including rescheduled loans are adequately provisioned.
  - Continue supporting most-at-risk individuals and businesses via regular financial support schemes to avoid cliff effects.
- Distressed asset statistics and accounting standards:
  - Move toward Basel III standards for loan classification, capital adequacy, and provisioning.
  - Non-performing treatment: material exposures classified non-performing when more than 90 days past due or debtor unlikely to pay without collateral realization.
  - Restart reporting banks’ rescheduled loans alongside NPLs in annual financial stability report (end-June 2023 SB).
  - Plan to reduce time before a bank can write off bad loans.
  - Develop plan by 2023 for banking sector to adopt IFRS9 and fully adopt IFRS9 by 2027.
  - Seek IMF TA for implementing expected credit loss based provisioning.
- NPL resolution strategy and SoCB reforms:
  - Adopt holistic, time-bound NPL resolution strategy with bank-specific resolutions to reduce balance sheet weaknesses, particularly of state-owned commercial banks (SoCBs).
  - Develop enforceable Memorandum of Understandings (MoUs) to:
    - Reduce average NPL ratio to below 10 percent for SoCBs and below 5 percent for private commercial banks (PCBs) by 2026.
    - Increase capital adequacy ratios and provisioning coverages of SoCBs to 10 percent and 100 percent and of PCBs to 10 percent and 100 percent by 2026.
  - Committee examining SoCB director nomination and appointment policy to suggest governance recommendations.
- Supervision, risk-based supervision (RBS), and macroprudential tools:
  - Strengthen BB’s monitoring and supervisory role anchored by clear oversight, strong RBS, and managerial/operational controls.
  - Incorporate RBS in BB’s five-year strategic plan 2020-2024 to adopt RBS by 2025.
  - Complete pilot on RBS by finalizing assessment of three pilot banks including one Islamic bank (end-June 2023 SB).
  - RBS to include specific procedures for Islamic banking in assessment tool and inspection manual.
  - Develop in-house expertise for scenario-based macroprudential stress tests and pursue climate stress test.
  - Plan to develop a macroprudential strategy document.
  - Strengthen credit infrastructure and collateral valuation framework.
  - Plan to expand mandate of credit information bureau (CIB) to allow sharing data with private borrowers.
- Regulatory and legal reforms:
  - Submit Bank Companies (Amendment) Act 2020 and Finance Companies Act 2020 to Parliament (end-September 2023 SB).
  - Submit Bankruptcy (Amendment) Act 2020 and Money Loan Court (Amendment) Act 2003 by June 2024.
  - Submit Negotiable Instrument (Amendment) Act 2020 by June 2025.
  - Objectives: strengthen financial sector, enhance insolvency regime, facilitate loan recovery, modernize financial sector, and improve legal environment for credit and business activities.

*Source: 1bgdea2023001 - 7. Our reform agenda under the IMF program aims at restoring macroeconomic stability*

### 28. Under the program, we will further develop the capital market. We will develop a

### Under the program, we will further develop the capital market. We will develop a roadmap for local currency bond market development, using IMF TA.

### Capital market development
- Develop a roadmap for local currency bond market development, using IMF TA.
- Facilitate capital market development through:
  - NSC reforms.
  - Implementation of the MTDS.
  - Development of the secondary market for government securities.
  - Modernization of the monetary framework.

### Macro-Structure and governance reforms
- Create a conducive investment climate, accelerate trade liberalization and attract more FDI.
- During the program period, the authorities plan to:
  - Reduce relatively high non-tariff barriers and domestic protection.
  - Improve trade-related energy and transportation infrastructure.
  - Address regulatory barriers.
- Work closely with development partners to inform near- to medium-term trade development priorities.
- Develop human capital to boost labor productivity and long-term growth potential by:
  - Pursuing reforms to improve education outcomes.
  - Addressing gaps in vocational training to facilitate formal employment.
  - Working with the United Nations and other development partners to improve labor productivity, increase female labor force participation and deepen financial inclusion as part of Bangladesh’s Sustainable Development Goals.
- Strengthen governance and combat corruption:
  - Move toward international best practices on anti-money laundering (AML) by enhancing the RBS, following the roadmap developed with IMF TA.
  - Aim to amend the Companies Act to facilitate information collection for fully identifying ultimate beneficial ownership in the financial sector.
  - Continue to strengthen central bank governance and fiscal transparency.
  - Safeguard the independence of the Anti-Corruption Commission.

### Climate change policies — overarching priorities and financing
- Top priorities: address significant adaptation challenges, mobilize climate finance, and enhance climate mitigation efforts.
- Current annual climate-related government spending is under 1 percent of GDP against the needed 3 to 4 percent of GDP of financing over the next 15 years.
- On 31st October 2022, the cabinet approved the National Adaptation Plan (NAP) that outlines adaptation investment requirement of US$230 billion between now and 2050.
- Implement reform measures to strengthen institutions to enable large-scale climate investments prioritized in the NAP, the BDP, and the Nationally Determined Contributions (NDC).
- Mobilize climate finance through public and private sources and green bonds; enhance financial sector resilience to climate-related risks.
- Existing policy tools in place: Climate Fiscal Framework (CFF), climate budget tagging, sustainable finance policy and green bond policy and taxonomy.

### Climate mitigation commitments and measures
- Updated the NDC in August 2021 with increased mitigation ambition.
- NDC commitments:
  - Reduce greenhouse gas (GHG) emissions by 6.7 percent below business-as-usual in 2030.
  - Reduce GHG emissions by up to 21.9 percent if combined with international support.
- Policy priorities to support these targets include:
  - Scaling up renewable energy.
  - Promoting electric vehicles and clean public transport.
  - Enhancing energy efficiency in buildings and industrial facilities.
  - Measures to reduce emissions from agriculture, land-use, and forestry sectors.
- Announced at COP26 the cancellation of 10 coal-fired power plant projects involving US$12 billion foreign investment.
- Set target of generating at least 40 percent of total electricity from renewable energy sources by 2041 and preparing a new integrated energy and power sector master plan.
- Finalizing imports of renewable-based electricity from neighboring countries.
- Raised natural gas and fuel prices recently and moving toward a periodic formula-based price adjustment mechanism for all petroleum products (end-December 2023 RM).
- Committed, barring further large global commodity price shock, not to increase subsidies on fossil-fuel-based energy as percentage of GDP during the program period and will consider options of gradually reducing them.

### Climate-resilient infrastructure and public investment management
- Commit to make infrastructure investment green and resilient; integrate climate perspective in appraisal and selection of capital projects.
- Enhance climate-informed public investment management (PIM) practices to support prioritization and allocation of resources for the BDP and scaling up of climate-smart investment as envisaged in the NAP.
- Update PPP policy and framework to reflect climate risks and opportunities and develop guidelines for PPP project proponents and developers.
- Establish a public asset register module of the iBAS++ and incorporate information on climate-related risks/damages and vulnerability of new public assets into the module, with IMF TA.

### Climate fiscal management and disaster risk financing
- Implement the CFF to embed climate change aspects in PFM systems and the budget setting process under the Medium Term Budget Framework (MTBF).
- Use CFF to facilitate mobilization of domestic and international climate finance.
- Develop and implement methodologies for analysis of macro-fiscal risks from climate change and publish such information in the Medium-Term Macroeconomic Policy Statement (MTMPS).
- Develop a National Disaster Risk Financing strategy that integrates social assistance measures (end-December 2023 RM).
- Adopt a sustainable public procurement policy paper and associated action plan to integrate climate and green dimensions into the public procurement process (end-September 2023 RM).

### Financial sector resilience to climate shocks and mobilizing private climate finance
- Develop and adopt guidelines for banks and financial institutions on reporting and disclosure of climate-related risks in line with the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD) (end-December 2023 RM).
- Draw on Guidelines on Environmental & Social Risk Management (ESRM) and existing sustainable reporting practices in Bangladesh.
- Conduct and publish climate stress testing for the overall financial system and update the Guidelines on Stress Testing for banks and financial institutions to include climate change considerations.
- Operationalize the Sustainable Finance Policy for Banks and Financial Institutions and the Policy on Green Bond Financing (including Green Taxonomy and Green Bond framework).
- Update the green bond policy paper, particularly the annex on green taxonomy, to be fully aligned with the NAP’s strategic and investment priorities.

### Statistical policy
- Strengthen macroeconomic statistics to better inform policy and monitor outcomes.
- Published the rebased national account and plan to publish the new consumer price index.
- Publish the national accounts on a quarterly basis (end-December 2023, SB).
- Financial soundness indicators with expanded coverage will be published.
- Intend to publish historical monthly BoP data and continue the practice.

### Program monitoring, quantitative targets, and selected statistics (Table 1 highlights)
- Progress monitored through quantitative performance criteria (QPC), indicative targets (IT), and structural benchmarks.
- Selected quantitative performance criteria and indicative target figures (In billions of Taka, unless otherwise indicated; Net international reserves in millions of US$):
  - Floor on net international reserves (NIR, millions of US$):
    - Mar-2023 IT/PC: 22,947
    - Jun-2023 IT/PC: 24,462
    - Sep-2023 IT/PC: 25,316
    - Dec-2023 IT/PC: 26,811
  - Floor on primary balance (PB) 5/:
    - Mar-2023 IT/PC: -1,483.4
    - Jun-2023 IT/PC: -1,686.4
    - Sep-2023 IT/PC: -822.0
    - Dec-2023 IT/PC: -1,141.1
  - Ceiling on accumulation of external payments arrears 6/: 0.0 (Mar-2023), 0.0 (Jun-2023), 0.0 (Sep-2023), 0.0 (Dec-2023)
  - Indicative targets:
    - Ceiling on reserve money (RM):
      - Mar-2023: 3,575.0
      - Jun-2023: 3,951.0
      - Sep-2023: 3,892.0
      - Dec-2023: 4,004.0
    - Floor on tax revenue:
      - Mar-2023: 2,073.8
      - Jun-2023: 3,456.3
      - Sep-2023: 615.6
      - Dec-2023: 1,436.4
    - Floor on priority social spending of the Government of Bangladesh 7/ 9/:
      - Mar-2023: 605.0
      - Jun-2023: 1,033.0
      - Sep-2023: 155.0
      - Dec-2023: 309.9
    - Floor on capital investment undertaken by the Government of Bangladesh 8/ 9/:
      - Mar-2023: 389.9
      - Jun-2023: 1,141.1
      - Sep-2023: 49.8
      - Dec-2023: 222.8
- Notes:
  - 1/ Fiscal year starts in July and ends in June.
  - 2/ Quantitative targets, indicative targets and program exchange rates are defined in the Technical Memorandum of Understanding (TMU).
  - 3/ Program starting point assumes Board approval in January 2023.
  - 4/ Net international reserves are gross reserves (based on BPM6 definition) minus the central bank FX liabilities and reserves earmarked for quasi-fiscal activities.
  - 5/ Including grants.
  - 6/ This quantitative target is applied on a continuous basis.
  - 7/ Social spending that is domestically financed.
  - 8/ Capital investment from annual development program that is domestically financed.
  - 9/ Quarterly target is projected in line with historical quarterly outturns and seasonality patterns reflecting backloaded disbursements.

### Proposed structural benchmarks: 12-months after Board approval (highlights from Table 2)
- Revenue mobilization:
  - MoF adopts tax revenue measures yielding an additional 0.5 percent of GDP in the FY2024 budget — End-June 2023 — Increase fiscal space for priority spending.
- NBR staffs Compliance Risk Management Units in the customs and VAT wings — End-December 2023 — Increase fiscal space for priority spending.
- Public spending efficiency:
  - MoF develops a plan to reduce net NSC issuance to below ¼ of total net domestic financing by FY2026 — End-December 2023 — Increase fiscal space for priority spending.
  - Government to adopt a periodic formula-based price adjustment mechanism for petroleum products — End-December 2023 — Increase fiscal space for priority spending.
- Public financial management:
  - MoF develops a policy note to guide decisions on integrating bank accounts still remaining outside the TSA and on the sequencing of TSA enhancements — End-December 2023 — Improve cash management and strengthen fiscal risk management.
- Monetary and exchange rate policy:
  - BB adopts an interest rate corridor system — End-July 2023 — Enhance monetary operations.
  - BB compiles and reports official reserve assets as per BPM6 definition — End-June 2023 — Enhance BB transparency and reporting standards.
  - BB uses market determined exchange rate for official FX transactions on behalf of the government — End-June 2023 — Increase exchange rate flexibility.
- Statistics:
  - Bangladesh Bureau of Statistics publishes quarterly GDP — End-December 2023 — Enhance BB’s monitoring and policy making capacity.
- Financial sector policy and supervision:
  - BB completes the pilot risk-based supervision action plan — End-June 2023 — Establish risk-based banking supervision.
  - MOF submits to Parliament the Bank Companies (Amendment) Act 2020 and the Finance Companies Act 2020, drafted in line with best practices — End-September 2023 — Upgrade legal and regulatory framework.
  - BB publishes banks' distressed assets in the annual financial stability report — End-June 2023 — Support NPL resolution and enhance transparency.

### Proposed Reform Measures Under RSF (Table 3 highlights)
- RM1: Government to adopt a sustainable public procurement policy paper and an associated action plan to integrate climate and green dimensions — End-September 2023 — RM1 is a top reform priority identified in CCDR.
- RM2: Government to adopt a periodic formula-based price adjustment mechanism for petroleum products — End-December 2023 — RM2 is high urgency, medium feasibility in CCDR.
- RM3: BB to adopt guidelines for banks and financial institutions on reporting and disclosure of climate-related risks in line with TCFD — End-December 2023 — RM3 is high urgency, medium feasibility in CCDR.
- RM4: Government to adopt a national disaster risk financing strategy while integrating social assistance measures.
- RM5: MoF to adopt and implement a methodology for embedding climate change in the MTMF, through analyzing macro-fiscal risks from climate change and publishing it in the MTMPS — End-June 2024 — RM5 is highlighted as a key need in the updated CFF.
- RM6: Government to issue a circular on an update to the Green Book to include supplementary guidance on sector-specific methodologies that integrate climate considerations in the appraisal of major infrastructure projects starting from two key sectors — End-December 2024 — RM6 is a critical area identified in C-PIMA.
- RM7: BB to conduct and publish climate stress testing for the overall financial system and update the Guidelines on Stress Testing for banks and financial institutions to include climate change considerations — End-December 2024 — RM7 is high urgency, medium feasibility in CCDR.
- RM8: Government to adopt an updated PPP policy and framework that integrates climate-related risks and develop relevant guidelines — End-June 2025 — RM8 is critical per C-PIMA.
- RM9: Government to issue a circular on the adoption of an annex to the Green Book that specifies selection and prioritization criteria for major infrastructure projects aligned with the NDC and the NAP — End-June 2025.
- RM10: Government to establish a public asset register module of the iBAS++ and incorporate information on climate-related risks and vulnerability of new public assets to the module — End-December 2025 — RM10 targets critical areas identified in C-PIMA.
- RM11: BB to update the Policy on Green Bond Financing, particularly the annex on green taxonomy to be fully aligned with the NAP’s strategic and investment priorities — End-December 2025 — RM11 is high feasibility, medium urgency in CCDR.

### Technical Memorandum of Understanding — program exchange rate and monitoring
- Program exchange rate: Bangladesh taka (Tk) 104.95 per U.S. dollar, as agreed at the time of approval of the ECF/EFF arrangements in January 2023.
- Foreign currency accounts denominated in currencies other than the U.S. dollar and monetary gold will first be valued in U.S. dollars as at the exchange rates and gold prices prevailing on October 24, 2022 (Text Table 1), and then be converted to Bangladesh taka.
- Program exchange rates for ECF-EFF arrangements (as of October 24, 2022) — U.S. dollar-based rates:
  - U.S. dollar/Taka 1/: 0.00953
  - U.S. dollar / Swiss franc: 0.99930
  - U.S. dollar / Pounds sterling: 1.13135
  - U.S. dollar / Japanese yen: 0.00685
  - U.S. dollar / Australian dollar: 0.63460
  - U.S. dollar / Canadian dollar: 0.72876
  - U.S. dollar / Chinese renminbi: 0.14039
  - U.S. dollar / Russian ruble: 0.01634
  - U.S. dollar / SDR: 1.27719
- The U.S. dollar/Taka exchange rate is based on weighted average of exchange rate offered by the banking sector.
- The TMU defines variables subject to QPC and ITs under the ECF and EFF arrangements and describes methods to assess program performance and information requirements.
- QPC under the arrangements include:
  - Floor on the level of net international reserves of Bangladesh Bank (BB), calculated as an end-of-period stock.
  - Floor on primary balance, calculated cumulatively from the beginning of the fiscal year.

*Source: Excerpt from IMF document (Bangladesh) provided in the content unit.*

### 6.      Performance criteria applicable on a continuous basis have been established with respect

### 6.      Performance criteria applicable on a continuous basis have been established with respect

### Performance criteria and indicative targets
- Continuous performance criterion:
  - Ceiling on the accumulation of new external payment arrears by the central government and BB, calculated in cumulative terms from December 31, 2022.
- Indicative targets (ITs):
  - Ceiling on the level of reserve money of the BB, calculated as an end-of-period stock;
  - Floor on tax revenue of the central government, calculated cumulatively from the beginning of the fiscal year;
  - Floor on priority social spending by the central government, calculated cumulatively from the beginning of the fiscal year;
  - Floor on capital development spending undertaken by the central government, calculated cumulatively from the beginning of the fiscal year.

### Institutional definitions
- Central government:
  - Defined as all budgetary units of the government of Bangladesh. Captures balances in the Treasury accounts and for special projects outside the Treasury accounts (as will be measured by government lending funds reported in the monetary accounts).
- Public sector:
  - Defined as the central government, BB, nonfinancial public enterprises, departments, and autonomous and semi-autonomous bodies of all ministries and divisions.
- Deposit money banks (DMBs):
  - Include commercial banks (state-owned, Islamic, private, and foreign-owned) and specialized banks, on which BB compiles data for the monthly monetary survey.
- Definition of “debt” and borrowing:
  - Set out in paragraph 8(a) of the Guidelines on Public Debt Limits in Fund-Supported Programs attached to the IMF Executive Board Decision No. 15688-(14/107) adopted on December 5, 2014. "Debt" means a direct, i.e., noncontingent, liability created under a contractual arrangement under which a value must be provided, in the form of assets (including monetary assets) or services, and under which the debtor also undertakes to make one or more payments in the form of assets (including monetary assets) or services, according to an established schedule. Penalties or damages awarded by a court as a result of the nonpayment of a contractual obligation that constitutes debt are debt.
- External debt for the assessment of criteria:
  - Defined as any borrowing or debt service in a currency other than the Bangladesh taka. Applies to external debt of the central government, BB, public enterprises that receive transfers from the central government, and other public entities in which the central government holds more than 50 percent of the capital stakes, or any other private debt for which the central government has provided a guarantee that should be considered to constitute a contingent liability. Guaranteed debt refers to any explicit legal obligation incumbent on the central government to reimburse a debt in the event of payment default by the debtor.
- Nonbank claims on the central government:
  - Sum of cash receipts from sales of National Savings Certificates (reported by the National Savings Directorate), Treasury bills and bond holdings outside BB and the DMBs (reported by BB’s Debt Management Department), and net flows to the General Provident Fund (reported by the Controller General of Accounts).

### Monetary aggregates — Reserve money and adjustments
- Reserve money of the Bangladesh Bank—Indicative Target:
  - A ceiling applies on the level of reserve money of the BB, comprising currency in circulation issued by BB (excluding BB holdings of currency) plus deposits of DMBs held at BB. Reserve money excludes DMBs’ foreign currency clearing accounts at BB and nonbank deposits at BB.
- Adjustment mechanism:
  - If any DMB fails to meet its legal reserve requirement, the ceiling on reserve money will be adjusted downward to the extent of any shortfall in compliance with the requirement.
  - Changes in required reserve regulations will modify the reserve money ceiling according to the formula:
    - ΔRRRM = Δr r0 ⋅ BB0 + r r0 ⋅ ΔBB + Δr r ⋅ ΔBB
    - where ΔRRRM denotes the change in reserve money; r r0 denotes the reserve requirement ratio prior to any change; BB0 denotes the reservable base in the period prior to any change; Δr r denotes the change in the reserve requirement ratio; and ΔBB denotes the immediate change in the reservable base resulting from changes to its definition.

### Net International Reserves (NIR) — Quantitative performance criterion
- Definition and valuation:
  - NIR of BB = Gross International Reserves (GIR) (as defined) minus the reserve-related liabilities (as defined). For program monitoring purposes, the stock of foreign assets and foreign liabilities of BB shall be valued at the program exchange rate in U.S. dollars, as described in paragraph 2.
- GIR of BB comprise the sum of:
  - Foreign currency assets in convertible currencies held abroad and as vault cash under the direct and effective control of BB, readily available for intervention or direct financing of balance of payments imbalances, and which have received investment grade rating by at least two of the following three rating agencies: Moody’s (a rating of at least Baa), Standard & Poor’s (a rating of at least BBB-), and Fitch (a rating of at least BBB-), or held with an investment-grade institution;
  - The reserve position of Bangladesh in the IMF;
  - Holding of SDRs; and
  - Monetary gold.
- Exclusions from GIR:
  - Foreign currency loans to local banks;
  - Deposit with state-owned local banks;
  - Deposits with the International Islamic Trade Finance Corporation (Islamic Development Bank Group);
  - Fixed income securities below investment-grade;
  - Reciprocal deposits acquired by the BB under the 2021 swap arrangement with the Central Bank of Sri Lanka;
  - Any other foreign currency assets in nonconvertible currencies and precious metals other than gold; and
  - Any other foreign currency claims which are not high-quality claims on non-residents readily available for meeting balance of payments financing needs, for intervention in exchange markets, and for other related purposes.
- Reserve-related liabilities of BB:
  - Defined as the sum of the liabilities from SDR allocation; all other outstanding liabilities of Bangladesh to the IMF with a maturity of less than one year; and foreign currency liabilities, with a maturity of less than one year, in convertible currencies to nonresidents, including liabilities to the Asian Clearing Union; the Japan Debt Relief Grant (JDRG); the Foreign Currency Clearing Account (i.e., the total amount of Deposit Money Banks’ foreign currency deposits held at BB); and forward contracts, foreign currency swaps, and other futures market contracts.
- Adjustment of NIR floor:
  - A floor applies to the level of NIR of the BB. Should the actual disbursement of budget support from development partners be below the projections under the program, the NIR floor will be adjusted downward by the difference between the actual level and the projected level of disbursements under the program. This adjustment is calculated cumulatively from the beginning of the fiscal year.

### Fiscal aggregates — Primary balance and revenue/spending floors
- Primary balance:
  - A floor applies on the primary balance of the central government (including grants) measured cumulatively from the beginning of the fiscal year.
  - Primary balance is defined as the overall balance of the central government excluding interest payments and including foreign grants.
  - Adjustment: Should the actual disbursement of grants from development partners be below projections, the floor on the primary balance will be adjusted downward by the difference between actual and projected disbursements; adjustment is calculated cumulatively from the beginning of the fiscal year.
- Tax revenue:
  - A floor applies on tax revenue of the central government measured cumulatively from the beginning of the fiscal year.
  - Tax revenue (program monitoring) is defined as the sum of:
    - (i) tax revenue collected by the National Board of Revenue,
    - (ii) tax revenue from narcotics and liquor duty,
    - (iii) tax revenue from motor vehicles,
    - (iv) land development tax,
    - (v) tax revenue from sale of stamps, and
    - (vi) tax revenue from surcharges.
- Priority social spending:
  - A floor applies on priority social spending financed by the Government of Bangladesh calculated cumulatively from the beginning of the fiscal year.
  - Priority social spending comprises all expenditures on education, health, and social safety nets as listed in Text Table 2.
  - Text Table 2 components and data sources:
    - Education: Ministry of Primary and Mass Education; Secondary and Higher Education Division; Technical and Madrasa Education Division — data source iBAS++, Total Spending.
    - Health: Health Services Division; Medical Education and Family Welfare Division — data source iBAS++, Total Spending.
    - Social Protection (Excluding Education and Health): Concerned Ministries as documented by the Finance Division (FD); data sources IBAS++ and FSMU Program data of the social protection activities/programs as published in the budget document, excluding the program “Pension for Retired Government Employees and their Families.”
- Development capital investment:
  - A floor applies on development capital investment financed by the Government of Bangladesh, calculated cumulatively from the beginning of the fiscal year.
  - For program monitoring purposes, development capital investment comprises all Annual Development Program (ADP) expenditure in the budget.

### External payment arrears
- Continuous ceiling:
  - A continuous ceiling applies on the accumulation of new external payments arrears by the central government and BB.
- Definition of external payment arrears:
  - External payments arrears comprise external debt and debt-service obligations (principal and interest) that have not been paid at the time they are due, as specified in the contractual agreements.
  - Exception: Nonpayment of external debt service will not give rise to arrears when the Central Government and Bangladesh Bank cannot pay or settle based on the contractual terms solely because of the transfer of funds being rejected owing to intermediary financial institutions’ compliance policies, as long as the debt service payments have been paid into an escrow account by the contractual due date, taking into account any contractual grace period. Funds in such escrow accounts may be used only to satisfy the related external debt obligations; their use or withdrawal for other purposes would constitute a breach of the QPC.

### Data reporting requirements (selected highlights)
- Monetary, exchange rate, and interest rate data — Reporting agency: Bangladesh Bank (BB)
  - Daily exchange rates (taka per U.S. dollar)—weighted-average, open market (buy and sell rates), interbank (high and low rates), and BAFEDA member rates. — BB — Daily, next working day
  - Daily foreign exchange interbank market trading spot, forward, and swap volume — BB — Daily, next working day
  - Net open position of deposit money banks — BB — Daily, next working day
  - Stock of gross international reserves (GIR), Asian Currency Unit liabilities, Foreign Exchange Clearing Account balances, Foreign exchange overdraft balance (FXOD), Export Development Fund, Green Transformation Fund, Long Term Financing Facility, Sonali bank Financing Facility, Deposits with ITFC, reciprocal deposits acquired by the BB under the 2021 swap arrangement with the Central Bank of Sri Lanka, and exchange rate valuation changes to GIR. — BB — Daily, next working day
  - Detailed data on the composition of GIR, including currency composition — BB — Daily, next working day
  - Stock of GIR, net international reserves (NIR), NFA including subcomponents, both at program and market exchange rates. — BB — Daily, next working day
  - Stock of noninvestment grade bonds by name of issuer, investment rating, and currency composition — BB — Monthly, within two weeks of the end of each month
  - Stock of reserve money and its components — BB — Daily, next working day
  - Excesses/shortfalls of DMBs’ reserves — BB — Daily, next working day
  - Bangladesh Bank’s balance sheet and off-balance items by currency representation — BB — Monthly, within two weeks of the end of each month
- Fiscal data — Reporting agency: Ministry of Finance (MOF)
  - Fiscal outturn, including financing of the overall fiscal balance — MOF (Finance Division (FD))/ Controller General of Accounts (CGA) — Monthly, within six weeks of the end of each month
  - Revenue, by type of tax and nontax revenues (with main subheadings) — MOF (FD)/CGA — Monthly, within six weeks of the end of each month
  - National Bureau of Revenue collections (by type of tax and subheadings) — NBR — Monthly, within six weeks of the end of each month
  - Social spending — MOF (FD)/CGA — Quarterly, within six weeks of the end of each quarter
  - Annual Development Program (ADP) expenditure funded by (i) the central government and (ii) foreign grants, included in the budget — MOF (FD)/CGA — Monthly, within six weeks of the end of each month (quarterly for detailed data)
  - Foreign financing, comprising (i) disbursements and amortization of program and project loans; and (ii) changes in external debt arrears, classified into principal and interest arrears — MOF (FD)/CGA — Monthly, within six weeks of the end of each month
  - Disbursements of program and project grants — MOF (FD)/CGA — Monthly, within six weeks of the end of each month
- Debt data — Reporting agencies: MOF/BB/National Savings Directorate (NSD)
  - New external debt obligations contracted and/or guaranteed (concessional and non-concessional) by the government of Bangladesh, BB, nonfinancial public enterprises, departments and autonomous and semi-autonomous bodies of all ministries and divisions — MOF (ERD)/BB — Monthly, within six weeks of the end of each month
  - Stock of outstanding external debt (short-term and medium- and long-term obligations) of the central government and BB, by creditor (in original currency and U.S. dollars) — MOF (ERD)/BB — Quarterly, within eight weeks of the end of the quarter
  - Stock of arrears on external debt contracted or guaranteed by the central government and BB by creditor (in original currency and U.S. dollars) — MOF (ERD)/BB — Monthly, within six weeks of the end of each month
  - Stock of domestic debt, including the outstanding balance of Treasury bills, Treasury bonds, as well as breakdown of National Savings Certificates — MOF (FD)/BB/NSD — Monthly, within six weeks of the end of each month
- Financial data — Reporting agency: BB
  - Financial soundness indicators of the aggregate state-owned commercial banks (SOCBs) and private commercial banks (PCBs) — BB (Department of Off-Site Supervision (DOS)) — Quarterly, within eight weeks of the end of the quarter
  - Net loans and advances and components for each of the SOCBs and PCBs under the MOU — BB — Monthly, within six weeks of the end of each month
  - Common equity tier 1 ratio, tier 1 capital ratio and total capital ratio of each of the SOCBs and PCBs under the MOU — BB — Monthly, within six weeks of the end of each month

*Source: 1bgdea2023001 - 6.      Performance criteria applicable on a continuous basis have been established with respect to a: (PDF chapter/section).*

### section 26A(1) of the amended Bank Companies Act)  SOCBs

### 1bgdea2023001 - section 26A(1) of the amended Bank Companies Act)  SOCBs

### Data reporting requirements (selected)
- BB (DOS) Monthly, within six weeks of the end of each month: Risk-weighted capital asset ratios and asset quality indicators of SOCBs and PCBs under the MOU.
- BB (DOS) Monthly, within four weeks of the end of each month: Stock of loans extended to SOEs (BPC, BPDB, BCIC) by each SOCBs, both funded and unfunded loans.
- BB Monthly, within six weeks of the end of each month: Detailed balance of payments (BB/Other agencies).
- Export data by goods: Export Promotion Bureau, Monthly, within four weeks of the end of each month.
- Import letters of credit (settlement, opening, and outstanding): BB, Monthly, within four weeks of the end of each month.
- Remittances: BB, Monthly, within two weeks of the end of each month.
- Manpower exports: Bureau Manpower, Employment, and Training, Monthly, within six weeks of the end of each month.
- Bangladesh Bureau of Statistics (BBS):
  - National accounts, by expenditure and by production, in nominal and real terms: Annual, within three months of the end of each year; quarterly within 100 days of the end of each quarter from January 2024.
  - Overall consumer price index: Monthly, within six weeks of the end of each month.
  - Industrial production statistics: Monthly, within eight weeks of the end of each month.

### Components of domestic bank financing of the central government (structure)
- Reporting agency: Bangladesh Bank and Commercial banks.
- Periodicity: All quarterly.
- Bangladesh Bank reporting items (in Tk millions) include:
  - Change in claims on government (excluding change in claims on autonomous and semi-autonomous bodies)
  - Of which: Change in ways and means balance; Change in overdraft; Change in overdraft block; Change in holdings of Treasury bills and bonds; Change in government currency liabilities; Change in accrued interest.
  - Change in government deposits and lending funds (excluding change in deposits of autonomous and semi-autonomous bodies): Change in government deposits; Change in government lending funds.
  - Memorandum items: Change in credit to autonomous and semi-autonomous bodies; Change in deposits of autonomous and semi-autonomous bodies.
- Commercial banks reporting items (in Tk millions) include:
  - Change in claims on government (excluding change in claims on autonomous and semi-autonomous bodies)
  - Of which: change in holdings of Treasury bills and bonds; Change in advances and bills to ministries (of food and others); Change in accrued interest.
  - Change in government deposits and lending funds (excl. change in deposits of autonomous and semi-autonomous bodies): Change in government deposits; Change in government lending funds.
  - Memorandum items: Change in credit to autonomous and semi-autonomous bodies; Change in deposits of autonomous and semi-autonomous bodies.

### A. Country vulnerability to climate change — key findings
- Annual per capita income growth of 4.0 percent over the past three decades; decline in poverty from 48.9 percent in 2000 to 24.3 percent in 2016.
- Bangladesh is the world’s seventh most climate risk-affected country, with 185 extreme events recorded and 0.38 fatalities per 100,000 inhabitants over the past two decades.
- Average annual losses from tropical cyclones alone are already US$1 billion per annum (0.7 percent of GDP).
- Under severe flooding, GDP falls by as much as 9 percent relative to baseline projections through 2050.
- Under a 1.5°C increase in temperature and 4 percent increase in precipitation, sea levels in the Bay of Bengal could rise by 27 centimeters or more by 2050.
  - Such sea level rise would nearly double asset risk, currently at approximately US$300 million per annum, and threaten agricultural production, water supply, and coastal ecosystems.
- By 2040 cropland could shrink by more than 6.5 percent nationally and 18 percent in Southern Bangladesh.
- One-third of total agricultural GDP may be lost due to climate variability and extreme events by 2050.
- By 2050 Bangladesh could see over 13 million internal climate migrants.
- Environmental degradation impacts:
  - Annual cost of air pollution estimated at 9 percent of GDP.
  - 32 percent of all deaths in Bangladesh are linked to environmental degradation.

### B. Emissions and energy profile
- Bangladesh accounted for an estimated 0.4 percent of global emissions in 2018.
- GHG emissions rose from 115 million metric tons of carbon dioxide equivalent (MtCO2e) in 1990 to an estimated 247 MtCO2e in 2022, including changes from land use.
- Approximately 70 percent of primary energy consumption is currently derived from natural gas.
- Energy accounted for an estimated 42.5 percent of GHG emissions in 2022, followed by:
  - Agriculture: 36.5 percent
  - Waste: 8.8 percent
  - Land use change and forestry: 8.8 percent
  - Industrial processes: 2.7 percent
  - Fugitive energy: 0.7 percent

### C. Government policies and commitments — adaptation and resilience
- Key domestic frameworks:
  - National Adaptation Programme of Action (2005) and a Climate Change Unit under the Ministry of Environment and Forests.
  - Bangladesh Climate Change Strategy and Action Plan (BCCSAP, 2009) with six thematic areas: (i) food security, social protection, and health; (ii) comprehensive disaster management; (iii) infrastructure; (iv) research and knowledge management; (v) mitigation and low-carbon development; and (vi) capacity building and institutional strengthening.
  - Bangladesh Delta Plan 2100 (BDP2100, 2018) — long-term investment plan for climate resilience and economic growth focusing on water investments and management.
  - Mujib Climate Prosperity Plan (MCPP) — being finalized to integrate existing plans into an overarching framework.
- Implementation challenges:
  - Project identification and prioritization, budget allocation, timely execution.
  - Need to embed climate policies within the government’s 8th Five-Year Plan.
  - Requirements: increased capacity in public investment management, domestic revenue mobilization, and financial sector intermediation.
- Disaster risk management record:
  - Drastic decline in cyclone casualties over five decades due to proactive policies and investments.
  - Bangladesh recognized for global best practices such as cyclone preparedness.

### D. Government policies and commitments — mitigation
- 2021 NDC update:
  - Commits to reducing emissions by 89.5 MtCO2e, or 21.9 percent by 2030, relative to business as usual (27.6 MTCO2e unconditional, 61.9 MTCO2e conditional).
  - Energy sector accounts for 96.1 percent of planned reductions; water sector 2.7 percent; agriculture, forestry, and other land use 1.2 percent.
- Short-term power crisis driven by sharp increase in gas and fuel prices highlights need to:
  - Diversify energy sources, including renewable energy.
  - Leverage regional energy trade.
  - Improve pricing mechanisms and invest in energy efficiency.
- Decarbonization needs:
  - Near-term increased efficiency.
  - Long-term adoption of renewable energy, improved distribution and transmission networks, and greater regional transmission capacity.

### E. Financing needs and implementation challenges
- Minimum estimated climate investment requirement: US$12.5 billion in annual climate investment expenditure over the medium term (approximately 3 percent of FY21 GDP) for unconditional NDC commitments and BDP2100 investments.
- Constraints to mobilizing financing:
  - Low levels of tax collection and FDI inflows.
  - Underdeveloped domestic capital market.
  - Constrained institutional capacity for public-private partnerships.
  - Financial sector vulnerabilities: weak corporate and regulatory governance, related party lending, weak credit underwriting capacity.
- Required reforms:
  - Public investment management improvements.
  - Domestic revenue mobilization (tax policy and administration changes).
  - Scaling up private sector financing and foreign financing.

### F. World Bank engagement and recommendations
- Bangladesh Climate Change and Development Report (CCDR) recommendations:
  - Scale up people-centric, climate smart spatial development guided by BDP2100.
  - Decarbonization and adaptation initiatives in agriculture, transportation, and energy that also deliver development co-benefits (e.g., reduced air pollution).
  - Strengthen enabling environment and institutional arrangements for climate and environmental reform management.
- World Bank operations:
  - All IDA projects approved since FY17 screened for climate and disaster risk.
  - Since FY17–22: US$3.9 billion (or 30 percent) of total IDA commitments in Bangladesh had climate co-benefits, 60 percent of which was for adaptation.
  - Proposed Green and Climate Resilient Development Policy Credit series (FY23–25) to support:
    - Enhancing public planning, financing, and delivery of green and climate resilient interventions at national and local levels.
    - Promoting sector reforms for climate-smart production and services, including green public investment management, strengthened fiscal transfers for local resilience activities, air quality management, MRV systems for polluting industries, reducing fiscal costs of fuel subsidies, and rationalizing capacity charges in rental power plants.
  - Bangladesh Recovery and Resilience DPC series (FY22–24) supports:
    - Cancellation of planned investments in coal-fired powerplants.
    - Introduction of a new building code to increase energy efficiency.
    - Adoption of the Mujib Climate Prosperity Plan, including retrofitting the built environment.
    - A public-private partnership policy for the electricity transmission sector.

### G. Debt sustainability analysis — summary
- Bangladesh: Joint Bank Fund Debt Sustainability Analysis
  - Risk of external debt distress: Low
  - Overall risk of debt distress: Low
  - Granularity in the risk rating: Tool not applicable
  - Application of judgement: Yes
- Key points:
  - Bangladesh remains at a low risk of external and overall debt distress.
  - Debt-carrying capacity is unchanged from the previous DSA.
  - Under the baseline, external and overall debt indicators are below thresholds.
  - Under a standard stress test, one threshold of external debt sustainability indicator is breached; this short duration breach of low magnitude is discounted via judgement.
  - Growth is projected to be slower in FY23 compared to the previous DSA projection, but is expected to exceed the previous growth path in the medium to long term, supported by additional external financing and accelerated reform agenda under the IMF program and programs by development partners, including the World Bank.
  - Despite higher external borrowing in the near-term, favorable debt dynamics in the medium term keep the public and publicly guaranteed (PPG) external debt-to-GDP ratio on a declining path, and the overall public debt-to-GDP ratio stabilizes at a similar level compared to the previous DSA.
  - Risks are tilted to the downside and include intensifying spillovers from the Russian invasion of Ukraine, rising commodity prices, slowdown in major export destinations, elevated NPLs, and prospective losses from natural disasters.
- Composite Index: Bangladesh’s Composite Index is estimated at 2.88 (based on October 2022 WEO update and 2021 WB CPIA). The debt carrying capacity remains medium.

*Source: Text from the IMF/World Bank joint assessment and related reporting tables contained in the provided content unit.*

### 1.      Total public and publicly guaranteed debt in Bangladesh stood at about

### 1bgdea2023001 - 1.      Total public and publicly guaranteed debt in Bangladesh stood at about

### Overview and headline figures
- Total public and publicly guaranteed (PPG) debt in Bangladesh stood at US$166.1 billion in FY22, around 39 percent of GDP.
- Domestic debt accounted for about 56.5 percent of PPG debt stock in FY22.
- External PPG debt stood at US$72.3 billion in FY22, around 17 percent of GDP.
- Public debt-to-GDP is 39 percent in FY22 and is projected to increase moderately to around 42.1 percent by FY33.

### Decomposition of public debt (FY22) — key figures from Table 1
- Total: 166,127 (In million of US$) — 100.0 percent total debt — 39.0 percent of GDP
- External: 72,288 — 43.5 percent total debt — 17.0 percent of GDP
  - Public external: 65,482 — 39.4 percent total debt — 15.4 percent of GDP
  - Medium-to-long term: 63,386 — 38.2 percent total debt — 14.9 percent of GDP
  - Multilateral creditors (total): 34,904 — 21.0 percent total debt — 8.2 percent of GDP
    - IMF: 984 — 0.6 percent total debt — 0.2 percent of GDP
    - World Bank: 18,164 — 10.9 percent total debt — 4.3 percent of GDP
    - ADB: 13,277 — 8.0 percent total debt — 3.1 percent of GDP
    - Other Multilaterals: 2,479 — 1.5 percent total debt — 0.6 percent of GDP
      - o/w: AIIB: 808 — 0.5 percent total debt — 0.2 percent of GDP
      - o/w: IFAD: 503 — 0.3 percent total debt — 0.1 percent of GDP
  - Bilateral creditors (total): 21,675 — 13.0 percent total debt — 5.1 percent of GDP
    - Paris Club: 15,514 — 9.3 percent total debt — 3.6 percent of GDP
      - o/w: Japan: 9,213 — 5.5 percent total debt — 2.2 percent of GDP
      - o/w: Russia: 5,092 — 3.1 percent total debt — 1.2 percent of GDP
    - Non-Paris Club: 6,161 — 3.7 percent total debt — 1.4 percent of GDP
      - o/w: China: 4,761 — 2.9 percent total debt — 1.1 percent of GDP
      - o/w: India: 1,025 — 0.6 percent total debt — 0.2 percent of GDP
  - Short-term: 2,096 — 1.3 percent total debt — 0.5 percent of GDP
  - Publicly guaranteed: 6,807 — 4.1 percent total debt — 1.6 percent of GDP
- Domestic: 93,839 — 56.5 percent total debt — 22.1 percent of GDP
  - Treasury bills: 8,242 — 5.0 percent total debt — 1.9 percent of GDP
  - Treasury bonds: 34,736 — 20.9 percent total debt — 8.2 percent of GDP
  - Sukuk: 1,926 — 1.2 percent total debt — 0.5 percent of GDP
  - Debt from NSCs: 39,119 — 23.5 percent total debt — 9.2 percent of GDP
  - Guarantees: 3,103 — 1.9 percent total debt — 0.7 percent of GDP
  - Others including GPF: 6,714 — 4.0 percent total debt — 1.6 percent of GDP
- Contingent liabilities (memo): 9,909 — 6.0 percent total debt — 2.3 percent of GDP
  - o/w: Public guarantees: 9,909 — 6.0 percent total debt — 2.3 percent of GDP

### Debt service payments (FY22)
- Domestic debt service payments: US$31.9 billion in FY22 (7.5 percent of GDP).
- External debt service payments in FY22:
  - Payments to multilateral creditors: US$1.5 billion (0.4 percent of GDP).
  - Payments to bilateral creditors: US$0.6 billion (around 0.1 percent of GDP).
    - Of which, payments to Paris Club creditors: US$0.26 billion.
    - Of which, payments to non-Paris Club creditors: US$0.28 billion.

### Domestic debt composition and issues
- About half of the outstanding domestic debt is composed of National Saving Certificates (NSCs); debt from NSCs: 39,119 million US$ equivalent (23.5 percent of total debt; 9.2 percent of GDP).
- NSCs provide a yield of around 10 percent for the majority of NSC instruments, whereas government bonds of similar maturities provide a yield around 7 percent.
- NSCs have been partly digitized and issuance linked to purchasers’ tax identification number; tax on interest income increased from 5 to 10 percent effective FY20, resulting in NSC issuance decline in FY20 by around 70 percent compared to FY19, with a rebound in FY21.

### Market developments and borrowing dynamics
- Yields on government securities have risen since March 2022 driven by tight financial conditions, policy rate hikes, and unsterilized FX sales following a sharp depreciation of the Taka.
- Net domestic borrowing of the central government increased by 41.8 percent in Q1 of FY23 compared to Q1 of FY22, primarily from higher net borrowing from banks.
- Net borrowing from non-bank declined by 62 percent in Q1 FY23; sales of NSCs declined by 19 percent.

### Sukuk issuance
- ‘Ijarah Sukuk’ launched in December 2020; ‘Istisna Sukuk’ bonds launched in April 2022 to finance a rural infrastructure project.
- Latest tranche of Tk. 50 billion raised total Sukuk bond issuance to Tk. 180 billion.
- Authorities plan to continue issuing Sukuk bonds.

### External debt outlook and projections
- External medium- and long-term (MLT) PPG debt, mostly concessional, is expected to jump in FY23 due to large Taka depreciation, before gradually declining to around 14.1 percent of GDP by FY33 and 8.6 percent of GDP by FY43.
- Decline driven by reduction in concessional financing beyond FY26; bilateral donor financing expected to increase partially offsetting lower concessional financing.
- Private sector debt increased to around 5.4 percent of GDP in FY22, primarily driven by an increase in short-term trade credit and cross-border interbank lending.

### Debt coverage for the analysis
- DSA covers the full stock of public debt issued by the central government, as well as debt issued by SOEs and guaranteed by the central government.
- IMF budget support is included in public debt (provided to Bangladesh Bank and on-lent to the central government).
- Local governments are excluded (not allowed to borrow).
- DSA prepared on a currency basis as residency-basis data unavailable.
- Non-guaranteed SOE debt (outside coverage) assessed to be lower than 2 percent of GDP based on authorities’ data.

### Macroeconomic and financing assumptions (selected)
- Growth and inflation:
  - Real GDP growth projected to pick up to 6.5 percent in FY24.
  - Inflation rose above 9 percent in the first half of FY23 and expected to decline to 8.1 percent at the end of FY23 (with average FY23 inflation of 8.9 percent).
  - Inflation expected to moderate to around 5.5 percent over the medium and long term.
  - External debt dynamics favorable under projected medium to long-term growth of around 6.5–7 percent and effective nominal interest rate of new external borrowing around 4.0 percent.
- Fiscal policy:
  - Primary fiscal deficit projected to peak at 3.8 percent of GDP in FY23, then decline to 3.3 percent of GDP between FY24 and FY26.
  - Authorities committed to maintaining an overall fiscal deficit broadly within 5 percent of GDP.
  - Under the IMF program, revenue-to-GDP ratio expected to rise by 1.5 percentage points by FY26.
- Current account dynamics:
  - CA deficit widened substantially in FY22; remittances declined by 15 percent (y/y) in FY22.
  - CA deficit expected to contract to around 3.2 percent of GDP in FY23.
  - From FY24 onwards CA deficit expected to increase as external financing eases constraints; in medium to long term expected to gradually decline to around 2.5 percent of GDP.
- Financing assumptions and costs:
  - Gross public financing need projected to stabilize around 10 percent of GDP by FY33.
  - Reserve coverage expected to stabilize around 4 months of prospective import coverage by FY26.
  - Multilateral donor financing projected to contribute around 60 percent of total external financing in the near term, declining to 45 percent by FY43, at an interest rate of around 2 percent.
  - Bilateral donor financing assumed at an interest rate of around 2 percent.
  - Cost of domestic debt assumptions:
    - T-bills: 3½ percent
    - Domestic debt with maturity of 1–3 year: 7 percent
    - Domestic debt with maturity above 3 years and up to 7 years: 9 percent
    - Domestic debt with maturity above 7 years: 10.5 percent
  - Debt assumed skewed toward T-bonds; share of T-bonds issuance with 4-year and above maturity increasing from 50 percent in the medium-term to 75 percent by FY43.

### Risks, realism, and historical notes
- Downside risks to growth: larger spillovers from the Russian invasion of Ukraine, elevated global commodity prices, slowdown in trading partners, slow implementation of macro-critical structural reforms, large currency depreciation with rising debt servicing costs without matching revenue increases, and elevated NPLs.
- Historical unexpected changes to debt have been small; PPG external debt historically driven by favorable growth and positive CA balance.
- Realism tools suggest macro projections are consistent with LIC experience; 3-year adjustment in the primary balance is below the LIC median for IMF-supported programs.
- High uncertainty of long-term growth projections; real GDP growth could be in the range of 6.5 to 7 percent.

*BANGLADESH INTERNATIONAL MONETARY FUND*

### 10.      The debt carrying capacity measure by the Composite Index (CI) for Bangladesh

### The debt carrying capacity measure by the Composite Index (CI) for Bangladesh

### Composite Index (CI) measurement and classification
- CI remains "medium", based on the October 2022 IMF’s World Economic Outlook (WEO) and the 2021 World Bank’s Country Policy and Institutional Assessment (CPIA).
- The CI is a weighted average of factors including real GDP growth, remittances, international reserves, world growth, and the World Bank CPIA score.
- CI calculation uses two WEO vintages (in this case April 2022 and October 2021 WEO) and 10-year averages of the variables (5 years of historical data and 5 years of projections).
- Thresholds and benchmarks:
  - Medium classification threshold: CI score above 2.69 and below 3.05.
  - Threshold for the overall debt carrying is 55 percent of GDP.
  - Threshold for the PV of external debt-to-GDP ratio is 40 percent.
- Reported CI scores and final classification (Text Table 4):
  - Final Classification based on current vintage: Medium
  - Classification based on the previous vintage: Medium
  - Classification based on the two previous vintage: Medium
  - CI numeric entries shown: 2.88, 2.93, 2.94

### Stress test calibration and assumptions
- Calibration broadly similar to previous DSA.
- Contingent liability shock calibration:
  - Default values used: SOE debt = 2 percent of GDP; financial market component = 5 percent of GDP.
- Natural disaster stress test:
  - Calibrated at the default setting of a one-time 10 percent of GDP shock to the external debt-to-GDP ratio.
- Export volatility considerations:
  - Standard deviation (SD) of export growth over the past 10 years is 12½.
  - SD of export growth over 2012–2019 was 4½.
  - A one-off export shock is identified as the most extreme shock for PV of debt-to-exports in scenario analysis (with sensitivity analyses noted that excluding FY22 or post-pandemic periods keeps PV of debt-to-exports below threshold).

### External debt sustainability (Section E)
- Baseline positions:
  - All external debt indicators remain below their respective thresholds under the baseline.
  - External PPG debt-to-GDP ratio expected to settle at around 8.6 percent by FY 43.
- Shocks and impacts:
  - Most extreme shock to the PV of external PPG debt-to-GDP ratio is a one-time depreciation shock.
  - Large Taka depreciation in FY23 (around 21 percent year to date) raised PVs of debt-to-exports and debt service-to-exports in FY23 relative to previous DSA.
  - PV of debt-to-exports breaches the threshold under the most extreme shock (an export shock); this breach is temporary (two-year breach starting in 2025) and judged small and driven by export fluctuations during the pandemic and post-pandemic recovery.
  - Debt service-to-exports and debt service-to-revenue ratios trend down and remain under thresholds under the most extreme shocks (export shock and one-time depreciation shock respectively).
- Risk note:
  - Low share of external debt in the financing mix means projected increase in total debt service-to-revenue ratio could raise external debt rollover risks.

### Public debt sustainability (Section F)
- Overall public debt indicators:
  - Indicate a low overall risk of debt distress.
  - PV of total public debt-to-GDP (higher compared to the previous DSA) remains below its indicative threshold.
- Shocks:
  - Largest shock to PV of total public debt-to-GDP is the natural disaster shock (default calibration: one-time 10 percent of GDP shock).
- Revenue and debt service dynamics:
  - Debt service-to-revenue ratio increases from 48.2 percent in FY23 to 65.8 percent in FY33.
  - Projected PV of overall public debt-to-GDP is around 42.1 percent of GDP in the long term (FY33), reflecting increasing reliance on less concessional local financing.
- Policy implications highlighted:
  - Raising the revenue-to-GDP ratio is critical to provide non-debt financing for growth-enhancing and climate-resilient infrastructure.
  - Reforms to improve investment climate remain crucial for attracting FDI.

### Assessment (Section G)
- Overall judgment:
  - Bangladesh has a low risk of external and overall debt distress.
  - All but one external debt indicator are below corresponding thresholds under the most extreme shock, despite an initial increase due to large Taka depreciation in FY22 and FY23.
  - The PV of debt-to-exports breach under an export shock is short-lived and small; favorable debt dynamics and declining external debt-to-GDP path support use of judgment and deviation from mechanical rating.
- Long-term outlook and needs:
  - PV of overall public debt-to-GDP projected to gradually increase to around 42.1 percent of GDP in FY33.
  - Increasing debt service-to-revenue ratio underscores urgency of mobilizing tax revenue.
  - Development of domestic debt and capital markets is an important component of the IMF program.
- Recommended reforms and priorities:
  - Attract FDI.
  - Increase domestic revenue mobilization.
  - Enhance public investment management.
  - Build institutional capacity for public private partnerships.
  - Strengthen the financial sector, including addressing banking sector vulnerabilities.
  - Develop local capital market and improve debt management.
  - Improve investment climate to attract FDIs and promote investment.
- Climate and concessional financing role:
  - Multiple IDA projects support adaptive delta management and climate resilience.
  - RSF financing under the IMF program would help finance priorities in the Bangladesh Delta Plan (BDP2100) and the National Adaptation Plan (NAP), crowd in other financing, substitute for more expensive domestic financing, improve public debt dynamics, and reduce BoP pressures from import-intensive climate investment.

### Authorities’ views (Section H)
- Authorities’ assessment:
  - Agreed that the risk of external debt distress and overall risk of debt distress remain low.
  - Remain cautious about contracting external debt, especially commercial debt; reiterated there are no plans to issue Eurobonds.
  - Acknowledge access to concessional financing will gradually decline as Bangladesh proceeds toward upper middle-income status.
  - Concerned about earlier lowering of debt carrying capacity in the previous DSA, mostly due to change in CPIA score.
  - Noted that public debt includes guaranteed debt held by SOEs but the analysis does not consider revenues generated by those entities.
  - Published updated Medium-Term Debt Strategy in FY22.
  - Emphasized ongoing reforms (domestic revenue mobilization, public financial management, public debt management) to improve debt dynamics and ensure fiscal and debt sustainability.

*Source: IMF staff estimates and projections as presented in the chapter "The debt carrying capacity measure by the Composite Index (CI) for Bangladesh" of the referenced PDF.*

### 1990. The size of 3-year adjustment from program inception is found on the horizontal axis; the

### 1bgdea2023001 - 1990. The size of 3-year adjustment from program inception is found on the horizontal axis; the

### Fiscal adjustment and possible growth paths
- 3-Year PB adjustment (Percentage points of GDP) distribution shown across range: -4.5, -4.0, -3.5, -3.0, -2.5, -2.0, -1.5, -1.0, -0.5, 0.0, 0.5, 1.0, 1.5, 2.0, 2.5, 3.0, 3.5, 4.0, 4.5, 5.0, 5.5, 6.0, 6.5, 7.0, 7.5, 8.0 or more.
- Projected 3-yr adjustment: 3-year PB adjustment greater than 2.5 percentage points of GDP in approx. top quartile.
- Baseline and scenario multipliers presented with values: Multiplier = 0.2; Multiplier = 0.4; Multiplier = 0.6; Multiplier = 0.8.

### External Debt Sustainability Framework — Bangladesh: Baseline Scenario, FY20−FY43 (key figures)
- External debt (nominal) series (in percent of GDP): 18.4, 19.6, 22.4, 25.2, 24.8, 24.3, 23.8, 22.9, 22.3, 18.8, 11.5, 17.2, 22.2
- Of which: public and publicly guaranteed (PPG) (percent of GDP): 14.6, 15.1, 17.0, 18.9, 19.0, 18.6, 18.1, 17.3, 16.8, 14.1, 8.6, 13.7, 16.8
- Change in external debt (percent of GDP): 0.5, 1.2, 2.8, 2.8, -0.4, -0.5, -0.5, -0.9, -0.6, -0.8, -0.6
- Identified net debt-creating flows (percent of GDP): 0.0, -1.1, 1.7, 1.2, 1.8, 0.8, 0.1, 0.1, 0.2, 0.4, 0.5, -1.6, 0.5
- Non-interest current account deficit (percent of GDP): 0.9, 0.6, 3.5, 2.3, 3.4, 2.7, 2.2, 2.1, 2.0, 2.0, 2.0, 0.2, 2.3
- Deficit in balance of goods and services (percent of GDP): 5.7, 6.4, 8.1, 7.6, 8.4, 7.5, 6.7, 6.4, 6.1, 5.1, 3.7, 5.6, 6.4
- Exports (percent of GDP): 10.4, 10.7, 12.9, 13.3, 13.3, 13.1, 12.9, 12.8, 13.1, 14.2, 15.7
- Imports (percent of GDP): 16.0, 17.1, 20.9, 20.9, 21.7, 20.6, 19.6, 19.2, 19.1, 19.3, 19.4
- Net current transfers (negative = inflow) (percent of GDP): -5.0, -6.1, -4.7, -5.3, -5.1, -4.8, -4.5, -4.2, -3.9, -2.8, -1.5, -5.8, -4.0
- Net FDI (negative = inflow) (percent of GDP): -0.3, -0.3, -0.5, -0.7, -1.0, -1.2, -1.3, -1.3, -1.2, -1.2, -1.2, -0.6, -1.2
- Endogenous debt dynamics (percent of GDP): -0.5, -1.3, -1.3, -0.4, -0.6, -0.8, -0.8, -0.7, -0.6, -0.5, -0.3
  - Contribution from nominal interest rate: 0.6, 0.5, 0.6, 0.9, 0.8, 0.8, 0.8, 0.8, 0.8, 0.7, 0.5
  - Contribution from real GDP growth: -0.6, -1.1, -1.3, -1.4, -1.5, -1.6, -1.6, -1.6, -1.4, -1.2, -0.8
  - Contribution from price and exchange rate changes: -0.5, -0.7, -0.6, ...
- Residual (percent of GDP): 0.4, 2.3, 1.1, 1.6, -2.2, -1.3, -0.6, -1.0, -0.8, -1.2, -1.2, 2.2, -0.9
- Sustainability indicators:
  - PV of PPG external debt-to-GDP ratio: 13.1, 15.7, 15.7, 15.4, 15.0, 14.4, 13.9, 11.5, 6.7
  - PV of PPG external debt-to-exports ratio: 102.2, 117.6, 117.8, 117.4, 116.1, 112.3, 106.7, 80.8, 42.6
  - PPG debt service-to-exports ratio: 6.8, 6.3, 5.1, 10.9, 7.0, 6.9, 6.2, 6.3, 6.1, 5.9, 4.0
  - PPG debt service-to-revenue ratio: 8.5, 7.2, 7.6, 16.6, 10.1, 9.4, 7.9, 7.9, 7.8, 8.2, 6.0
- Gross external financing need (Million of U.S. dollars): 18,964.2; 16,951.5; 34,980.2; 37,102.8; 38,335.4; 35,786.5; 34,065.6; 37,304.1; 40,508.1; 63,667.8; 148,890.1

### Key macroeconomic assumptions (selected)
- Real GDP growth (in percent): 3.4, 6.9, 7.2, 5.5, 6.5, 7.1, 7.3, 7.4, 7.0, 7.0, 7.0, 6.5, 6.9
- GDP deflator in US dollar terms (change in percent): 2.9, 4.1, 3.2, -13.5, 4.8, 4.5, 4.5, 4.9, 4.8, 4.9, 5.1, 4.4, 3.1
- Effective interest rate (percent) 4/: 3.5, 3.3, 3.4, 3.8, 3.7, 3.6, 3.7, 3.9, 4.0, 4.3, 4.3, 3.0, 4.0
- Growth of exports of G&S (US dollar terms, in percent): -16.9, 14.2, 33.6, -5.5, 11.4, 10.3, 10.7, 11.5, 14.6, 14.1, 13.1, 9.0, 11.2
- Growth of imports of G&S (US dollar terms, in percent): -8.8, 18.6, 35.5, -8.9, 16.1, 6.0, 7.0, 10.1, 11.8, 12.4, 12.4, 10.1, 9.5
- Grant element of new public sector borrowing (in percent): 30.7, 31.2, 31.3, 31.4, 30.3, 29.9, 29.4, 29.0, ... , 30.2
- Government revenues (excluding grants, in percent of GDP): 8.4, 9.3, 8.7, 8.8, 9.2, 9.6, 10.2, 10.2, 10.2, 10.3, 10.3
- Aid flows (in Million of US dollars) 5/: 729; 869; 491; 1,159; 124; 173; 071; 312; 628; 831; 750; 1750; 1750; 1754
- Grant-equivalent financing (in percent of GDP) 6/: 0.9, 0.9, 0.8, 0.7, 0.5, 0.6, 0.5, 0.3, ... , 0.6
- Grant-equivalent financing (in percent of external financing) 6/: 32.2, 33.6, 34.1, 33.6, 30.6, 30.1, 29.6, 29.2, ... , 31.1
- Nominal GDP (Million of US dollars): 373,902; 416,265; 460,751; 420,516; 469,346; 525,290; 589,000; 663,597; 744,067; 1,319,948; 4,228,134
- Nominal dollar GDP growth (percent): 6.5, 11.3, 10.7, -8.7, 11.6, 11.9, 12.1, 12.7, 12.1, 12.2, 11.2, 10.2

### Memorandum and debt metrics
- PV of external debt (percent of GDP): 18.6, 21.9, 21.5, 21.1, 20.7, 20.0, 19.4, 16.2, 9.7
- PV of external debt (percent of exports): 144.3, 164.8, 161.9, 161.9, 160.1, 156.0, 148.6, 113.7, 61.4
- Total external debt service-to-exports ratio: 38.3, 33.2, 32.1, 50.6, 43.3, 39.9, 38.1, 37.3, 35.4, 28.0, 17.1
- PV of PPG external debt (in Million of US dollars): 605,046; 585,073; 481,807; 468,841; 195,349; 103,740; 151,759; 283,271

### Public sector debt sustainability and sensitivity analysis (FY23−FY33) — highlights
- Baseline PV of debt-to-GDP and related indicators reported across 2023−2033 with multiple scenario tests (A. Alternative Scenarios; B. Bound Tests; C. Tailored Tests).
- Thresholds and breaches:
  - A bold value indicates a breach of the threshold.
  - Threshold values cited: e.g., 40, 180, 15, 18 across different indicators.
- Selected baseline public debt and scenario outcomes (examples preserved as presented):
  - Baseline PV of debt-to-GDP ratio values across years include: 39, 39, 39, 39, 39, 39, 39, 39, 39, 40, 40 (per year sequence shown).
  - TOTAL public debt benchmark: 55 repeated across projection horizon.
  - Baseline public debt numeric sequence examples: 439; 417; 402; 383; 386; 386; 385; 385; 384; 385; 385 (presented in table format).
- Tailored tests show notable stress outcomes:
  - C1. Combined contingent liabilities scenario yields e.g., 439; 487; 464; 439; 438; 434; 429; 426; 423; 421; 418.
  - C2. Natural disaster scenario yields e.g., 439; 524; 499; 472; 471; 465; 461; 457; 453; 451; 448.

### Statement by Krishnamurthy Subramanian and Rajeev Jain (January 30, 2023) — Authorities' views and policy priorities
- Macroeconomic recovery and pandemic resilience:
  - Over 77 per cent of domestic population was fully vaccinated and 91 per cent vaccinated with at least one dose by end-December 2022.
  - Domestic growth accelerated to 7.2 per cent in FY 2021-22 from 6.9 per cent in FY 2020-21.
  - Bangladesh Bank projected domestic growth of 6.5 per cent in FY2022-23 (Monetary Policy Statement January-June 2023).
- Inflation and monetary policy:
  - Inflation peak: 9.5 per cent in August 2022; eased to 8.7 per cent in December 2022.
  - Bangladesh Bank places the ceiling for headline inflation at 7.5 per cent for FY 2022-23.
  - Bangladesh Bank hiked the repo rate by 125 basis points since May 2022 and undertook unsterilized interventions in the foreign exchange market.
  - Future policy stance: pursue a cautiously accommodative policy balancing inflation, exchange rate pressure, and support for growth.
- External and fiscal pressures:
  - Fiscal deficit projected to increase in FY 2022-23 largely due to higher expenditure from subsidies and reconstruction costs related to natural disasters.
  - Foreign exchange reserves depleted by US$7.4 billion in FY 2021-22 (in nominal terms).
  - Additional reserve withdrawal of US$6.4 billion occurred during July-November FY 2022-23 period due to trade credit related repayment pressures.
  - Authorities expect CAD to remain elevated in FY 2022-23 but modest compared with FY 2021-22; financing risks persist given elevated commodity prices, slower trading partner growth, lower remittances, and tighter global financial conditions.
- Structural and institutional reforms:
  - Authorities committed to export diversification and other reforms.
  - Export Policy 2021-2024 aims to create a business-friendly environment to achieve the export target of US$80 billion by FY 2023- (text truncates at end of provided content).

*Sources: Country authorities; and staff estimates and projections.*

### 24. Authorities are focusing on bilateral agreements with some trading partners and various

### 24. Authorities are focusing on bilateral agreements with some trading partners and various

### Trade policy, RTAs, and export strategy
- Committees have been set up to explore the scope of bilateral agreements with some trading partners.
- The Regional Trade Agreement (RTA) Policy 2022 has been approved; it:
  - Provides guidelines to negotiate, sign and implement trade treaty.
  - Aims to expand and diversify the export basket.
  - Intends to widen the domestic manufacturing base and reduce excessive dependence on limited products.
  - Is likely to augment the country’s capacity to pursue outward-integration strategies in areas including trade in services, investment, trade facilitation, intellectual property, e-commerce and digital trade, employment and movement of natural persons, etc.
- Authorities recognize the need to reduce tariff levels and non-tariff barriers to improve external competitiveness across sectors.
- A concept note on national tariff policy (proposing a phased reduction) is being prepared and is expected to be finalized soon.
- The Budget 2022-23 proposed to reduce taxes on export-focused products to make the “Made in Bangladesh” brand globally competitive.

### Fiscal space, subsidies, and revenue measures
- Authorities are focusing on creating adequate fiscal space by gradually rationalizing subsidies and focusing public spending on development and the social sector.
- To enhance the revenue situation, they intend to:
  - Eliminate less effective tax exemptions.
  - Simplify the tax rate structure to broaden the tax base.
  - Enhance voluntary taxpayer compliance.
- All subsidies on petroleum products are proposed to be phased-out and a periodic formula-based price adjustment mechanism is planned for adoption.
- Electricity tariffs are proposed to be gradually adjusted to reduce the subsidy component.
- Recent price actions:
  - On January 12, 2023, authorities increased the average retail electricity price by 5 per cent and the demand charge for electricity for almost all types of consumers by up to 42 per cent.
  - The gas prices for industries, power generation, hotels and restaurants are also being increased with effect from February 2023.

### Governance, institutional reforms, and public procurement
- Authorities are pursuing governance and institutional reforms including anti-corruption and preventative actions to promote balanced development, establish good governance, and improve delivery of public services.
- An electronic Government Procurement Portal (e-GP) has been established in partnership with the World Bank to improve market access and the bidding environment for public procurement.
- Key features of e-GP that ensure greater transparency include:
  - Online submission and evaluation of bids, approval, and award of contracts.
  - Reducing external influences.
  - Preserving all procurement documents and transactions online for audit purposes.
  - Validating bidders’ information.
  - Online submission and tracking of complaints.
- Due to limited capacity of the Central Procurement Technical Unit (Ministry of Planning), there is a proposal to set up the Bangladesh Public Procurement Authority (BPPA) with enhanced authority and autonomy; the draft BPPA Act is under review.

### Financial sector oversight and capacity building
- Authorities view a sound financial sector as a pre-requisite to meet growing financing needs and to make rapid progress towards the SDGs.
- Bangladesh Bank actions and intentions:
  - Working to strengthen supervision and monitoring of the banking sector.
  - With IMF support, the coverage of financial soundness indicators is being expanded; Bangladesh Bank intends to release this data by 2023Q1.
  - Issued guidelines on country risk management and interest rate risk management for banks.
  - Issued revised guidelines on internal credit risk rating system for banks.
  - Raising the leverage ratio norms for banks consistent with Basel III norms with effect from 2023.
  - Intends to train 400 to 500 supervisors in next two years in the area of risk-based supervision.

### Infrastructure and climate financing, risks, and adaptation
- Bangladesh is ranked seventh among the most climate vulnerable countries in the world, while its contribution to global warming is described as negligible.
- Climate impacts and projections cited:
  - The Country Climate and Development Report on Bangladesh (released in October 2022) estimates an average annual loss of about US$1 billion (0.7 per cent of GDP) from tropical cyclones.
  - Due to climate variability and extreme events by 2050, one-third of agricultural GDP may be lost.
  - Cropland may shrink by 18 percent in Southern Bangladesh and 6.5 percent nationally by 2040.
- Adaptation and institutional responses:
  - Authorities have been developing adaptation infrastructure and integrating environmental issues into mainstream development policies.
  - Bangladesh established a Climate Change Trust Fund in 2010.
  - The Climate Fiscal Framework has been adopted since 2014.
  - Climate Change Budget Tagging has been operationalized in 2018.
  - Disaster preparedness strengths include the Cyclone Preparedness Programme (CPP), which has substantially reduced deaths and damages from natural disasters.
- Financing challenge and strategy:
  - Authorities acknowledge a funding gap in public spending relative to projected needs for climate adaptation and mitigation.
  - Climate-related policy efforts need to be supplemented with private investment and external financing.
  - Authorities agree that existing policy tools need to be complemented by institutional reforms, funding strategies, enabling macro and financial policies, and close coordination among institutions.

### IMF support, program objectives, and summary
- In view of ongoing stress in the balance of payments due to external headwinds and climate-related financing needs, authorities have requested IMF resources under the Extended Credit Facility (ECF), the Extended Fund Facility (EFF) and the Resilience and Sustainability Facility (RSF) to be disbursed over a 42-month period.
- Authorities view the availability of IMF resources as providing a buffer against external shocks until domestic policy adjustments and reform measures take hold.
- Authorities consider the supplementary arrangement of SDR 1,000 million (93.8 percent of quota) under the Resilience and Sustainability Facility (RSF) will help pursue their climate-related policy agenda more vigorously.
- Financing under the RSF is expected to complement reforms under the ECF/EFF by supporting efforts to tackle climate change challenges and catalyze additional climate finance from other official and private partners.
- Program objectives and priorities:
  - Raise saving and investment rates.
  - Strengthen the external position.
  - Achieve broad-reaching, labor-intensive, and export-led growth.
  - Maintain focus on reforms and priorities-based programmes in health, nutrition and population sector.
- Past achievements cited as testimony to reform capacity:
  - Bangladesh achieved Millennium Development Goal (MDG) related to the health sector prior to the stipulated time.
  - Notable progress in reducing child and maternal mortality and increasing average life expectancy.

*Summary based on the provided IMF chapter text.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2023/english/1bgdea2023001.pdf_