IMF Staff Completes 2017 Article IV Mission to Bangladesh
IMF News, March 9, 2017
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Bibliographic details
- Published: March 9, 2017
Mission and contacts
- Press Release No. PR17/77
- Mission dates: February 26-March 9
- Mission leader: Mr. Brian Aitken
- IMF Communications Department — PRESS OFFICER: Keiko Utsunomiya; Phone: +1 202 623-7100; Email: MEDIA@IMF.org
- Meetings held with: Finance Secretary; Bangladesh Bank Governor; Executive Chairman Bangladesh Investment Development Authority; Secretary Bank and Financial Institutions Division; Chairman National Board of Revenue; other senior officials; representatives of the business and banking sectors, labor unions, think tanks and development partners.
Key findings and macroeconomic assessment
- Solid macroeconomic performance has been delivered by steady monetary policy management and fiscal discipline.
- Drivers of recent performance:
- favorable external demand
- high remittances
- low commodity prices
- Observed outcomes:
- strong output growth
- falling inflation
- moderate public debt
- a rebuilding of external resilience
- Outlook statement by mission leader Brian Aitken:
- “This solid macroeconomic performance is set to continue this year, with output growth projected to remain close to current levels and inflation broadly in line with Bangladesh Bank’s target.”
Economic outlook and medium-term challenge
- Short-run projection:
- Output growth projected to remain close to current levels.
- Inflation projected to be broadly in line with Bangladesh Bank’s target.
- Medium-term challenge:
- Maintaining past growth performance will become increasingly challenging over the medium term and will require upgrading macroeconomic policy-making practices and institutions to support the ambition to reach middle-income status.
Risks and vulnerabilities
- Continued reliance on exports and remittances for growth exposes the economy to the changing external environment.
- Importance of external buffers:
- Foreign exchange reserves buffers built over the last several years need to be maintained at levels adequate to ensure the economy’s resilience.
- Financial sector impediments:
- Increasing reliance on high-cost National Savings Certificates (NSCs) as a financing vehicle for the government budget impedes development of a deep and liquid market for government securities and constrains long-term financial intermediation.
Policy recommendations and reform priorities
- Preserve macroeconomic stability and contain risks:
- Maintain fiscal discipline and steady monetary policy management.
- Maintain competitiveness and build buffers:
- Continue to maintain adequate foreign exchange reserve buffers to guard against global uncertainties and shocks.
- Mobilize revenue and protect fiscal sustainability:
- Modernize the tax system to boost Bangladesh’s low budget revenue and allow room for public investment and social spending consistent with growth ambitions without compromising fiscal sustainability.
- Launch the new VAT Law in July 2017 as planned; expected benefits include:
- central role in raising revenue
- more transparent tax administration
- reduced taxpayers’ compliance costs
- serving as a key building block for a modern tax system
- Develop financial markets and intermediation for long-term investment:
- Step up intermediation of the underutilized pool of savings over longer horizons.
- Develop capital markets to finance long-term private investment as commercial banks’ ability to perform this function will remain limited.
- Consider better targeted and less costly alternatives to NSCs that achieve social policy goals without distorting financial markets.
- IMF support offer:
- The IMF stands ready to support the government’s reform efforts through policy advice and capacity building, including on monetary and fiscal policies, financial sector supervision and regulation, and macroeconomic statistics.
IMF Press Release No. PR17/77, March 9, 2017.