## _cr1294 ## Source details **Canonical URL:** [_cr1294](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2012/_cr1294.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2012/_cr1294.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2012/_cr1294.pdf.json) --- ### Background and recent macroeconomic developments - Macroeconomic pressures intensified over the past 18 months, causing a marked deterioration in the external position. - Main drivers: large oil and capital imports associated with new fuel-intensive power stations, an oil price-driven terms-of-trade shock, and expansionary fiscal and monetary policies. - Balance of payments (BOP) slipped into a deficit in FY11 (July 2010–June 2011) for the first time in a decade. - Foreign reserves: - US$9.3 billion at end-February 2012—down by more than US$1.2 billion from their October 2010 peak. - Reserves expected to decline to US$9.2 billion at end-June 2012 (2.3 months of import cover). - Growth and inflation: - Real GDP growth expected to moderate to 5.5 percent in FY12 from 6.7 percent in the previous year. - Headline inflation was 10.4 percent (y/y) in January 2012. - Inflation expected to rise to around 12 percent by end-FY12, then moderate to 10 percent by December 2012. - Policy response summary: - Authorities seek a three-year ECF arrangement centered on restoring macroeconomic stability, rebuilding reserves, and laying a foundation for higher, more inclusive growth. - Year-one program components: upfront macroeconomic stabilization, exchange and interest rate flexibility, tax, PFM, and financial sector reforms. ### Program objectives, modalities, and financing - Program objectives (medium-term baseline): - GDP growth expected to rise to 7 percent by FY15. - Inflation expected to be brought down to the single digits by FY13. - Current account projected to be broadly in balance by FY15. - Reserves programmed to reach nearly three months of import cover by FY15. - IMF financing and access: - Proposed access: SDR 639.96 million (120 percent of quota). - Seven equal disbursements to Bangladesh Bank (BB) envisaged, beginning with program approval. - Press release: Total amount SDR 639.96 million (about US$987 million); initial disbursement SDR 91.423 million (about US$141 million). - Gross external financing requirement and coverage (program period): - Gross financing requirement: around US$19 billion. - Covered by: US$1 billion from IMF resources and US$0.6 billion from other exceptional financing. - Remaining to be met by: - Multilateral and bilateral agencies: US$11.4 billion. - FDI: US$4.7 billion. - Nonconcessional short-term oil credits: US$0.8 billion. - Disbursement schedule (availability, in percent of quota; in SDRs) — selected entries: - April 11, 2012: 17.19 1,423,000 — Board approval - November 15, 2012: 17.19 1,423,000 — first review - Total: 120.06 39,960,000 ### Fiscal policy, reforms, and contingencies - Near-term fiscal stance: - Limit overall fiscal deficit (excluding grants) to 4.5 percent of GDP in FY12. - Consolidated fiscal deficit projected around 5.7 percent of GDP in FY12; inclusive of off-budget losses of large SOEs (1.2 percent of GDP in FY12). - On-budget subsidy-related losses of BPDB and BPC restricted to Tk 150 billion (1.6 percent of GDP) (a prior action). - Medium-term fiscal targets: - Narrow overall fiscal deficit (excluding grants) by 1 percentage point to 3.5 percent of GDP by FY15. - Increase tax revenue to around 12.5 percent of GDP by FY15 (Table 4 / program objectives). - Ramp up ADP spending to 6 percent of GDP by mid-decade from an average of around 4 percent in recent years. - Key tax and PFM measures (selected, with dates/benchmarks): - New VAT law approved by Cabinet in March 2012 (prior action); due to be submitted to Parliament by June 2012 (program benchmark). - VAT implementation plan and timetable and new organizational structure for the NBR to be approved by September 2012 (program benchmark). - Tax concessions and exemptions equivalent to 0.5 percent of GDP to be removed in the FY13 Finance Bill to be submitted to Parliament in June 2012 (program benchmark). - Issue automated taxpayer identification numbers by December 2012, linked to national ID and business ID systems (program benchmark). - Commence regular preparation of bi-weekly projections of the Treasury Single Account balance by June 2012. - New budget management wings/branches in all line ministries and uniform budget implementation and reporting standards to be in place by June 2012 (program benchmark). - Subsidy containment and SOE measures: - Further energy price adjustments expected to meet fiscal targets in FY13. - Automatic adjustment mechanism for retail petroleum prices expected to be adopted by December 2012 (program benchmark). - IT (ceiling) on net lending by SOCBs to large energy- and fertilizer-related SOEs. - Conduct efficiency audits of BPC and BPDB in 2012. - New subsidy-related loans from SOCBs to BPC, BPDB, and BCIC limited to zero on a net basis in FY12 (indicative target). - Contingencies: - Increase externally-funded ADP spending to counter negative real shocks. - Faster-than-envisaged energy price adjustment if faced with an adverse oil price shock. - Reprioritization of spending to bolster safety nets. ### Monetary, exchange rate, and reserve management - Recent stance: - Accommodative monetary policy coupled with expansionary fiscal policy contributed to inflationary pressures and reserve losses. - BB raised its repo rate by a cumulative 325 bps since August 2010 to 7.75 percent and imposed a penalty rate (at 300 bps higher) for most discretionary liquidity support. - BB removed most remaining lending rate caps in January 2012 (prior action); lending caps remain on agricultural loans and short-term pre-shipment credits for exports. - BB refrained since late 2011 from foreign exchange intervention to protect reserves and ceased issuing FX overdrafts in December 2011; to reduce outstanding FXOD balances to zero by June 2012 (program benchmark). - Program monetary objectives and instruments: - Reduce aggregate demand pressures, stabilize inflation expectations, stem reserve losses, and provide room for private sector credit growth. - Operating framework: PC (ceiling) on net domestic assets (NDA) of BB; IT (ceiling) on reserve money; PC (floor) on net international reserves (NIR) of BB in year one. - Program exchange rate for first year: Bangladesh taka (Tk) 74.23 per U.S. dollar (average interbank rate on June 30, 2011) (TMU). - Contingency responses: - Exchange rate movements to absorb external pressures as needed. - Further monetary tightening to be weighed against fiscal impulse and trends in non-food, non-energy inflation. - Central bank operations and safeguards: - Finalize lender of last resort policy and contingency plan by May 2012. - External audit tender floated in March/February 2012 for BB’s end-June 2012 accounts (prior action). - Implement fully automated accounting / Enterprise Resource Planning system and phase out manual accounting by June 2012. ### Financial sector governance and supervision - Main issues: - Rapid banking sector and equity market growth strained supervisory capacity and elevated systemic risks. - FSIs improved but systemic risks remain from liquidity pressures, weak governance, especially at SOCBs, and outside interference. - Objectives: - Strengthen governance, managerial and operational controls, and risk-based supervision; reduce fiscal risks from SOCBs. - Key measures and benchmarks: - Amend Bank Companies Act (BCA) and submit to Parliament by September 2012 (program benchmark). - BB to adopt new organizational structure by May 2012 consolidating on- and off-site supervisory wings. - Issue new loan classification and loss-provisioning guidelines by June 2012 (program benchmark); phased implementation to full effect by June 2014. - Limit commercial banks’ shareholdings in the stock market to 25 percent of total regulatory capital by September 2012 (program benchmark) — subject to amended BCA. - SEC to approve demutualization model for Dhaka and Chittagong stock exchanges by December 2012 (program benchmark). - BB and SEC to begin consolidated supervision of merchant bank subsidiaries by mid-2012 and bring all such entities under BB supervision by mid-2013. - Supervisory tools and reporting: - Publish quarterly Financial Stability Report (inaugural published December 2011). - Strengthen memoranda of understanding with SOCBs; use 2011 external audits to limit dividends, ensure proper provisioning, and prohibit purchase of classified loans. ### Trade, investment, and structural reforms - Trade and investment issues: - Total trade was 48 percent of GDP in FY11 versus an average of 74 percent among low-income ASEAN countries. - FDI remains low due to trade regime, poor infrastructure, and business climate. - Objectives: - Reduce trade distortions, minimize anti-export biases, strengthen regional linkages, and improve investment climate. - Policy actions: - Diagnostic Trade Integration Study with World Bank to be completed by early 2013 to guide tariff and non-tariff barrier reductions. - Work with IFC and World Bank to improve property registration, contract enforcement, adjudication, and to attract FDI, especially in energy and export processing zones. ### Social protection, PSSN, and safety nets - Public Social Safety Nets (PSSN) overview: - PSSN programs financed through the government budget aim to shield the poor via education, health, nutrition, employment, and disaster response. - Poverty context: 31.5 percent of the population lives under the poverty line. - Coverage and financing: - Historically, government allocated an average of 9 percent of total annual public expenditures (about 1.3 percent of GDP) to PSSNs during 1996–2008. - Allocation increased to about 2.0 percent of GDP in FY10 and FY11. - Existing PSSN schemes reach about 7 million beneficiaries. - Coverage gaps: 7 million beneficiaries equal less than 15 percent of the population living below the poverty line; coverage is around 39 percent of the poorest quintile. - Program types and key parameters: - Old Age Allowance: Tk 500 per month; about 2 million covered though about 10 million are older than 65 years. - Widowed and Distressed Women Allowance: Tk 250 per month; about 900,000 covered. - Disabled Allowance: Tk 250 per month; about 200,000 covered. - Primary Education Stipend Program: monthly stipend Tk 100–125 per pupil. - Vulnerable Group Development (VGD): 30 kilograms of rice for 24 months to poor women. - Employment Generation Program for the Poorest (EGPP): covers approximately 800,000 workers per year. - Reform priorities: - Consolidate and rationalize programs to reduce duplication and increase targeting efficiency. - Reallocate resources from poorly performing programs to better-targeted programs (examples: from Food-for-Works to EGPP, VGF, VGD). - Create a database of the most vulnerable; expand access to bank accounts; adopt electronic cash transfers. - Develop action plan by June 2012 to ensure well-targeted social safety nets to mitigate fuel and electricity price increases. ### Energy expansion, fuel imports, and subsidy implications (Box 1 highlights) - Energy expansion plan: - Government planned to more than double electricity generation by 2016; medium-term plan to set up new power plants with more than 12,000 MW in total generating capacity. - Fuel import and subsidy projections: - Volume of fuel imports projected to increase by 21 percent in FY12, following a 29 percent rise in FY11. - Oil import bill expected to be around 5 percent of GDP in FY12—roughly doubling as a share of GDP over the past two years. - Official subsidies doubled to 3.0 percent of GDP in FY11 and are set to rise to 3.8 percent of GDP in FY12. - Accumulated BPC losses led to special recapitalization bonds equivalent to around 0.3 percent of GDP in FY12 to write down some NPLs. - BB interventions and FXODs: - Stock of FXODs reached about US$0.5 billion in April 2011 and again in November 2011 (around 5 percent of gross reserves at the time). - In October and November 2011, BB provided US$0.8 billion in foreign exchange through FXODs and direct sales, contributing to a US$1 billion fall in NIR during the same period. - Program policy response: - Contain BPC and BPDB losses through further retail petroleum and electricity price adjustments; close diesel price wedge with India by end of first program year. - Absorb BOP shock through exchange rate adjustment and financing (short-term oil import credits). - Step up trade and investment reforms to diversify exports and tap domestic energy resources with more FDI. ### Data, monitoring, and performance criteria (TMU highlights) - Key quantitative performance criteria and indicative targets (selected figures and metrics preserved as in source): - NIR of BB (floor, end of period stock, in millions of U.S. dollars): 6,726; 6,791; 6,154; 5,977; 5,937; 6,165; 6,256. - NDA of BB (ceiling, end-of-period stock, in billions of taka): 371; 377; 444; 483; 550; 556; 573. - Reserve money (ceiling, end-of-period stock, in billions of taka): 897; 904; 925; 950; 1,014; 1,037; 1,061. - Net credit to central government by banking system (ceiling, cumulative change, in billions of taka): 205; 68; 139; 174; 252; 49; 99. - Tax revenue of central government (floor, cumulative change, in billions of taka): 763; 190; 394; 627; 924; 232; 489. - Social-related spending by central government (floor, cumulative change, in billions of taka): 342; 70; 248; 400; 81; 161. - Indicative targets include ceilings on reserve money, suppliers’ credit for oil imports, funded loans by state-owned banks to BPC/BPDB/BCIC, and floors on tax revenue and social-related spending. - TMU program exchange rate: Tk 74.23 per U.S. dollar (average interbank rate on June 30, 2011). - Monitoring and reporting schedules specified for monetary, fiscal, SOE, debt, financial, external, and other macroeconomic data with detailed periodicities. ### Staff appraisal—key recommendations and risks - Staff recommended approval of the authorities’ request for an ECF arrangement to restore macroeconomic stability, strengthen the external position, and support inclusive growth. - Key near-term priorities: - Bring down inflation, rebuild reserve buffer, and implement credible, well-coordinated fiscal and monetary tightening. - Raise tax revenue and curb subsidies; use draft VAT and direct tax laws to modernize taxation. - Further energy and subsidy price adjustments with improved safety nets to protect vulnerable households. - Improve ADP implementation and prioritize high-return projects (roads, bridges, ports; electricity generation, transmission, distribution; health and education). - Strengthen financial sector governance, supervisory framework, and internal governance; enforce bank licensing and reduce banks’ equity market exposures. - Main program risks: - Limited scope to relax fiscal or monetary policy given inflation and reserve losses. - External risk from sharper-than-expected slowdown in the euro area. - Delays in adjusting fuel, electricity, and fertilizer prices or unanticipated import cost increases (including oil shocks). - Political instability around elections in early 2014 and weak implementation capacity and governance could hinder reform pace. *Source: IMF staff report excerpt for Bangladesh, ECF program background, reform pillars, and annexes (content unit: _cr1294).* ### 1. Selected Economic Indicators, FY2010–15 _____________________________________________________ 26 ### _cr1294 - 1. Selected Economic Indicators, FY2010–15 _____________________________________________________ 26 ### Background - Over the past 18 months, macroeconomic pressures intensified, resulting in a marked deterioration in the external position. - Main drivers: large oil and capital imports associated with new fuel-intensive power stations, an oil price-driven terms-of-trade shock, and expansionary fiscal and monetary policies. - Balance of payments (BOP) slipped into a deficit in FY11 (July 2010–June 2011) for the first time in a decade. - Much of the foreign reserve buffer built during 2009–10 was used up in 2011, against limited exchange rate flexibility. - Government seeks a three-year ECF arrangement centered on restoring macroeconomic stability, building an adequate reserve buffer, and laying a foundation for higher, more inclusive growth. - Program components in year one: upfront macroeconomic stabilization, exchange and interest rate flexibility, tax, public financial management (PFM), and financial sector reforms. ### Recent developments and outlook - Growth and inflation: - Real GDP growth expected to moderate to 5.5 percent in FY12 from 6.7 percent in the previous year (Table 1). - Headline inflation was 10.4 percent (y/y) in January 2012. - Inflation expected to rise to around 12 percent by end-FY12, then moderate to 10 percent by December 2012. - Balance of payments: - BOP expected to remain in deficit in FY12 (Table 3). - Current account expected to register a deficit of around 1.1 percent of GDP in FY12, compared to a surplus of 0.2 percent of GDP in the previous year. - Trade deficit widened significantly in the first half of FY12; export growth slowed sharply from record pace in FY11. - Remittances growth has picked up. - Foreign reserves: - Foreign reserves were at US$9.3 billion at end-February 2012—down by more than US$1.2 billion from their October 2010 peak. - Reserves expected to decline to US$9.2 billion at end-June 2012 (2.3 months of import cover). - Policy actions taken: - Administered energy price hikes to contain subsidy costs. - Bangladesh Bank (BB) raised its repo rate by a cumulative 325 bps since August 2010 to 7.75 percent and imposed a penalty rate (at 300 bps higher) for most discretionary liquidity support. - Treasury bill and bond rates allowed to rise; bank lending rates further liberalized. - BB refrained since late 2011 from foreign exchange intervention to protect reserves. - Medium-term outlook (program baseline): - GDP growth expected to rise to 7 percent by FY15 (Table 2). - Inflation expected to be brought down to the single digits by FY13. - Current account projected to be broadly in balance by FY15. - Reserves programmed to reach nearly three months of import cover by FY15. ### Policy setting and program risks - ECF-supported program rests on four main reform pillars to ensure macroeconomic stability, external viability, and sustained growth. - First-year program anchored by quantitative performance criteria (PC), indicative targets (IT), macro-critical prior actions, and structural benchmarks. - Main risks: - Limited scope to relax fiscal or monetary policy given heightened inflation and reserve losses; sharper-than-expected slowdown in the euro area a major external risk. - Prolonged delays in adjusting fuel, electricity, and fertilizer prices and/or unanticipated increases in import-related costs, including an oil price shock. - Political instability around elections in early 2014 could slow adjustment and reforms. - Weak implementation capacity and governance issues could slow reform pace (notably in tax reform and administration). ### A. Reform Pillar #1 — Fiscal policy and reforms - Main issues: - Rising fuel, electricity, and fertilizer subsidies; below-cost provision of fuel and electricity amid rapid expansion in oil-dependent power generation. - Government domestic borrowing surged in the first half of FY12. - Authorities took measures to contain subsidy-related costs and reduce nonessential spending to limit the overall fiscal deficit (excluding grants) to 4.5 percent of GDP in FY12 (Table 4). - On-budget subsidy-related losses of BPDB and BPC restricted to Tk 150 billion (1.6 percent of GDP) (a prior action). - Consolidated fiscal deficit projected around 5.7 percent of GDP in FY12; inclusive of off-budget losses of large SOEs (1.2 percent of GDP in FY12). - Programmed increase in domestic bank financing anticipated due to slow uptake in nonbank financing and shortfalls in external budget support. - Program objectives: - Moderate fiscal consolidation over the medium term: overall fiscal deficit (excluding grants) expected to narrow by 1 percentage point to 3.5 percent of GDP by FY15. - Phase out off-budget financing of quasi-fiscal losses of large energy- and fertilizer-related SOEs, effectively doubling the amount of programmed fiscal adjustment. - Increase tax revenue to around 12.5 percent of GDP by FY15. - Contain subsidy costs through greater pass-through of energy and fertilizer costs to end-users, with safeguards for vulnerable groups. - Ramp up Annual Development Program (ADP) spending as a share of GDP to 6 percent by mid-decade from an average of around 4 percent in recent years. - Contingencies: - Authorities could increase externally-funded ADP spending to counter a negative real shock (e.g., prolonged euro area recession). - Faster-than-envisaged adjustment in energy prices could be necessary in the face of an adverse oil price shock. - Reprioritization of spending could bolster safety nets. - Policy reforms and measures (selected): - Accelerate tax policy and revenue administration reforms: - New VAT law approved by Cabinet in March 2012 (prior action); due to be submitted to Parliament by June 2012 (program benchmark). - VAT implementation plan and timetable and new organizational structure for the NBR to be approved by September 2012 (program benchmark). - Direct tax law draft expected to be finalized in FY13. - Tax concessions and exemptions equivalent to 0.5 percent of GDP to be removed in the FY13 Finance Bill to be submitted to Parliament in June 2012 (program benchmark). - Issuance of taxpayer identification numbers to be automated by December 2012, with links to national identification and business identification systems (program benchmark). - Contain subsidy-related costs: - Further energy price adjustments expected to meet fiscal targets in FY13. - Automatic adjustment mechanism for retail petroleum prices expected to be adopted by December 2012 (program benchmark). - IT (ceiling) on net lending by state-owned commercial banks (SOCBs) to large energy- and fertilizer-related SOEs. - Strengthen public financial management (PFM): - Guided by the World Bank-coordinated Strengthening Public Expenditure Management Program. - Commence regular preparation of bi-weekly projections of the Treasury Single Account balance by June 2012. - New budget management wings/branches in all line ministries and uniform budget implementation and reporting standards to be in place by June 2012 (program benchmark). - Complete a Fiscal Report on Standards and Codes in FY13. - Improve ADP implementation and PPP mechanisms: - Build project appraisal capacity, streamline land acquisition procedures, strengthen government-donor interface. - Restrictions on substituting taka funding for shortfalls in the externally-funded ADP budget introduced in January 2012 (prior action). - Operational and institutional guidelines for PPPs being established with TA from AsDB. - Safeguard social spending and safety nets: - Performance monitored through an IT (floor). - Resources expected to be freed from energy subsidies and better-designed SSN programs to compensate vulnerable households. - Strengthen debt management: - Maintain sustainable fiscal stance; continue contracting external borrowing on highly concessional terms. - Standard PCs (ceilings) on new nonconcessional borrowing and external payment arrears. - Mobilize more nonbank financing by benchmarking yields on National Savings Certificates to market-based returns. - Consider sovereign issue only if consistent with DMS and preferably tied to high-return infrastructure projects. *Source: IMF staff report excerpt for Bangladesh, ECF program background and reform pillar descriptions.* ### 12. Main issues. Accommodative monetary ### _cr1294 - 12. Main issues. Accommodative monetary ### Monetary policy stance and recent developments - Accommodative monetary policy coupled with expansionary fiscal policy, alongside inadequate exchange rate flexibility, has contributed to recent inflationary pressures and reserve losses. - Private credit growth: 19 percent (y/y) in January 2012, compared to an all-time high of 29 percent in March 2011 (Table 5). - Tightening measures now appear to be taking hold, but greater fiscal discipline will be necessary to avoid undermining central bank liquidity management, forcing heavy devolvement of Treasury instruments, and putting undue pressure on bank lending rates. ### Program objectives (monetary and exchange rate) - Objectives: - Reduce aggregate demand pressures. - Stabilize inflation expectations. - Stem reserves losses. - Provide adequate room for private sector credit growth. - Operating framework: - PC (ceiling) on net domestic assets of BB—its main operating target. - IT (ceiling) on reserve money as a nominal anchor. - Modest buildup in net international reserves (NIR) of BB targeted as a PC (floor) in the first year of the ECF arrangement, with further increases programmed over the medium term. ### Contingencies and shock response - Adverse real and oil price shocks could add to reserve losses. - If shocks occur: - Exchange rate movements would need to continue absorbing external pressures. - Further monetary tightening would have to be weighed against the strength of the fiscal impulse in response to the shock and underlying trends in non-food, non-energy inflation. ### Policy reforms — monetary and reserve management - Strengthen liquidity management and monetary transmission mechanisms (MEFP, ¶19): - BB committed to ensuring policy rates and Treasury yields are aligned with market conditions. - BB removed most remaining lending rate caps in January 2012 (prior action). (Footnote: Lending rate caps remain on agricultural loans and short-term pre-shipment credits for exports.) - A lender of last resort policy and contingency plan expected to be finalized by May 2012. - Allow greater exchange rate flexibility and improve market operations (MEFP, ¶20): - BB will allow interbank transactions at market-determined rates and limit its intervention to smoothing short-term volatility, consistent with meeting NIR targets. - BB ceased issuing foreign exchange overdrafts in December 2011 and will reduce their outstanding balances to zero by June 2012 (program benchmark). - Improve central bank operations (MEFP, ¶21): - Steps to strengthen BB’s financial operations as identified in the IMF safeguards assessment concluded in July 2011. - Government floated a tender in March 2012 for an internationally-affiliated firm to conduct an external audit on BB’s end-June 2012 accounts (prior action). - BB has begun implementing a fully automated accounting system to ensure timely and comprehensive financial reporting. ### Financial sector main issues and objectives - Main issues: - Rapid growth in the banking sector and equity markets has strained supervisory capacity and heightened systemic risks. - FSIs have improved in recent years (Table 6), but systemic risks arise from rising liquidity pressures, limited prudential oversight, and weak bank governance and risk management, especially at SOCBs. - Increased outside interference at SOCBs has undermined earlier commercialization efforts. - Progress in financial inclusion through microfinance, but broader efforts needed for equitable growth as envisaged in the SFYP (Box 3). - Objectives: - Strengthen financial sector governance to better manage risks and support growth. - Anchor reforms by establishing proper managerial and operational controls in banks, particularly to reduce fiscal risks posed by SOCBs. - Enhance regulators’ ability through clear oversight responsibilities and strong risk-based supervision. ### Policy reforms — financial sector - Strengthen bank governance and oversight (MEFP, ¶23): - Government to undertake necessary legal and prudential reforms to establish a clear supervisory mandate for BB and strengthen internal governance at commercial banks. - Amendments to the Bank Companies Act (BCA) to be submitted to Parliament by September 2012 (program benchmark). - BB to strictly enforce new bank licensing criteria; strengthen memoranda of understanding with each SOCB in response to external audits in 2011. - SOCBs urged to build capital bases through larger retained earnings given nonstandard methods currently employed to meet Basel II capital requirements. - Improve BB’s supervisory capacity and enforcement (MEFP, ¶24): - BB to focus more resources on risk-based supervision and controls; issued risk management guidelines in February 2012. - New organizational structure to be adopted by May 2012 consolidating on- and off-site supervisory wings. - New loan classification and loss-provisioning guidelines embracing international best practices to be issued by June 2012 (program benchmark). - Contain risks posed by equity markets (MEFP, ¶25): - BB plans to issue an order by September 2012 establishing limits on commercial banks’ shareholdings in the stock market to 25 percent of total regulatory capital (program benchmark). - Approval sought from the Securities and Exchange Commission (SEC) by December 2012 of a demutualization model and plan for the Dhaka and Chittagong stock exchanges (program benchmark). - BB and the SEC to begin consolidated supervision of merchant bank subsidiaries of commercial banks by mid-2012, with a view to bring all such entities under BB’s supervisory umbrella by mid-2013. ### Trade and investment — issues, objectives, and reforms - Main issues: - Bangladesh remains relatively closed; total trade was 48 percent of GDP in FY11 versus an average of 74 percent among low-income ASEAN countries. - FDI remains low, constrained by the trade regime, poor infrastructure, and the business climate. - Ad hoc tariff changes occur routinely with each budget. - Objectives: - Reduce trade distortions, minimize anti-export biases, and strengthen regional linkages to integrate into the multilateral trading system. - Improve business climate via stable macroeconomic environment, modern transparent tax regime, well-regulated financial system, and expanded social and physical infrastructure. - Policy reforms: - Rationalizing trade barriers (MEFP, ¶28): Diagnostic Trade Integration Study for Bangladesh with the World Bank to be completed by early 2013 to guide tariff and nontariff barrier reductions. - Strengthen investment climate (MEFP, ¶29): Work with IFC and World Bank to improve property registration, contract enforcement, and adjudication; intensify efforts to attract and retain FDI and diversify the export base, supported by enabling infrastructure, particularly in export processing zones. ### Program modalities, access, and financing - Program reviews: - Semi-annual program reviews based on quantitative targets and structural benchmarks. - Test dates for first and second reviews: end-June 2012 and end-December 2012, respectively. - Access and use: - Proposed access: SDR 639.96 million (120 percent of quota). - Seven equal disbursements to BB envisaged, beginning with program approval. - Gross external financing requirement: - During the program period, gross financing requirement is around US$19 billion. - Of this, US$1 billion covered by requested access to IMF resources and US$0.6 billion from other exceptional financing (Table 8). - Remaining financing to be met by: - Multilateral and bilateral agencies: US$11.4 billion (led by World Bank Group, AsDB, and Japan International Cooperation Agency). - FDI: US$4.7 billion. - Nonconcessional short-term oil credits: US$0.8 billion. - Capacity to repay: - Outstanding IMF resources would peak in Bangladesh’s FY15 at SDR 670 million, equivalent to 1.7 percent of exports and remittances (Table 9). - Debt service to the IMF (including previous obligations) would peak at SDR 131 million in FY13, equivalent to 0.4 percent of exports and remittances. ### Structural priorities, technical assistance, and statistics - Poverty Reduction Strategy: - SFYP, "Accelerating Growth and Reducing Poverty," released in July 2011; framework for FY11–15 and linked to Outline Perspective Plan (2010–21). - Technical assistance: - IMF, World Bank Group, AsDB, and other DPs to provide TA and capacity building in tax reforms and VAT implementation; cash management, fiscal reporting, subsidy reform; bank supervision and central bank accounting; and statistical methods. - Statistical policy: - Authorities committed to strengthening macroeconomic statistics, guided by a national strategy for statistics under preparation with World Bank support and a new Statistics Act expected to be approved in 2012 (MEFP, ¶30). - Work underway to address deficiencies in national income accounts and the BOP with ongoing IMF TA. ### Staff appraisal — key messages and recommendations - Challenges: - Restore macroeconomic stability, strengthen external position, and engender higher, more inclusive growth amid global headwinds and firming oil prices. - Near-term priorities: - Bring down inflation, rebuild a reserve buffer, and solidify foundation for sustained growth through credible, well-coordinated actions. - Fiscal policy: - Credible path of moderate fiscal consolidation to anchor stability and generate resources for growth. - Further gains in tax revenue and curbs on subsidies needed; draft VAT law and direct tax law present opportunities. - Energy and subsidies: - Recent fuel and electricity price adjustments helpful, but further price changes and subsidy reforms will be necessary. - Need clear strategy to improve safety nets design, breadth, and administration. - ADP and debt management: - Improve ADP implementation; prioritize high-return projects (roads, bridges, ports; electricity generation, transmission, distribution; health and education). - Debt management should factor in existing aid commitments and access to concessional financing; cautious approach to sovereign issuance. - Monetary and exchange rate flexibility: - Essential to reduce inflation pressures and build reserve buffer. - BB should resist calls to reduce interest rate flexibility or contain exchange rate movements; be prepared to further tighten if pressures intensify. - Greater monetary and fiscal coordination needed to prevent government domestic borrowing from crowding out private credit or fueling inflation. - Financial sector reforms: - Strengthen regulatory oversight, supervisory framework, and internal governance anchored by amendments to the BCA and prudential guidelines. - Enforce new bank licensing criteria; enhance collaboration among MoF, BB, and SEC to contain banks’ equity market exposures. - Implementation and ownership: - Strong implementation requires broad ownership across political leaders, DPs, and civil society. - Staff recommend approval of the authorities’ request for an ECF arrangement. *BANGLADESH INTERNATIONAL MONETARY FUND* ### Box 1. Bangladesh: Managing Macro-Distortions Amid Energy Decompression and Subsidies ### Box 1. Bangladesh: Managing Macro-Distortions Amid Energy Decompression and Subsidies ### Energy expansion plan and context - Starting in 2010, the government embarked on an ambitious plan to more than double electricity generation by 2016. - Decades of underinvestment constrained energy availability and held back growth; per capita energy use is only one-third of that in India. - Short-run boost: installing “rental power plants” that run on diesel and furnace oil. - Medium-term plan: set up new power plants with more than 12,000 MW in total generating capacity, effectively tripling current capacity. ### Macroeconomic implications of energy decompression and subsidies - Fuel import volume projections: - Volume of fuel imports is projected to increase by 21 percent in FY12, following a 29 percent rise in FY11. - On this basis, the oil import bill is expected to be around 5 percent of GDP in FY12—roughly doubling as a share of GDP over the past two years. - Subsidies and fiscal impact: - Official subsidies doubled to 3.0 percent of GDP in FY11 and are set to rise to 3.8 percent of GDP in FY12, almost equal to ADP spending. - Increasing subsidy bill contributed to a widening of the fiscal deficit, increasing the government’s reliance on central bank financing and adding to inflation pressures. - Accumulated losses of the BPC resulted in higher nonperforming loans (NPLs) for SOCBs, forcing the government to issue special recapitalization bonds to allow write-down of some of these NPLs, equivalent to around 0.3 percent of GDP in FY12. ### BPC and SOCBs liquidity, foreign exchange, and market functioning - BPC liquidity constraints: - BPC has regularly lacked domestic currency to purchase foreign exchange for oil imports. - Key causes: delayed budget transfers (necessitated by low retail prices and inadequate cost recovery) and weaknesses in cash-flow forecasting. - SOCBs constraints: - Liquidity problems at SOCBs compounded the situation; weaknesses in asset and liability management and a drive to expand loan portfolios amid low real deposit and lending rates reduced their ability to help BPC meet liquidity shortfalls. - Over much of the past year, SOCBs were unable to buy foreign exchange for oil imports in the interbank market, as inadequate exchange rate flexibility depressed turnover. - Central Bank (BB) interventions: - To cope with taka and U.S. dollar liquidity shortages, BB started providing foreign exchange overdrafts (FXODs) to SOCBs in late 2010, alongside direct FX sales. - The stock of FXODs reached about US$0.5 billion in April 2011 and again in November 2011 (around 5 percent of gross reserves at the time). - In October and November 2011 alone, BB provided US$0.8 billion in foreign exchange through FXODs and direct sales, contributing to a US$1 billion fall in net international reserves during the same period. - Since late 2011, availability of taka and U.S. dollar liquidity improved mainly due to increased exchange rate and interest rate flexibility. - SOCBs began settling FXODs (around US$0.2 billion since the November 2011 peak) and meeting foreign exchange needs through some outright purchases, while relying more on foreign currency swaps and running negative net open foreign exchange positions (NOPs) in excess of prudential limits. - Greater exchange rate flexibility is expected to further deepen the interbank market, allow SOCBs to procure more foreign exchange for oil imports, and bring NOPs within prevailing limits. ### Policy response under the ECF-supported program - Three-pronged approach to adjust to higher energy imports while safeguarding macroeconomic stability: 1. Contain losses of the BPC and BPDB through further adjustments to retail petroleum and electricity prices, with the expectation that Bangladesh will close the diesel price wedge with neighboring India by the end of the first year of the ECF-supported program. 2. Absorb the shock to the balance of payments through a combination of adjustment (i.e., the exchange rate) and financing (namely short-term oil import credits). 3. Step up reforms to the trade and investment regime over the medium term to enhance capacity to earn and conserve foreign exchange by: - Diversifying exports. - Tapping domestic energy resources (namely coal, natural gas, and bio-fuels). - Supporting these with more FDI in this area. - Institutional coordination: - Government established an interagency working group to improve BPC cash-flow planning, including reducing delays in Ministry of Finance budgetary transfers and better coordinating mobilization of foreign financing for the BPC. --- ### Box 2. Bangladesh: Reserve Adequacy — key findings - Using recently developed methodologies, the optimal level of reserves is estimated to be 3–4 months of imports, assuming the opportunity cost of holding reserves is in the range of 4–5 percent. - For Bangladesh, this opportunity cost could be seen as the difference between short-term U.S. dollar-denominated borrowing to finance oil imports and BB’s return on reserve assets (proxied by U.S. Treasury bills). - Caveats and interpretation: - These estimates should be considered at the lower bound given the model’s assumption of risk-neutrality and the exclusion of adverse shocks to remittances—an important driver of foreign exchange inflows in Bangladesh. - The findings underscore the importance of rebuilding reserve buffers under the program following the recent depletion. - Comparative/contextual note: - The findings for Bangladesh are broadly consistent with countries classified as having a more flexible regime, based on the classification used in the IMF’s Annual Report on Exchange Arrangements and Exchange Restrictions. *Prepared by Gerard Almekinders (APD); Box 2 prepared by Tiago Severo (APD) and Jules Leichter (SPR).* ### Box 3. Bangladesh: Financial Inclusion and Growth ### Box 3. Bangladesh: Financial Inclusion and Growth ### Financial inclusion and development - Financial inclusion is an integral part of achieving higher growth with greater equity. - A broad base of literature has associated financial access and development with growth and poverty reduction. - Bangladesh’s SFYP emphasizes: making further financing available for job-creating small enterprises; expanding private investment in non-rice agricultural activities through rural finance; and enhancing factor endowments of the poor, including capital, through financial sector policies. - Financial inclusion in Bangladesh goes beyond traditional microfinance and “encompasses the whole continuum of financial service providers working within their comparative advantages to reach underserved but bankable firms and individuals.” ### Role and reach of microfinance - Bangladesh’s vibrant microfinance sector has been a catalyst for broader inclusion given its reach: - “more than one in four adults a member of a microfinance institution (MFI) at end-FY11, three-quarters of whom were women.” ### Comparative progress and metrics - For its income level, Bangladesh has progressed well in financial inclusion and compares favorably to other South Asia countries on a range of metrics. - Bangladesh stands out on the level and use of bank deposits and shows high geographic penetration of bank branches (although scaled for population, Bangladesh remains below the SAARC average). - Private commercial banks (PCB) are expanding branch networks broadly proportional to their share of assets, making inroads into the legacy dominance of state-owned commercial banks (SOCBs). ### Policy measures implemented by authorities - Bangladesh Bank (BB) has played a lead role with proactive and sustained policy attention: - Agricultural credit policy giving priority to marginal farmers, underdeveloped areas, and women. - Credit lines for small- and medium-scale enterprises. - Refinancing schemes with MFIs for landless sharecroppers. - Facilities allowing marginal and small farmers to open bank accounts for as little as Tk 10 (less than US$0.15), through which they can receive government cash transfers for farm inputs. ### Further areas for attention (lessons from middle-income countries) - Raise participation levels in formal financial services: a sizable payoff is possible given the large number who remain unbanked (45 percent of the adult population by some estimates). - Expand financial access in rural areas and leverage remittance inflows by “leapfrogging traditional branch/ATM expansion constraints,” building on technological innovations such as mobile banking (which BB is promoting). - Expand initiatives covering basic financial literacy as part of broader financial education to increase financial capability and consumer protection (examples cited: Indonesia, Malaysia, and Peru). *Prepared by Seng Guan Toh and Tiago Severo (APD).* ### 1. Central government accounts ### 1. Central government accounts ### Fiscal aggregates and balances (FY2009–13) - Revenue: 667 799 948 1,206 1,473 - Taxes: 529 625 795 963 1,173 - Grants: 214 221 57 66 - Other revenue: 117 132 132 186 234 - Expenditure: 643 671 865 1,057 1,278 - Compensation of employees: 139 161 199 210 243 - Purchases of goods and services: 82 86 101 131 141 - Interest: 154 148 156 203 231 - Subsidies 2/: 88 81 161 271 336 - Grants (expenditure line): 140 142 170 188 248 - Other payments: 405 379 72 79 - Gross operating balance: 241 298 314 9195 - Net acquisition of nonfinancial assets: 250 342 409 505 582 - Fixed assets: 194 256 331 390 489 - Nonproduced assets: 56 86 78 115 92 - Net lending (+)/net borrowing (-) 3/: -226 -214 -326 -356 -387 - Net financial transactions: -185 -152 -288 -356 -387 - Net acquisition of financial assets (+ increase): 261 947 00 - Domestic: 261 947 00 - Deposits: 261 947 00 - Net incurrence of liabilities (+ increase): 211 170 336 356 387 - Domestic: 185 106 308 314 275 - Debt securities and loans and advances: 185 106 282 314 275 - Other accounts payable: 00 260 0 - Foreign: 266 528 421 12 - Statistical discrepancy (net borrowing less net financial transaction): -41 -62 -3800 - Net financial worth - Stock of financial assets: 183 202 249 249 249 - Domestic: 183 202 249 249 249 - Foreign: 000 00 - Stock of liabilities: 2,793 2,864 3,329 3,909 4,395 - Domestic: 1,305 1,410 1,677 1,991 2,267 - Debt securities and loans and advances: 1,305 1,410 1,677 1,991 2,266 - Foreign: 1,488 1,453 1,652 1,919 2,128 Notes: - Sources: Bangladesh authorities; and IMF staff estimates and projections. - 1/ Fiscal year begins July 1. - 2/ Includes transfers to Bangladesh Petroleum Corporation and Bangladesh Power Development Board, previously included in net lending. - 3/ Includes statistical discrepancy. --- ### 2. Financial balance sheet and monetary accounts ### Bangladesh Bank balance sheet (selected items; end periods, in billions of taka) - Net foreign assets 1/: 569 526 533 518 467 464 481 488 - Net domestic assets 1/: 251 371 371 407 483 550 556 573 - Net credit to central government: 183 307 352 399 411 465 484 504 - Credit to other nonfinancial public sector: 11 11 11 11 11 11 11 - Credit to deposit money banks: 65 96 77 101 101 101 101 101 - Other items, net 1/: 3 -33 -58 -94 -30 -18 -30 -33 - Of which: Repos with commercial banks: 598 251 599 090 10 290 87 - Reserve money: 820 897 904 925 950 1,014 1,037 1,061 - Currency: 579 605 625 639 650 678 715 721 - Reserves 2/: 239 290 277 284 300 336 322 340 - Net foreign assets (percent change): 6.3 -0.3 -3.8 -6.2 -7.6 -6.9 -5.7 -3.2 - Net domestic assets (percent change): 20.9 21.3 21.5 19.0 23.1 19.9 20.4 17.9 - Of which: Net credit to central government: 11.3 15.4 19.4 26.4 26.6 17.7 14.6 11.4 - Reserve money (year-on-year percentage change): 25.9 21.0 17.7 12.7 15.5 13.0 14.7 14.7 ### Monetary survey and broad money (end period; in billions of taka) - Net foreign assets 1/: 685 696 701 665 617 627 644 650 - Bangladesh Bank: 569 526 533 518 467 464 481 488 - Commercial banks: 116 170 168 147 150 163 163 163 - Net domestic assets 1/: 3,306 3,707 3,830 4,087 4,217 4,457 4,590 4,839 - Domestic credit: 3,774 4,302 4,462 4,772 4,903 5,145 5,287 5,556 - Net credit to central government: 475 701 770 867 902 980 1,029 1,079 - Credit to other nonfinancial public sector: 148 146 138 140 170 161 161 161 - Credit to nonbank financial institutions: 424 850 535 253 545 5 - Credit to private sector: 3,109 3,407 3,504 3,712 3,779 3,950 4,043 4,261 - Other items, net 1/: -469 -595 -632 -685 -686 -687 -697 -717 - Broad money (M2): 3,991 4,403 4,531 4,752 4,834 5,084 5,233 5,489 - Net foreign assets (percent change): 10.6 7.0 2.1 -2.9 -8.7 -10.0 -8.1 -2.2 - Net domestic assets (percent change): 24.2 24.5 23.5 23.6 20.8 20.2 19.8 18.4 - Domestic credit (percent change): 24.1 28.2 27.1 26.4 22.5 19.6 18.5 16.4 - Of which: Net credit to central government (percent contribution): 4.7 41.3 59.8 82.4 60.7 39.7 33.7 24.4 - Credit to private sector (percent change): 27.6 25.8 22.0 19.4 16.6 15.9 15.4 14.8 - Broad money (M2) (year-on-year percent change): 21.7 21.4 19.6 19.1 16.0 15.5 15.5 15.5 Memorandum items: - Required domestic cash reserves (in billions of taka): 226 252 258 273 275 289 296 311 - Excess domestic cash reserves (in billions of taka): 13 381 911 1 254 726 29 - Broad money multiplier: 4.9 4.9 5.0 5.1 5.1 5.0 5.0 5.2 - Broad money velocity: 1.9 1.8 1.8 1.8 1.8 1.8 1.8 1.8 - Exchange rate, end of period (taka/U.S. dollar): 70.7 74.2 75.2 81.9 74.2 74.2 74.2 74.2 Sources: Data provided by the Bangladesh authorities; and IMF staff estimates and projections. - 1/ Projections are based on June 30, 2011 constant exchange rates. - 2/ Liabilities arising from banks' foreign currency clearing accounts and nonbank deposits are excluded. --- ### 3. Financial soundness indicators (2006–11, selected) - Regulatory capital to risk-weighted assets (adjusted) 1/: 5.6 4.1 6.5 8.8 7.6 8.2 ... - Regulatory capital to risk-weighted assets (unadjusted): 5.6 9.3 10.4 11.7 9.3 9.7 11.3 - State-owned commercial banks (unadjusted): -2.1 7.3 7.9 9.0 8.9 9.5 11.7 - Private commercial banks: 9.0 10.4 11.2 12.1 10.1 10.4 11.5 - Foreign commercial banks: 24.5 22.8 23.8 28.1 15.6 17.1 21.0 - Nonperforming loans to total loans (percent): 12.8 14.5 11.2 9.0 7.3 7.1 6.1 - State-owned commercial banks: 22.8 29.0 28.0 20.1 15.7 14.1 11.3 - Private commercial banks: 4.9 5.4 5.1 4.0 3.1 3.5 2.9 - Loan provisions to total nonperforming loans: 45.2 43.0 50.1 61.2 62.7 62.5 67.4 - Loan provisions to total loans: 5.8 6.2 5.6 5.5 4.6 4.5 4.1 - Return on equity 2/: -64.0 19.8 25.0 19.5 21.0 15.5 16.8 - State-owned commercial banks: 1,262.5 -9.4 35.6 24.9 18.4 10.0 18.5 - Return on assets 3/: -2.1 1.1 1.6 1.4 1.8 1.3 1.5 - State-owned commercial banks: -9.2 -0.3 1.2 1.0 1.1 0.6 1.3 - Net open position in foreign exchange to capital: 16.6 4.2 6.0 3.3 ......... Composition of credit (percent of total): - Industry (other): 32.2 34.5 36.0 36.4 35.5 35.8 ... - Trade: 22.1 24.3 24.0 26.6 37.6 37.2 ... - Households: 3.3 4.7 4.8 4.7 6.8 5.6 ... - Memorandum items: Share of assets (percent of total banking system assets) - State-owned commercial banks: 33.3 33.5 29.8 28.8 28.5 28.8 28.0 - Private commercial banks: 50.5 51.1 55.2 57.2 58.8 59.0 60.0 - Foreign commercial banks: 8.3 8.4 8.3 7.4 6.6 6.3 6.4 Sources: Bangladesh Bank; and IMF staff estimates. - 1/ From 2007, an adjustment excludes special accounts containing accumulated losses arising from difference in market and book value of assets; amounts deducted from banks' assets and regulatory capital. - 2/ Bangladesh Bank defines return on equity as ratio of net income after taxes to regulatory capital. - 3/ Bangladesh Bank defines return on assets as ratio of net income after taxes to total assets. --- ### 4. Proposed IMF disbursement schedule and ECF reviews - Availability and disbursement schedule (in percent of quota; in SDRs): - April 11, 2012: 17.19 1,423,000 — Board approval of the arrangement - November 15, 2012: 17.19 1,423,000 — Board completion of first review based on observance of performance criteria for end-June 2012 - April 15, 2013: 17.19 1,423,000 — Board completion of second review based on observance of performance criteria for end-December 2012 - November 15, 2013: 17.19 1,423,000 — Board completion of third review based on observance of performance criteria for end-June 2013 - April 15, 2014: 17.19 1,423,000 — Board completion of fourth review based on observance of performance criteria for end-December 2013 - November 15, 2014: 17.19 1,423,000 — Board completion of fifth review based on observance of performance criteria for end-June 2014 - April 1, 2015: 17.19 1,422,000 — Board completion of sixth review based on observance of performance criteria for end-December 2014 - Total: 120.06 39,960,000 - Source: IMF. --- ### 5. External financing requirements and sources (FY2010–15, in millions of U.S. dollars) - Gross financing requirements: 2,955 2,922 3,781 4,746 5,171 5,162 - External current account deficit: -3,250 -264 1,228 1,204 397 140 - Amortization of medium- and long-term debt: 671 739 800 921 1,079 984 - Gross reserves accumulation (+ = increase): 2,827 -1,023 -844 1,034 2,432 2,871 - IMF repayments: 385 719 920 283 60 - Other net capital outflows: 2,669 3,413 2,399 1,385 1,180 1,107 Available financing: - Available financing: 2,205 2,922 3,638 4,262 4,687 4,678 - Capital grants: 488 600 598 646 633 684 - Loan disbursements to the public sector: 854 1,051 1,328 2,000 2,671 2,844 - Portfolio investment, net: -117 -285 569 861 07 - Foreign direct investment, net: 913 768 845 1,048 1,297 1,543 - Short-term oil import credit, net: 675 318 125 000 -500 - Exceptional financing: 750 0 143 48 448 448 4 - IMF: Prospective arrangement...0 143 28 42 84 284 - Asian Development Bank: 7500 0100 100 100 Sources: Data provided by the Bangladesh authorities; and IMF staff estimates and projections. - 1/ Fiscal year begins July 1. - (Table heading: Projections) --- ### 6. IMF obligations, outstanding credit, and capacity-to-repay indicators (FY2011–25, selected) IMF obligations based on existing credit (in millions of SDRs) — Principal and charges: - Principal (selected years): 36.4 126.7 130.0 53.5 38.6 26.9 3.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - Charges and interest (selected years): 1.8 1.5 0.5 0.2 0.2 0.1 0.1 0.1 0.0 0.1 0.1 0.1 0.1 0.1 0.1 IMF obligations based on existing and prospective credit (in millions of SDRs) — Principal and charges: - Principal (selected years): 36.4 126.7 130.0 53.5 38.6 26.9 3.4 27.4 0.0 100.6 128.0 128.0 100.6 64.0 27.4 - Charges and interest (selected years): 1.8 1.5 0.5 0.7 1.6 1.7 1.7 1.7 0.0 1.4 1.1 0.8 0.5 0.2 0.1 Total obligations based on existing and prospective credit: - In millions of SDRs (selected years): 38.2 128.1 130.5 54.1 40.2 28.7 5.1 29.1 0.0 101.9 129.1 128.8 101.0 64.2 27.5 - In millions of U.S. dollars (selected years): 59.6 201.0 202.8 84.1 62.4 44.5 7.9 45.2 0.0 158.4 200.6 200.1 157.0 99.8 42.8 - In percent of gross international reserves (selected years): 0.6 2.3 2.0 0.7 0.4 0.2 0.0 0.2 0.0 0.5 0.5 0.5 0.3 0.2 0.1 - In percent of exports of goods and services and remittances (selected years): 0.2 0.5 0.4 0.2 0.1 0.1 0.0 0.1 0.0 0.2 0.2 0.2 0.1 0.1 0.0 - In percent of debt service 3/ (selected years): 6.2 15.8 14.8 5.9 4.7 3.2 0.5 2.6 0.0 6.9 7.8 7.1 5.4 3.3 1.4 - In percent of GDP (selected years): 0.1 0.2 0.2 0.1 0.0 0.0 0.0 0.0 0.0 0.1 0.1 0.1 0.1 0.0 0.0 - In percent of quota (selected years): 7.2 24.0 24.5 10.2 7.5 5.4 0.9 5.5 0.0 19.1 24.2 24.1 18.9 12.0 5.2 Outstanding IMF credit (selected) - In millions of SDRs: 379.0 343.7 396.6 526.0 670.2 643.3 639.9 612.5 548.5 447.9 319.9 191.9 91.4 27.4 0.0 - In millions of U.S. dollars: 590.4 539.2 616.2 817.3 1,041.4 999.5 994.3 951.7 852.3 696.0 497.1 298.3 142.0 42.6 -0.1 - In percent of gross international reserves (selected): 6.1 6.1 6.2 6.6 6.8 5.5 4.5 3.6 2.9 2.0 1.3 0.7 0.3 76.6 -0.1 - In percent of exports of goods and services and remittances: 1.6 1.3 1.3 1.5 1.7 1.5 1.3 1.2 1.0 0.7 0.5 0.3 0.1 0.0 0.0 - In percent of debt service 3/: 61.4 42.3 45.0 57.2 77.7 72.7 66.4 54.8 42.1 30.2 19.3 10.7 4.8 1,391.9 -1.6 - In percent of GDP (selected): 0.5 0.5 0.5 0.6 0.7 0.6 0.6 0.5 0.4 0.3 0.2 0.1 0.1 0.0 0.0 - In percent of quota (selected): 71.1 64.5 74.4 98.6 125.7 120.6 120.0 114.8 102.8 84.0 60.0 36.0 17.1 5.1 0.0 Net use of IMF credit (in millions of SDRs): - Disbursements (selected): 0.0 91.4 182.8 182.8 182.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - Repayments and repurchases (selected): 38.2 128.1 130.5 54.1 40.2 28.7 5.1 29.1 0.0 101.9 129.1 128.8 101.0 64.2 27.5 Memorandum items (selected projections): - Nominal GDP (in billions of U.S. dollars): 110.6 115.2 121.4 131.5 143.2 156.0 170.0 185.4 202.4 221.1 240.7 261.3 283.1 305.9 329.6 - Exports of goods and services and remittances (in billions of U.S. dollars): 37.2 41.0 46.8 53.5 60.4 67.3 73.8 80.8 88.5 96.9 105.5 114.8 124.7 135.3 145.8 - Gross international reserves (in billions of U.S. dollars): 9.7 8.9 9.9 12.4 15.2 18.2 22.2 26.2 29.9 34.2 38.5 42.9 48.6 55.5 63.4 - Debt service (in billions of U.S. dollars) 3/: 1.0 1.3 1.4 1.4 1.3 1.4 1.5 1.7 2.0 2.3 2.6 2.8 2.9 3.1 3.1 - Quota (in millions of SDRs): 533.3 (constant across years) Source: IMF staff estimates and projections. - 1/ Fiscal year begins July 1. - 2/ Includes the proposed ECF arrangement with an access level of 120 percent of quota. - 3/ Total public debt service, including IMF repayments. --- ### 7. Millennium Development Goals (1990–2015, selected indicators) Goal 1: Eradicate extreme poverty and hunger — Goal will probably be met - Poverty headcount ratio: 59 32 29 — On Track - Poverty gap ratio: 17 7 8 — Goal Met - Income share held by lowest 20 percent: 9 9 ... Needs Attention - Target 2 (hunger): Prevalence of child malnutrition (percent of children under 5): 68 45 33 — Off Track - Population below minimum level of dietary energy consumption (percent): 28 20 14 — On Track Goal 2: Achieve universal primary education — Goal will probably be met - Net enrollment ratio in primary education: 61 91 100 — On Track - Proportion of pupils starting grade 1 who reach grade 5 (percent): 43 55 100 — Needs Attention - Adult literacy rate of 15–24 years old population (percent): 37 58 ... — Needs Attention Goal 3: Promote gender equality and empower women — Goal will probably be met - Ratio of girls to boys in primary and secondary education (percent): 77 106 100 — Achieved - Ratio of girls to boys in tertiary education (percent): 37 32 100 — Needs Attention - Ratio of literate females to males (percent of ages 15–24): 65 85 100 — Needs Attention - Share of women employed in the nonagricultural sector (percent): 19 25 50 — Needs Attention - Proportion of seats held by women in national parliament (percent): 13 19 33 — Needs Attention Goal 4: Reduce child mortality — Goal will probably be met - Under 5 mortality rate (per 1,000): 146 54 50 — On Track - Infant mortality rate (per 1,000 live births): 92 41 31 — On Track - Immunization, measles (percent of children under 12 months): 54 82 100 — On Track Goal 5: Improve maternal health — Goal will probably be met - Maternal mortality ratio (modeled estimate, per 100,000 live births): 574 194 143 — On Track - Births attended by skilled health staff (percent of total): 52 45 0 — Needs Attention Goal 6: Combat HIV/AIDS, malaria, and other diseases — Goal will potentially be met - Contraceptive prevalence rate (percent of women ages 15–49): 40 60 72 — Needs Attention - HIV prevalence among population (per 100,000 population): 0 0.3 — Halting/On Track - Prevalence of malaria (per 100,000 people): 1.4 0.4 0.0 — Needs Attention - Incidence of tuberculosis (per 100,000 people): 264 225 — Halting/Needs Attention - Tuberculosis treatment success rate under DOTS (percent): 21 74 75 — On Track Goal 7: Ensure environmental sustainability — Goal will potentially be met - Productive forest area (%) (70% tree density): 9.0 13.0 20 — Needs Attention - CO2 emissions (metric tons per capita): 0.1 0.3 ... — Needs Attention - Terrestrial protected areas (percent of total surface area): 1.6 1.7 5 — Needs Attention - Improved water source (percent of population with access): 93 79 97 — Needs Attention - Improved sanitation facilities (percent of population with access): 15 85 56 — On Track - Slum population as percentage of urban (percent): 87.3 70.8 ... — Insufficient Data Goal 8: Develop a global partnership for development — Goal will potentially be met - Net ODA received per capita (current U.S. dollars): 20 8 ... — Needs Attention - Fixed line and mobile telephones (per 100 people): 0.2 13.6 50 — On Track - Internet users (per 100 people): 0.0 3.4 ... — Insufficient Data General indicators: - Population (in millions): 115.6 146.7 ... - Gross national income (in billions of U.S. dollars): 39.2 104.7 ... - GNI per capita, Atlas method (current, in U.S. dollars): 330 700 ... - Total fertility rate (births per woman): 3.4 2.7 ... - Life expectancy at birth (years): 58.0 66.6 70 Sources: United Nations Development Program and World Development Indicators. - 1/ In some cases, the data are for earlier or later years than those stated. --- ### 8. Social assistance and safety nets (2010, selected) - Share of poorest quintile covered by social safety net programs (percent of total assistance, illustrative values on chart): - All social assistance distribution across quintiles (visual chart values): Poorest, Q2, Q3, Q4, Richest (bars shown; exact numeric chart labels in source graphics) - Bangladesh: Distribution of Social Assistance Coverage Across Expenditure Quintiles (in percent of total assistance) — charted values include program categories: All social assistance, Old Age, Education, Vulnerable Group Feeding, Test Relief, Vulnerable Group Development. Sources: Bangladesh authorities; and World Bank staff estimates. *Source: Extracted from _cr1294 - 1. Central government accounts (PDF).* ### ANNEX I. MACROECONOMIC ADJUSTMENT WITH A HUMAN ### ANNEX I. MACROECONOMIC ADJUSTMENT WITH A HUMAN FACE: PUBLIC SOCIAL SAFETY NETS IN BANGLADESH ### Overview and scope of PSSN programs - Focus: Public Social Safety Net (PSSN) programs financed through the budget of the government of Bangladesh. - Objective: Shield the poor from destitution through programs addressing education, health, nutrition, employment, and disaster response. - Priority vulnerable groups: the elderly, women, children, and disabled persons. - Benefit modalities: food, cash transfers, or a combination, administered through government, bilateral, and multilateral development partners. - Poverty context: 31.5 percent of the population lives under the poverty line. ### Coverage, administration, and budgetary allocations - Historical budget share: government provided an average of 9 percent of total annual public expenditures (about 1.3 percent of GDP) to PSSNs during 1996–2008. - Crisis-era increase: allocation increased to about 2.0 percent of GDP in FY10 and FY11 in response to the global food and energy price crisis. - Current coverage: existing PSSN schemes reach about 7 million beneficiaries. - Coverage gaps: - 7 million beneficiaries equal less than 15 percent of the population living below the poverty line. - Coverage is around 39 percent of the poorest quintile. - Urban poor are generally marginalized and excluded from most programs. - A significant number of nonpoor households gain access to multiple programs due to lack of integrated targeting and coordination. - Administrative fragmentation: - More than a dozen ministries implement 30 major programs in food-based assistance. - Programs are fragmented, administered by multiple ministries, and have considerable overlap, leading to duplication and thinly spread resources. - Implementation constraint: poor institutional and administrative capacity limits the ability to rapidly scale up food-based programs. ### Programs scaled up or introduced during price shocks - Fair price cardholder program (resumed November 2010): - Coverage: some 2 million low-income households. - Entitlement: purchase up to 20 kilograms of rice per month at a below-market price. - Open Market Sales: - Mechanism: subsidized rice made available to rural and urban areas. - Targeting: poorly targeted; anyone allowed to buy up to 5 kilograms of low-quality rice per day. - Input subsidy program (initiated 2010): - Target: approximately 9 million marginal and small farmers (those with less than 3 hectares of land). - Benefit: ability to open a bank account and receive a cash subsidy for diesel used in irrigation pumps and other agricultural inputs during the boro crop season. ### Program types and key program details - Cash transfers: - Old Age Allowance (OAA): social pension using community-based targeting; monthly allowance of Tk 500 per month through bank accounts of the elderly poor. - Context: about 7 percent of the population (i.e., 10 million people) are older than 65 years, but only 2 million are covered under the old age allowance program. - Widowed and Distressed Women Allowance: monthly allowance Tk 250 per person distributed to about 900,000 selected women in rural areas. - Disabled Allowance: monthly allowance Tk 250 per person; currently 200,000 persons covered. - Conditional cash transfers: - Primary Education Stipend Program: monthly stipend Tk 100–125 per pupil aimed at supporting poor families under specific targeting criteria. - Stipends for Female Secondary Students: monthly cash transfer conditioned on school attendance, academic performance, and girls remaining unmarried. - Public works: - Food-for-Work: 100-day employment guarantee where beneficiaries receive food grain instead of cash. - Employment Generation Program for the Poorest (EGPP): short-term employment on community sub-projects; currently covering approximately 800,000 workers per year (and partially funded by the World Bank). - Vulnerable Group Development (VGD): 30 kilograms of rice for a period of 24 months to poor women. - Emergency or seasonal relief: - Vulnerable Group Feeding (VGF) program: food to households affected by disasters and lacking agricultural land and productive assets; an affected person gets 10 kilograms of food grains per month for three months following a disaster, with no labor requirement. - Gratuitous Relief: emergency food and other necessities to victims of natural calamities; can provide 10 kilograms of food grains per person per month; cash can also be distributed. - Test Relief: 5–6 kilograms of wheat per day for a month during rainy months. - Open Market Sales: anyone can buy a maximum of five kilograms of subsidized rice each day (established in response to the 2008 food crisis). ### Performance, targeting, and reform priorities - Targeting performance: - Widespread inclusion errors: many nonpoor households access multiple programs. - Limited reach among urban poor and incomplete coverage of eligible elderly. - Efficiency and reallocation recommendations: - Consolidate and rationalize existing programs to realize efficiency gains. - Reallocate resources from poorly performing programs (example cited: Food for Works) to better-targeted and better-administered programs (examples cited: EGPP, VGF, and VGD). - Expected effects of reallocation: expansion of coverage and increases in per capita benefit levels within existing budgets. - Administrative reforms to broaden reach: - Create a database of the most vulnerable, including the urban poor, using existing household surveys. - Provide vulnerable individuals or households with access to bank accounts. - Administer electronic cash transfers through bank accounts with support from development partners. - Emerging evidence: such administrative reforms have markedly improved the performance of EGPP. - Once transfer infrastructure is developed, programs such as EGPP and OAA could be topped up more easily. *Prepared by Stella Kaendera (FAD), Eteri Kvintradze (APD), and Iffath Sharif (World Bank).* ### 7. Policy objectives. Fiscal policy will be geared towards promoting a stable ### _cr1294 - 7. Policy objectives. Fiscal policy will be geared towards promoting a stable ### Fiscal policy objectives and targets - Fiscal policy geared towards promoting a stable macroeconomic environment, debt sustainability, and broad-based growth. - Limit overall fiscal deficit (excluding grants) to around 4.5 percent of GDP in FY12 and pursue moderate fiscal consolidation in FY13 and over the medium term. - Aim to increase tax revenue to around 13 percent of GDP during the program period to create space to raise Annual Development Program (ADP) spending to at least 6 percent of GDP. - Fiscal performance anchored by: - A ceiling on net claims on government by the banking system (a performance criterion). - A floor on tax revenue (an indicative target). - Capped total energy-related subsidy costs to Tk 150 billion in FY12 (a prior action). - Recent domestic fuel price increases have averaged nearly 40 percent since mid-2011. ### Tax policy and reforms - Adoption of new VAT and income tax regimes to broaden the tax base and increase tax receipts. - Cabinet approval of new VAT legislation in March 2012 (a prior action). - New VAT law features: - Single 15 percent VAT rate. - Very limited exemptions. - No truncated valuations. - Minimal advance payment and withholding schemes. - Final draft of the law consistent with tax modernization and medium-term revenue targets to be submitted to the National Parliament by June 2012 (a program benchmark). - Approval by the Minister of Finance of an implementation plan, timetable, and new organizational structure for the National Board of Revenue (NBR) by September 2012 (a program benchmark). - Removal of certain tax concessions and exemptions in the FY13 Finance Bill in June 2012 equivalent to 0.5 percent of GDP (a program benchmark). - Plan to finalize a new draft direct tax code in FY13. ### Revenue administration modernization - Formulate an NBR modernization plan (2012-16) by mid-2012. - Upgrade systems and broaden coverage and coordination of Large Taxpayers Units. - Automate issuance and linkage of taxpayer identification numbers to national identification and business identification numbers, aiming to complete in main tax offices by December 2012 (a program benchmark). - Upgrade ASYCUDA system and install it in major land customs stations by December 2012, with support from UNCTAD. - Implement an alternative dispute resolution (ADR) mechanism in FY12 at NBR on a pilot basis; roll out ADR and strengthen audit and investigative procedures and dedicated taxation court benches over the medium term. ### Subsidy reforms - Contain growth in fuel, electricity, and fertilizer subsidies and bring these costs fully on budget starting in FY13. - Move to an automatic adjustment formula for fuel by December 2012 to ensure full pass-through of changes in international prices (a program benchmark). - Established a technical committee in January 2012 (MoF and BB) to monitor Bangladesh Petroleum Corporation (BPC) finances and ensure regular budget transfers and foreign exchange purchases for petroleum imports. - Timely implementation of medium-term electricity tariff adjustment schedule per Bangladesh Energy Regulatory Commission. - Adjust fertilizer prices as necessary to capture input cost changes. - Accelerate implementation of Power Sector Road Map (adopted in 2010) to replace temporary rental power units with permanent plants; move towards full cost recovery by energy producers and distributors. ### State-owned enterprise (SOE) finances - New subsidy-related loans from state-owned commercial banks (SOCBs) to BPC, Bangladesh Power Development Board (BPDB), and Bangladesh Chemical Industries Corporation (BCIC) limited to zero on a net basis in FY12 (an indicative target). - Agreement to settle existing legacy loans to be fully reflected in budget framework, with around Tk 27 billion in these loans already securitized in FY12. - Commit to conducting efficiency audits of BPC and BPDB in 2012. - Continue close monitoring of budget transfers and directed lending to SOEs and place strict limits on support to largely inoperative SOEs. ### Public financial management (PFM) - Strengthen PFM focusing on performance-focused budgeting, budget integration and monitoring, and improved cash and debt management. - Strengthening Public Expenditure Management Program (SPEMP) to guide reforms. - Establish new budget management wings/branches in all line ministries and issue a circular ensuring uniform budget implementation and reporting standards by June 2012 (a program benchmark). - Expand terms of reference of the Cash and Debt Management Technical Committee to prepare bi-weekly and monthly rolling cash flow projections of the Treasury Single Account (TSA) balance by June 2012. - Revise budget classification structure and reporting; implement Integrated Budget and Accounting System to generate GFS compliant statements. - Seek a fiscal Report on Standards and Codes focused on budget transparency in FY13 (follow-up to PEFA assessment mid-2011). ### Annual Development Program (ADP) implementation and aid effectiveness - Reprioritize development projects in FY12 and issued a government circular in January 2012 restricting use of taka funding to cover shortfalls in externally-funded ADP budget (a prior action). - Further rationalize number of ADP projects, build project appraisal capacity, and issue a basic technical manual on project formulation and appraisal by December 2012. - Improve land acquisition procedures, government-DP procurement interface, and aid coordination, especially on multi-donor projects, consistent with the Joint Cooperation Strategy (2011). ### Social spending and safety nets - Intensify efforts to protect priority social spending and improve safety net effectiveness; carefully monitor social-related spending (an indicative target). - Regular reporting to the National Parliament on budget implementation. - Develop an action plan by June 2012 to ensure well-targeted social safety net programs to mitigate burden of fuel and electricity price increases. - Ensure timely and judicious open market sales of food staples in 2012 as an upfront measure to mitigate impact on the urban poor. ### Public-private partnerships (PPPs) - Establish operational guidelines and legal and institutional framework for PPPs, with support from AsDB. - Government to take equity stakes via Bangladesh Infrastructure Finance Fund and provide technical and viability gap funding. - Large projects to be approved by Cabinet Committee on Economic Affairs. - PPP office established in the Prime Minister’s Office; MoF cell created mid-2011 to assess medium-term fiscal implications of PPP projects. ### Debt management and ceilings - Debt management strategy (DMS) prepared in 2011 aims to minimize borrowing costs and ensure fiscal sustainability. - Execution supported by dedicated debt management wing in MoF; annual borrowing plans guided by macro-fiscal framework and debt sustainability analysis and supported by a single, comprehensive debt database. - Move toward fully recognizing debts of SOEs and other official entities, particularly BPC, BPDB, and BCIC. - Auction cut-off rates across all maturities will be set at market-clearing levels to ensure adequate domestic financing. - Strengthen National Savings Directorate operations; benchmark yields on National Savings Certificates (NSCs) to market-based rates and bring taxation of interest on NSCs in line with other government debt instruments by June 2012. - Revamp savings schemes aimed at non-resident Bangladeshis to attract stronger foreign inflows. - Install UNCTAD’s DMFAS.6 by June 2012 to incorporate most domestic debt flows. - Adhere to nonconcessional external debt ceilings, including: - Ceiling on new nonconcessional external debt maturing in more than one year (a continuous performance criterion). - Ceiling on nonconcessional external debt maturing in one year or less (a continuous performance criterion), excluding normal import-related credits (suppliers’ credit and other short-term financing for oil imports from the Islamic Development Bank and other official entities), for which a separate non-zero ceiling (an indicative target) applies. - Program includes adjustors on net international reserves (NIR) of BB, net domestic assets (NDA) of BB, and net claims on government (NCG) by the banking system for suppliers’ credit contracted by BPC and guaranteed by the government in excess of programmed levels. - Continue to ensure no new accumulation of external payment arrears by the public sector (a continuous performance criterion). ### Monetary and exchange rate policy objectives - Monetary policy aims to contain aggregate demand pressures, bring down inflation, and help build a reserve buffer. - Bangladesh Bank increased benchmark repo rate by 325 bps over the past 18 months to 7.75 percent, including a 50 bps rise in January 2012. - Credit growth has slowed significantly since mid-2011. - Treasury bill and bond yields allowed to adjust more to market conditions; most remaining bank lending rate caps removed in December 2011 (a prior action). - Greater exchange rate flexibility to facilitate adjustment. - Central bank actions guided by semi-annual monetary policy statements consistent with program ceilings on reserve money (an indicative target) and on NDA of BB (a performance criterion). - Target a modest reserve buildup in NIR of BB in 2012 (a performance criterion) and a further significant increase over the medium term. ### Monetary management measures - BB prepared to maintain restrained monetary policy and strengthen liquidity management, backed by tight fiscal policy. - BB will undertake further hikes in repo and reverse repo rates as necessary and channel most liquidity support through the emergency repo window (currently provided at 300 bps above the regular repo window). - Encourage commercial banks to maintain market-determined lending and deposit rates. - Strict enforcement of cash reserves, liquid asset, and credit-to-deposit ratio requirements; sanctions for violations. - Finalize a lender of last resort policy and contingency plan in May 2012, approved by BB management (in line with prior TA). - Commit to improve liquidity forecasting framework in 2012, with possible TA from DPs. ### Exchange rate policy and central bank operations - Continue to allow greater exchange rate flexibility; BB to allow interbank transactions at market-determined rates and limit intervention to smoothing short-term volatility, consistent with NIR targets. - Monitor alignment of interbank selling rate with selling rate for bills of collection of foreign exchange dealers to boost spot interbank turnover. - SOCBs expected to procure foreign exchange for oil-, food-, and fertilizer-related import payments from the interbank spot market. - Other banks encouraged to open letters of credit for these payments, notably for BPC, with BB setting notional targets if necessary. - Bangladesh Bank ceased issuing foreign exchange overdrafts in December 2011 and will reduce outstanding balances to zero by June 2012 (a program benchmark). - Enforce banks’ net open foreign exchange position limits. - BB to adhere to new reserve management guidelines adopted in mid-2011. - Address vulnerabilities identified in IMF Safeguards Assessment (completed July 2011), notably in external and internal audits and oversight mechanisms. - Government floated a tender in February 2012 for an internationally-affiliated firm to conduct an external audit on BB's end-June 2012 accounts, with audit opinion to be signed by both the audit firm's international or regional head office and its local affiliate (a prior action). - Implement automated Enterprise Resource Planning system and phase out manual accounting system by June 2012 to ensure timely and comprehensive financial reporting, with support from DPs. *IMF staff report — Bangladesh (selected policy objectives and measures)* ### 22. Policy objectives. Under our program, we will strengthen financial sector governance ### _cr1294 - 22. Policy objectives. Under our program, we will strengthen financial sector governance ### Policy objectives - Strengthen financial sector governance and oversight to better manage risks and support growth. - Improve stability, soundness, and reach of the financial system through: - clear oversight responsibilities; - strong risk-based supervision; and - proper managerial and operational controls. - Coordinate regulators to address risks from a rapidly expanding financial sector, deepening inter-bank linkages, and increasing parent-subsidiary activities. ### Bank governance and performance - Commitments and actions: - Submit an amended Bank Companies Act (BCA) to the National Parliament by September 2012 (a program benchmark) to: - establish a clear supervisory mandate for Bangladesh Bank (BB); - allow remedial actions against prudential lapses; and - strengthen internal governance of commercial banks. - Strictly enforce new bank licensing criteria in view of liquidity pressures, limited supervisory capacity, and pending governance reforms. - Pursue measures to increase SOCBs’ operational independence, strengthen finances, broaden capital bases, corporatize operations, minimize fiscal risks, and reduce government effective ownership over the program period. - Bangladesh Bank to anchor reforms via memoranda of understanding with each SOCB; new ones issued in March 2012 focused on SOCBs’ lending standards. - An audit of each SOCB was conducted by reputable internationally-affiliated auditors in 2011; use audits to stabilize SOCBs by: - limiting dividend payments; - ensuring proper loan loss provisions; and - prohibiting SOCBs’ purchase of any classified loans from other banks (as notified by BB in February 2012). - SOCBs will adhere to agreed schedules to amortize valuation adjustments made to their balance sheets to cover earlier losses as BB enforces Basel II capital adequacy standards introduced in 2010. ### Financial supervision - Bangladesh Bank (BB) commitments and timelines: - Issued guidelines in February 2012 to strengthen risk management frameworks and processes of commercial banks. - Adopt a new organizational structure by May 2012 to consolidate management over on-site and off-site activities. - Establish a council of regulatory agencies by June 2012 comprising BB, the MOF, Insurance Development and Regulatory Authority (IDRA) and the Securities and Exchange Commission (SEC), with mandate to preserve financial stability and powers inter alia to designate potentially systemic financial firms for enhanced supervision. - Adopt new loan classification and loss-provisioning standards that embrace international best practices by June 2012 (a program benchmark), implementing them over a two-year period (to take full effect by June 2014). - Published inaugural Financial Stability Report in December 2011; will compile unified financial soundness indicators and report quarterly with emphasis on data integrity. - IMF resident advisor at BB to support bank supervision improvements; peripatetic experts to strengthen on-site inspections. ### Securities markets - SEC actions and commitments: - Develop and enforce a transparent regulatory framework in line with international best practices, with support from the AsDB. - Strengthen SEC autonomy, supervisory mandate, and qualified personnel to properly oversee brokers, dealers, and merchant banks and develop contingencies to contain systemic risk. - Seek SEC approval of a demutualization model and plan for the Dhaka Stock Exchange and Chittagong Stock Exchange by December 2012 (a program benchmark). - Cap banks’ shareholding limits to 25 percent of their regulatory capital by September 2012 (a program benchmark), subject to parliamentary approval of the amended BCA. - BB and SEC to conduct jointly consolidated supervision of merchant bank subsidiaries, completing examinations of the larger ones by June 2012. - Ensure all banks comply with reduced margin lending and collateral requirements. - Bring all bank subsidiaries under BB’s supervision by mid-2013. ### Anti-money laundering - Promulgated the Anti-Money Laundering Ordinance and the Anti-Terrorism Financing Ordinance to be placed before the National Parliament for ratification in February 2012. ### Trade and investment environment - Policy objective: - Create a more supportive investment climate, accelerate trade liberalization, and attract more FDI to achieve ambitious growth targets. - Trade reform aims: reduce trade distortions, minimize anti-export biases, and better integrate Bangladesh into the multilateral trading system. - Trade regime actions: - Work with the World Bank on a Diagnostic Trade Integration Study for Bangladesh in 2012 to inform near- to medium-term trade priorities. - Commit to rationalizing trade taxes, inclusive of para-tariffs from supplementary and regulatory duties. - Reduce trade logistic costs via strategic investments in ports and transport. - Seek more effective regional trade cooperation, using recent inroads with India. - Investment climate actions: - Work with IFC and other DPs to strengthen property registration, contract enforcement, and adjudication processes (issues highlighted in IFC’s 2012 Doing Business report). - Elevate government support to attract and retain FDI, with upfront focus on adequate power supply in export processing zones and improving access to information on land availability and logistical support. ### Statistical policy - Commitments: - Strengthen macroeconomic statistics to inform policy and monitor outcomes. - Bangladesh Bureau of Statistics (BBS) preparing a National Strategy for the Development of Statistics (NSDS), to be fully formulated in late 2012. - Submit a new Statistics Act to the National Parliament by June 2012 to provide BBS greater autonomy. - Increase BBS resources, including staff, and upgrade regional facilities. - Complete rebasing of national accounts to 2005/06 by mid-2012, with continued IMF TA. - Bangladesh Bank improving external statistics for proper recording and classification of balance of payments flows. ### Program monitoring, quantitative performance criteria, and indicative targets - Monitoring framework: - Progress monitored through quantitative performance criteria and indicative targets, structural benchmarks, and other necessary measures for semi-annual program reviews (as summarized in Tables 1 and 2 and guided by the attached Technical Memorandum of Understanding). - Selected quantitative items and sample figures from Table 1 (end-of-period or cumulative stocks as specified): - Net international reserves (NIR) of Bangladesh Bank (BB) (floor, end of period stock, in millions of U.S. dollars): 6,726; 6,791; 6,154; 5,977; 5,937; 6,165; 6,256. - Net domestic assets (NDA) of BB (ceiling, end-of-period stock, in billions of taka): 371; 377; 444; 483; 550; 556; 573. - Net credit to the central government (NCCG) by the banking system (ceiling, cumulative change from the beginning of the fiscal year, in billions of taka): 205; 68; 139; 174; 252; 49; 99. - New nonconcessional external debt maturing in more than one year contracted by the public sector and/or guaranteed by the central government or BB (ceiling, end-of-period stock since the beginning of the program, in millions of U.S. dollars): 500; 500; 1,000; 1,000. - Reserve money (ceiling, end-of-period stock, in billions of taka): 897; 904; 925; 950; 1,014; 1,037; 1,061. - Tax revenue of central government (floor, cumulative change from the beginning of the fiscal year, in billions of taka): 763; 190; 394; 627; 924; 232; 489. - Social-related spending by central government (floor, cumulative change from the beginning of the fiscal year, in billions of taka): 342; 70; 248; 400; 81; 161. - Table 2: Prior actions and structural benchmarks (selected dates and actions): - Completed prior actions in early 2012 included Cabinet approval of tax modernization plans and medium-term revenue targets (Cabinet approved tax modernization law in March 2012), issuance of a government circular that shortfalls in externally-funded ADP budgets will not be substituted with taka funding (issued in January 2012), lifting remaining lending caps on commercial bank loans except agricultural and short-term pre-shipment credits for exports (completed January 2012), and floating a tender for an internationally-affiliated firm to audit Bangladesh Bank (tender floated in February 2012). - Structural benchmarks and dates include: - Reduce outstanding balances of foreign exchange overdrafts provided by BB to zero by June 2012. - Submit a new VAT law to the National Parliament by June 2012. - Remove tax concessions and exemptions in the FY13 Finance Bill equivalent to at least 0.5 percent of GDP in FY13 by June 2012. - Establish budget management wings/branches in all line ministries and issue a circular to ensure uniform budget monitoring and controls by June 2012. - Issue new BB regulations on loan classification and loan-loss provisioning in line with international best practices by June 2012, to take full effect by June 2014. - Approval by the Minister of Finance of a VAT implementation plan and timetable and a new organizational structure of the NBR by September 2012. - Submit amendments to the BCA to the National Parliament by September 2012 giving BB the sole legal supervisory authority over all commercial banks and expanding fit and proper criteria for major shareholders, board members, and executive officers. - Issue a BB order, consistent with the amended BCA, establishing a limit on a commercial bank's shareholdings in the stock market to 25 percent of its total regulatory capital by September 2012. - Automate taxpayer identification number issuance, including links to the national identification number system by December 2012. - Adopt an automatic adjustment mechanism for retail petroleum prices to ensure full pass-through of international prices by December 2012. - Approval by the SEC of a demutualization model and plan for the Dhaka and Chittagong stock exchanges by December 2012. ### Technical Memorandum of Understanding (TMU) — selected points - Program exchange rate for the first year of the ECF arrangement: Bangladesh taka (Tk) 74.23 per U.S. dollar (the average interbank rate prevailing on June 30, 2011). - Valuation rules: foreign currency accounts in currencies other than the U.S. dollar and monetary gold first valued in U.S. dollars as at exchange rates and gold prices prevailing on June 30, 2011, then converted to Bangladesh taka. - Quantitative performance criteria and indicative targets schedule: - Performance criteria set for end-June 2012 and end-December 2012. - Indicative targets set for end-March 2012 and end-September 2012. - Performance criteria include: - Floor on net international reserves of BB (end-of-period stock). - Ceiling on net domestic assets of BB (end-of-period stock). - Ceiling on change in net credit to the central government from the banking system (cumulative from the beginning of the fiscal year, FY12 is July 1, 2011–June 30, 2012). - Continuous performance criteria include ceilings on: - New medium- and long-term nonconcessional external debt (maturing in more than one year) contracted by the public sector and/or guaranteed by the central government or BB, calculated cumulatively from December 31, 2011. - New short-term nonconcessional external debt (maturing in one year or less) contracted by the public sector and/or guaranteed by the central government or BB, calculated cumulatively from December 31, 2011. - Accumulation of new external payment arrears by the public sector, calculated cumulatively from December 31, 2011. *Source: _cr1294 - 22. Policy objectives. Under our program, we will strengthen financial sector governance* ### 7. Indicative targets have been established with respect to a: ### 7. Indicative targets have been established with respect to a: ### Indicative targets (paragraph 7) - Ceiling on the level of reserve money, calculated as an end-of-period stock; - Ceiling on the net change in suppliers’ credit and other short-term financing for oil imports, calculated in cumulative terms from June 30, 2011; - Ceiling on the net change in funded loans made by state-owned banks to Bangladesh Petroleum Corporation (BPC), Bangladesh Power Development Board (BPDB) and Bangladesh Chemical Industries Corporation (BCIC), calculated in cumulatively from the beginning of the fiscal year; - Floor on tax revenue of central government, calculated cumulatively from the beginning of the fiscal year; and - Floor on social-related spending by central government, calculated cumulatively from the beginning of the fiscal year. ### Adjustors to measurement of performance criteria (paragraph 8) - (i) budget support to the central government from bilateral and multilateral agencies, calculated cumulatively from the beginning of the fiscal year; - (ii) net lending by the government to the BPC and BPDB calculated cumulatively from the beginning of the fiscal year; and - (iii) suppliers’ credit and other short-term financing for oil imports. ### Institutional definitions (paragraphs 9–12) - Central government: 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: the central government, BB, nonfinancial public enterprises, departments, and autonomous and semi-autonomous bodies of all ministries and divisions. - Deposit money banks (DMBs): commercial banks (state-owned, Islamic, private, and foreign-owned) and specialized banks, on which BB compiles data for the monthly monetary survey. - Nonbank claims on the central government: sum of cash receipts from sales of National Savings Certificates and Treasury bill and bond holdings outside BB and the DMBs, as reported by National Savings Directorate and BB’s Debt Management Department. ### Monetary aggregates — Reserve money (paragraph 13) - A ceiling applies on the level of reserve money, which comprises currency 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. ### Monetary aggregates — Net International Reserves of Bangladesh Bank (paragraphs 14–16) - A floor applies to the level of net international reserves (NIR) of BB. - The floor on NIR of BB will be adjusted upward (downward) by the amount of budget support from bilateral and multilateral agencies in excess (short) of the programmed level. - The floor on NIR of BB will be adjusted upward by the amount of suppliers’ credit and other short-term financing for oil imports in excess of the programmed level. - For program monitoring purposes, NIR of BB = gross international reserves (GIR) less international reserve liabilities; foreign assets and foreign liabilities of BB shall be valued at the program exchange rate in U.S. dollars, as described in paragraph 2. - Gross international reserves (GIR) of BB are defined as the sum of: - Foreign currency assets in convertible currencies held abroad and as vault cash that are under the direct and effective control of BB, readily available for intervention in the foreign exchange market or the direct financing of balance of payments imbalances, and of investment grade (i.e., a rating of at least Baa (Moody’s) or BBB- (Standard & Poors and Fitch)) or held with an investment-grade institution; - The reserve position of Bangladesh in the IMF; - Holding of SDRs; and - Monetary gold. - Excluded from GIR: - Foreign currency assets that are in any way encumbered or pledged, including, but not limited to, reserve assets used as collateral or guarantee for third-party external liabilities, BB’s blocked account with the Central Bank of Iraq, and BB’s deposits with Rupali Bank (Pakistan); - Foreign currency assets in nonconvertible currencies and precious metals other than gold, including BB’s Silver Acquisition Account; - Non-investment grade foreign currency sovereign bonds; - Foreign currency claims on entities incorporated in Bangladesh, including funds lent out through the Foreign Exchange Overdraft Facility (FXOD) and funds invested in offshore banking units (OBUs) of domestic banks and subsidiaries or branches of international banks in Bangladesh; - Any other foreign currency claims on residents; and - Capital subscriptions in international institutions. ### Monetary aggregates — International reserve liabilities of BB (paragraph 17) - International reserve liabilities of BB are defined as the sum of: - All outstanding liabilities of Bangladesh to the IMF; and - Foreign currency liabilities in convertible currencies to nonresidents, including liabilities to the Asian Clearing Union, the Foreign Currency Clearing Account (i.e., the total amount of DMBs’ foreign currency deposits held at BB), and forward contracts, foreign currency swaps, and other futures market contracts. ### Monetary aggregates — Net Domestic Assets of Bangladesh Bank (paragraphs 18–19) - A ceiling applies to the level of net domestic assets (NDA) of BB. - The ceiling on NDA of BB will be adjusted downward (upward) by the amount of budget support from bilateral and multilateral agencies in excess (short) of the programmed level. - The ceiling on NDA of BB will be adjusted downward by the amount of suppliers’ credit and other short-term financing for oil imports in excess of the programmed level. - For program monitoring purposes, NDA of BB = reserve money − (NIR of BB + other net foreign assets (NFA) of BB) valued in taka using the program exchange rates specified in paragraph 2. - Any revisions to the historical stock of reserve money based on changes to the accounting treatment of the profit/loss account of BB will be notified to the IMF immediately and used to adjust monetary aggregates by an equivalent amount, as deemed appropriate. - Other NFA of BB includes: - Foreign assets related to holdings of foreign currency deposits and securities not included in NIR of BB, and loans, shares, financial derivatives, or other accounts receivable with nonresidents (including BB’s blocked account with the Central Bank of Iraq and deposits with Rupali Bank (Pakistan); holdings of noninvestment grade foreign currency bonds; and other foreign assets that are not included in NIR of BB, as defined in Section III. B (including the Silver Acquisition Account)); and - Foreign liabilities related to foreign currency deposits and securities of nonresidents, and loans, shares, financial derivatives, and other accounts payable with nonresidents; and other foreign liabilities that are not included in NIR of BB, as defined in Section III. B. - Other NFA does not include funds invested in OBUs of resident domestic banks and subsidiaries or branches of resident foreign banks in Bangladesh. These funds are included as a part of NDA of BB. ### Monetary aggregates — Net Credit to the Central Government by the Banking System (paragraphs 20–21) - A ceiling applies on the change in net credit to the central government (NCCG) by the banking system measured cumulatively from the beginning of the fiscal year. - The ceiling on NCCG by the banking system will be adjusted upward (downward) by the amount of budget support from bilateral and multilateral agencies short of (in excess of) the programmed level. - The ceiling on NCCG by the banking system will be adjusted downward by: - the amount of suppliers’ credit and other short-term financing for oil imports in excess of the programmed level; and - the amount of net lending by the central government to the BPC and the BPDB short of the programmed level. - The ceiling on NCCG by the banking system excludes special bonds issued by the central government to the state-owned commercial banks (SOCBs) for the securitization of loans made by these banks to the BPC prior to FY12 to cover shortfalls in government budgetary transfers for fuel subsidy-related costs incurred by the BPC. - For program monitoring purposes, NCCG by the banking system is defined as the sum of net claims of BB and DMBs on the central government. ### Funded loans by state-owned banks to state-owned enterprises (paragraph 22) - A ceiling applies on the net change in funded loans by selected banks to state-owned enterprises. - Funded loans are defined as cash lending by Sonali Bank, Janata Bank, Agrani Bank, Rupali Bank, and BASIC Bank to BPC, BPDB and BCIC. ### Fiscal aggregates — Tax revenue (paragraphs 23–24) - A floor applies on tax revenue of central government measured cumulatively from the beginning of the fiscal year. - For program monitoring purposes, tax revenue is defined as collections by the National Bureau of Revenue that have been transferred to the Controller General of Accounts. ### Fiscal aggregates — Social-related spending (paragraphs 25–26) - A floor applies on social-related spending by central government cumulatively from the beginning of the fiscal year. - For program monitoring purposes, social spending comprises all spending categories of the Ministry of Primary and Mass Education; Ministry of Education; Ministry of Health, Family, and Welfare; and all expenditures on social safety net programs in the budget economic codes listed in Table 34. - Safety net programs hosted in one of these ministries already included in this definition will be deducted from the total to avoid double counting. ### External debt — Medium- and long-term external debt (paragraphs 27–31) - A continuous ceiling applies to new nonconcessional external debt with nonresidents with original maturities of more than one year contracted by the public sector and/or guaranteed by the central government or BB. - The ceiling applies to debt and commitments contracted or guaranteed for which value has not yet been received. - The ceiling applies to private debt for which official guarantees have been extended and which, therefore, constitutes a contingent liability of the central government or BB. - For program monitoring purposes, the definition of debt is set out in Point 9 of the Guidelines on Performance Criteria with Respect to External Debt in Fund Arrangement Executive Board Decision No. 6230-(79/140), as subsequently amended, including by Executive Board Decision No. 14416-(09-91), effective December 1, 2009 (see Annex I). - External debt is defined by the residency of the creditor, excluding any taka-denominated Treasury bonds and any U.S. dollar-denominated bonds issued by the central government’s Directorate of National Savings that are held by nonresidents (see TMU paragraph 29). - Excluded from the ceiling: - (i) the use of IMF resources; - (ii) concessional debts; - (iii) debts incurred to restructure, refinance, or prepay existing debts, to the extent that such debt is incurred on more favorable terms than the existing debt and up to the amount of the actually restructured/refinanced/prepaid debt; - (iv) any taka-denominated Treasury bonds held by nonresidents; and - (v) any U.S. dollar-denominated bonds issued by the central government’s Directorate of National Savings that are held by nonresidents. - For program purposes, the guarantee of a debt arises on any explicit legal obligation of the central government or BB to service debt in the event of nonpayment by the main obligor (involving payments in cash or in kind). - For program purposes, a debt is concessional if it includes a grant element of at least 35 percent, calculated as follows: - the grant element of a debt is the difference between the net present value (NPV) of debt and its nominal value, expressed as a percentage of the nominal value of the debt. - The NPV of debt at the time of its contracting is calculated by discounting the future stream of payments of debt service due on this debt. - The discount rates used for this purpose are the currency specific commercial interest reference rates (CIRRs), published by the Organization for Economic Cooperation and Development (OECD). - For debt with a maturity of at least 15 years, the ten-year-average CIRR will be used to calculate the NPV of debt and, hence, its grant element. - For debt with a maturity of less than 15 years, the six-month average CIRR will be used. - To both the ten-year and six-month averages, the same margins for differing repayment periods as those used by the OECD would continue to be added (0.75 percent for repayment periods of less than 15 years, 1 percent for 15 to 19 years, 1.15 percent for 20 to 29 years, and 1.25 percent for 30 years or more). ### External debt — Short-term external debt (paragraphs 32–34) - A continuous ceiling applies to new nonconcessional debt with nonresidents with original maturities of up to and including one year contracted by the public sector and/or guaranteed by the central government or BB. - The ceiling applies to debt and commitments contracted or guaranteed for which value has not yet been received. - The ceiling applies to private debt for which official guarantees have been extended and which, therefore, constitute a contingent liability of the central government or BB. - For program monitoring purposes, the definition of debt is set out in Point 9 of the Guidelines on Performance Criteria with Respect to External Debt in Fund Arrangement approved by the Executive Board Decision No. 6230-(79/140), as subsequently amended, including by Executive Board Decision No. 14416-(09-91), effective December 1, 2009 (see Annex I). - External debt is defined by the residency of the creditor, excluding any taka-denominated Treasury bills or BB bills held by nonresidents (see TMU paragraph 34). - Excluded from the ceiling: - (i) debts classified as international reserve liabilities of BB; - (ii) debts incurred to restructure, refinance, or prepay existing debts, to the extent that such debt is incurred on more favorable terms than the existing debt and up to the amount of the actually restructured/refinanced/prepaid debt; - (iii) taka-denominated Treasury bills and BB bills held by nonresidents; - (iv) concessional debts; - (v) normal import financing; - (vi) suppliers’ credit and other short-term financing for oil imports from the Islamic Development Bank (IsDB) and other official entities; and - (vii) forward contracts, foreign currency swaps, other futures market contracts, and short-term liabilities of the banking system. - A financing arrangement for imports is considered to be “normal” when the credit is self-liquidating. ### Suppliers’ credit and other short-term financing for oil imports (paragraphs 35–36) - A ceiling applies on the net change in suppliers’ credit and other short-term financing for oil imports. - For program monitoring purposes, suppliers’ credit is defined in Annex I. - Other short-term financing for oil imports comprises financing received for this purpose from the IsDB and other official entities and through syndicated loans, which is contracted by the public sector and/or guaranteed by the central government or BB. ### External payment arrears (paragraph 37) - A continuous ceiling applies on the accumulation of new external payments arrears by the public sector. *Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2012/_cr1294.pdf* ### 38. For program monitoring purposes, external payments arrears comprise external ### _cr1294 - 38. For program monitoring purposes, external payments arrears comprise external ### Definition of external payments 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. - Overdue debt and debt-service obligations that are in dispute will not be considered as external payment arrears for program purposes. ### I. Monetary, exchange rate, and interest rate data (selected items, reporting agency, periodicity) - Reporting agency: Bangladesh Bank (BB) - Examples of reported items with periodicity: - 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) 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 - Balance sheet of BB (form 10 G) — BB — Monthly, within six weeks of the end of each month - Balance sheet (aggregate) of commercial banks (form 20 G) — BB — Monthly, within six weeks of the end of each month - Monetary survey (form 30 G) — BB — Monthly, within six weeks of the end of each month ### II. Fiscal data (selected items, reporting agency, periodicity) - Reporting agency: Ministry of Finance (MOF), Finance Division (FD), Controller General of Accounts (CGA), National Bureau of Revenue (NBR), Economic Relations Division (ERD) - Examples: - Fiscal outturn, including financing of the overall fiscal balance — MOF (FD)/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 - Social spending (see Table 4) — MOF (FD)/CGA — Quarterly, within six weeks of the end of each quarter - Food account surplus/deficit — MOF (FD)/CGA — Monthly, within six weeks of the end of each month (quarterly for detailed data) - Annual Development Program (ADP) expenditure funded by (i) the central government and (ii) foreign grants and loans, included in the budget, including separately for Padma Bridge (domestically and externally funded) — 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 - 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 (ERD) — Monthly, within four weeks of the end of each month - Disbursements of program and project grants by donor — MOF (ERD) — Monthly, within four weeks of the end of each month - Domestic financing, comprising (i) borrowing from and repayment to BB, DMBs, and nonbanks; (ii) changes in deposits held in BB, DMBs, and other deposit-taking institutions (see Table 2) — MOF(FD)/CGA/BB — Monthly, within six weeks of the end of each month ### III. State-owned enterprise data - Reporting agency: MOF (FD/SOE Monitoring Unit)/BPC - See Table 3 on key financial indicators for Bangladesh Power Development Board (BPDB), Bangladesh Petroleum Corporation (BPC), and Bangladesh Chemical Industries Corporation (BCIC). - Periodicity: Quarterly, within six weeks of the end of each quarter ### IV. Debt data (selected items and periodicity) - Reporting agencies: MOF (ERD)/BB; MOF (FD)/BB/NSD - Examples: - New external debt obligations contracted and/or guaranteed (concessional and nonconcessional) by the public sector, including details on the amounts, terms, and conditions of each new obligation — 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 public sector, 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 public sector 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 instruments of the National Savings Directorate (i.e., National Savings Certificates) — MOF (FD)/BB/NSD — Monthly, within six weeks of the end of each month - Projections of daily individual oil-related payments by commercial banks. — BB — Monthly, two weeks in advance of the beginning of each month ### V. Financial data (selected items and periodicity) - Reporting agency: Bangladesh Bank (BB), Department of Off-Site Supervision (DOS) - Examples: - Financial soundness indicators of DMBs — BB (DOS) — Quarterly, within eight weeks of the end of the quarter - Compliance of state-owned commercial banks (SOCBs) with memoranda of understanding — BB (DOS) — Quarterly, within six weeks of the end of the quarter - Total capital market exposure and total share holding (in percent of total liabilities) of DMBs, and their exposures via subsidiaries — BB (DOS) — Monthly, within six weeks of the end of each month - Risk-weighted capital asset ratios and asset quality indicators of DMBs — BB (DOS) — Monthly, within six weeks of the end of each month - Stock of loans extended to SOEs (BPC, BPDB, BCIC) by SOCBs (Sonali, Agrani, Janata, Rupali) and BASIC bank, both funded and unfunded loans — BB (DOS) — Monthly, within four weeks of the end of each month ### VI. External data (selected items and periodicity) - Reporting agencies: BB/Other agencies - Examples: - Detailed balance of payments — BB — Monthly, within six weeks of the end of each month - 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 and manpower exports — BB/Bureau Manpower, Employment, and Training — Monthly, within two weeks of the end of each month ### VII. Other data (selected items and periodicity) - Reporting agency: Bangladesh Bureau of Statistics (BBS) - Examples: - National accounts, by expenditure and by production, in nominal and real terms — BBS — Annual, within three months of the end of each year - Overall consumer price index — BBS — Monthly, within six weeks of the end of each month - Industrial production statistics — BBS — Monthly, within eight weeks of the end of each month ### Table highlights and templates (selected numeric formats preserved) - Table 2: Components of Domestic Bank Financing of the Central Government — Item (in Tk millions) — Reporting agency: Bangladesh Bank — Periodicity: All quarterly - Table 3: Template for Key Financial Indicators of BPC, BPDB, and BCIC — Item (in Tk millions of taka) — Periodicity: All quarterly — Examples of items: Tax payments, due to the National Bureau of Revenue (NBR); Tax payments, paid to the NBR; Debt service payments, due to the government; Debt service payments, paid to the government; Quarterly profit (loss) reported by company; Transfers received from the budget; New interest-bearing loans received from the budget; Outstanding stock of funded loans from state-owned commercial banks (SOCBs) - Table 4: Bangladesh: Safety Net Programs — Program codes and ministries listed (examples include codes such as 3960, 3965, 3970, 4715, 3587, 3585, 3451, 0001, 0003, 0015, 0001, 0001, 0001, 0001, 0005, 0007, 5010, 0001, etc.) *International Monetary Fund — content as provided in the source excerpt* ### ANNEX I. GUIDELINES ON PERFORMANCE CRITERIA WITH RESPECT TO EXTERNAL ### ANNEX I. GUIDELINES ON PERFORMANCE CRITERIA WITH RESPECT TO EXTERNAL DEBT ### Definition of debt (Excerpt from Executive Board Decision No. 6230-(79/140), as amended) - Debt is defined as a current, i.e., not contingent, liability created under a contractual arrangement through the provision of value in the form of assets (including currency) or services, and which requires the obligor to make one or more payments in the form of assets (including currency) or services, at some future point(s) in time; these payments will discharge the principal and/or interest liabilities incurred under the contract. - Primary forms of debt: - (i) loans: advances of money to the obligor by the lender made on the basis of an undertaking that the obligor will repay the funds in the future (including deposits, bonds, debentures, commercial loans and buyers’ credits) and temporary exchanges of assets that are equivalent to fully collateralized loans (such as repurchase agreements and official swap arrangements); - (ii) suppliers’ credits: contracts where the supplier permits the obligor to defer payments until some time after the date on which the goods are delivered or services are provided; - (iii) leases: arrangements under which property is provided which the lessee has the right to use for one or more specified period(s) of time that are usually shorter than the total expected service life of the property, while the lessor retains the title to the property. For the purpose of the guideline, the debt is the present value (at the inception of the lease) of all lease payments expected to be made during the period of the agreement excluding those payments that cover the operation, repair or maintenance of the property. - Under this definition, arrears, penalties, and judicially awarded damages arising from failure to make payment under a contractual obligation that constitutes debt are debt. Failure to make payment on an obligation that is not considered debt under this definition (e.g., payment on delivery) will not give rise to debt. ### Statement by the IMF Staff Representative (April 5, 2012) - Indicative targets (preliminary data, end-March 2012): - Net international reserves: US$6.405 billion. - Net domestic assets of Bangladesh Bank: Tk 418 billion. - Reserve money: Tk 917 billion. - Data on other indicative targets at end-March are currently not available. - Recent developments (March 2012 observations): - Headline inflation: 10.1 percent (y/y) in March 2012, down from 10.4 percent in February 2012. - Electricity tariffs: weighted-average bulk and retail tariffs were raised on March 29, 2012 by 7½ and 6¼ percent, respectively, retroactively from March 1. - Workers’ remittances: US$1.1 billion in March 2012 and US$9.5 billion so far in FY12. ### Press Release No. 12/129 — IMF Executive Board decision (April 11, 2012) - ECF arrangement approved: - Total amount: SDR 639.96 million (about US$987 million). - Initial disbursement: SDR 91.423 million (about US$141 million). - Program purpose: - Support authorities’ program to restore macroeconomic stability, strengthen the external position, and engender higher, more inclusive growth. - Authorities committed to creating fiscal space, reinvigorating the financial sector, catalyzing additional resources to boost social- and development-related spending, tackle power shortages and infrastructure deficit, and stimulate export-oriented investment and job growth. - Summary of policy stance (statements by Mr. Naoyuki Shinohara, Deputy Managing Director and Acting Chair): - Macroeconomic pressures intensified since late 2010 due to a negative terms-of-trade shock, rising oil and infrastructure-related imports, and accommodative policies; more recent weakening in external demand and a surge in oil prices have further weakened the balance of payments and added to fiscal and inflationary pressures. - Program actions: - Upfront tightening of macroeconomic policies. - Structural reforms to strengthen tax policy and administration, public financial management, and financial sector oversight. - Moderate fiscal consolidation underpinned by tax modernization and subsidy rationalization to create fiscal space for social and development spending and to contain public debt. - Tightened monetary policy supported by greater exchange and interest rate flexibility; central bank committed to further measures if needed to bring inflation under control. - Trade liberalization and investment climate improvements to be pursued. - Expected outcomes: reduce imbalances, catalyze additional support from development partners, and put Bangladesh’s balance of payments on a sustainable path over the medium term. - Key macro projection included: - GDP growth is expected to slow to 5.5 percent in FY12. - Inflation expected to decline to single digits by end 2012. - Overall BOP projected to return to a surplus in FY13. - Reserves programmed to rise, reaching nearly three months of import cover by FY15. ### Program objectives — four reform pillars - Fiscal policy and reforms: - Moderate fiscal consolidation and sound debt management to underpin macro stability and create space for growth-critical spending. - Tax and public financial management reforms aimed at raising tax revenues, containing subsidy costs, and better targeting social safety nets. - Monetary and exchange rate policy: - Restrained monetary policy anchored by sound fiscal performance and exchange rate and interest rate flexibility to reduce aggregate demand pressures, stabilize inflation expectations, and rebuild reserves while allowing private sector credit growth. - Financial sector reforms: - Strengthened governance to better manage risks and support growth, including managerial and operational controls in banks (particularly state-owned), clear regulatory oversight responsibilities, and strong risk-based supervision. - Trade and investment reforms: - Over the medium term, reductions in trade barriers and distortions and improvements in the business climate to raise growth, supported by stable macroeconomic environment, tax and financial sector reforms, and expanded social and physical infrastructure. ### Statement by the Bangladesh Executive Director and Senior Advisor (April 5, 2012) — Recent macroeconomic developments and policy responses - Growth performance: - Average annual growth rate of 6.2 percent over the last 5 years. - Growth rates of 6.1 and 6.7 percent during FY10 and FY11 respectively. - Additional 3,300 MW of electricity added to the national grid between January 2009 and March 2012. - Progress on MDGs, particularly halving income-poverty between 1990 and 2010. - Emerging macro pressures: - Inflation in double digits; twelve-month average CPI rose from 7.3 percent in FY10 to 8.8 percent in FY11. - At end-February 2012, twelve-month average CPI is in the neighborhood of 11 percent; point-to-point inflation hit 10.4 percent. - Fiscal pressure from rising fuel, electricity and fertilizer subsidies despite strong NBR revenue growth; government borrowing from domestic banks rose significantly in first half of FY12. - Operational responses taken: - Containment of recurrent expenditure and reprioritization of development projects in FY12. - Circular issued in January 2012 to restrict taka-funding if shortfalls occur in externally-funded Annual Development Program (ADP) projects. - Administered price increases for fuel oil, compressed natural gas (CNG), and electricity several times. - Brent crude oil price noted: $125 per barrel on 27th March, 2012. - External sector developments: - Trade deficit: $ 7.3 billion in FY11. - Current account balance: surplus of $ 3.7 billion in June 2010 reduced to $ 462 million at the end of January 2012. - Gross international reserves (official basis): fallen from $11.3 billion in April 2011 to $ 9.3 billion in January 2012. - Exchange rate depreciation: 12.5 percent during the period June 2011 to February 2012. - Risks: reserves could slip below two months’ imports as import demand rises with higher investment needs in power, energy, and transport sectors. - Authorities’ view on adjustments: - Recent interest rate and exchange rate adjustments have positively impacted the balance of payments; remittance inflows have picked up following currency depreciation. - Recognition that restrained fiscal and monetary policies and strengthening the external position are necessary to maintain macro stability and improve growth prospects. - Authorities have formulated a three-year reform program (MEFP) centered on preserving macro stability and gradually rebuilding foreign exchange reserve buffers; five prior actions for year one of the ECF arrangement have been undertaken. ### Fiscal policy commitments and measures - Revenue targets and tax reforms: - Plan to increase revenue by 0.6-0.8 percent of GDP every year in the medium term to provide budgetary resources for social and physical infrastructure. - Adoption of a new tax regime, modernization of revenue administration, and initiatives to adopt new VAT and income tax laws. - Cabinet approval of new VAT legislation in March 2012; a draft bill to be submitted to the National Parliament by June 2012. - Proposals for removal of certain tax concessions and exemptions to be included in the FY13 Finance Bill. - NBR modernization plan (2011-16) includes process modernization, automation, upgrading systems, restructuring administration, taxpayer outreach and education, HR and institutional development, and an Alternate Dispute Resolution (ADR) mechanism. - Plans to establish dedicated Court branches for taxation issues. - Subsidy and energy price policy: - Fuel prices adjusted to contain fuel subsidy costs; plan to adopt an automatic adjustment formula to pass through changes in international prices. - Electricity tariff adjustments are being pursued. - Efforts to replace high-cost temporary rental power plants with cost-effective large power plants. *Source: Excerpt from the IMF documents contained in the provided content unit.* ### 11. Bangladesh Bank (BB) has raised its repo rate by 175 basis points over a year in ### _cr1294 - 11. Bangladesh Bank (BB) has raised its repo rate by 175 basis points over a year in ### Monetary policy and macro-framework - BB has raised its repo rate by 175 basis points over a year in pursuit of monetary tightening to bring down aggregate demand pressure and to contain inflation. - Caps on bank lending rates that were remaining were removed in January 2012. - Treasury bills and bond yields have been allowed to move according to market conditions. - Greater interest rate and exchange rate flexibility has been permitted to help effective monetary transmission. - BB is prepared to maintain the existing restrained monetary policy and to take further steps to strengthen liquidity management, backed by an appropriately tight fiscal policy. - BB will undertake further hikes in its repo and reverse repo rates, as necessary, and continue to channel most liquidity support through the emergency repo window (currently provided at 300 bps above the regular repo window). - BB will continue to allow greater exchange rate flexibility, to ensure orderly conditions in the foreign exchange market and facilitate external adjustment over the medium term. ### Financial sector policy and reforms - Authorities recognize the importance of strengthening the financial sector to reduce risks and support growth. - Commitments and actions: - Submit amendments to the Bank Companies Act (BCA) to the National Parliament by September 2012. - BB issued a set of guidelines in February 2012 to strengthen the risk management framework and processes of commercial banks. - Guidelines will encourage all commercial banks to maintain market-determined lending and deposit rates to facilitate monetary transmission and properly price risk. - BB will strictly enforce its cash reserves, liquid asset, and credit-to-deposit ratio requirements, disciplining banks found in violation of these standards. - Capital market and investor confidence measures: - Two stock exchanges (the Dhaka Stock Exchange & the Chittagong Stock Exchange) have submitted comprehensive concept papers detailing steps and legal requirements for demutualization. - The Securities and Exchange Commission (SEC) is currently examining the demutualization model and plan. - Commitments to reduce bank exposure to the capital market, supervise merchant bank subsidiaries, ensure compliance by banks to reduced margin lending, and enforce collateral requirements. ### Access to IMF resources and program request - The Bangladesh Government has drawn up a Vision-2021 program aimed to raise growth rates to 8 percent by 2015 and to 10 percent by 2021, with objectives to reduce poverty and lower unemployment. - Authorities indicate recent BoP pressures are due to insufficient external resource inflows to support public and private investment demand required for the Vision-2021 trajectory. - Request to IMF: - Authorities request access to Fund resources under an ECF in the amount of SDR 639.96 million (120 percent of quota) over a three-year period to meet in part the BOP financing needs and to provide a buffer against shocks until the policy adjustments and reform measures take hold. - Commitments associated with the request: - Confirmed commitment to implement the policies as outlined in the MEFP. - Expectation to secure support from other development partners to meet overall financing needs. - Preparedness to take further measures, as appropriate, to achieve program objectives. - Will maintain a close policy dialogue with the IMF and pursue technical assistance, as necessary, from the IMF and other development partners in support of the reform agenda. - Authorities request Directors to support their planned program and authorize publication of the Letter of Intent and its attachments, as well as the accompanying staff report. *Source: IMF staff report content provided in the supplied PDF excerpt.* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2012/_cr1294.pdf_