IMF Executive Board Concludes 2017 Article IV Consultation with Bangladesh
IMF News, June 8, 2017
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- Published: June 8, 2017
Overview and recent macroeconomic performance
- On May 26, 2017, the Executive Board of the International Monetary Fund (IMF) concluded the 2017 Article IV Consultation with Bangladesh, and considered and endorsed the staff appraisal without a meeting.
- Steady monetary policy management and fiscal discipline supported macroeconomic stability, allowing the economy to benefit from favorable external demand, high remittances, and low commodity prices.
- Resulting outcomes cited:
- Strong output growth.
- Falling inflation.
- Moderate public debt.
- Rebuilding of external resilience.
- FY16 outcomes:
- Real GDP growth accelerated to 7.1 percent, from 6½ percent in the previous fiscal year.
- Headline inflation fell below 6 percent by the end of 2016.
- International reserves rose further.
- Public debt-to-GDP ratio remained largely stable at a moderate level.
- Revenues-to-GDP ratio increased moderately.
- Strengthening of growth supported by moderate acceleration of money supply and credit to the private sector.
Outlook and projections
- FY17:
- Output growth is expected to remain close to 7 percent.
- Inflation is projected to increase somewhat from the lowest level in five years as global commodity prices pick up, but is projected to remain close to the target rate of the Bangladesh Bank given moderate money and credit growth, stable inflation expectations, and temperate private wage growth.
- Medium term:
- Maintaining output growth of around 7 percent per year would require increased public and private investment, reforms to support capital market development, and improved investment efficiency.
- Higher investment is expected to lead to higher investment-related imports, pushing the current account into a modest but manageable deficit.
- Fiscal policy measures noted:
- Planned launch of the modern value added tax (VAT) in July 2017 and improvements in tax administration are expected to boost tax revenues, providing space for increased public investment and social spending.
Executive Board assessment and recommendations
- General assessment:
- Executive Directors commended the authorities for continued strong macroeconomic performance: stable and robust growth, improved social indicators, lower inflation, rising external reserves, and moderate fiscal deficits.
- Directors noted that maintaining output growth would become more challenging and requires prudent macroeconomic policies and upgrades to macroeconomic policy-making practices and institutions to support the country’s ambition to reach middle-income status.
- Monetary policy:
- Directors commended the Bangladesh Bank for prudent monetary policy conduct.
- Observations:
- Inflation has been reduced and is likely to remain close to the Bank’s target.
- Broad money growth is in line with the Bank’s target.
- The exchange rate has been consistent with maintaining competitiveness and rebuilding reserve buffers.
- Concern and recommendation:
- The Bangladesh Bank has been sterilizing only part of the liquidity from external inflows; Directors called for increased sterilization efforts to contain financial sector risks and to avoid a more abrupt and disruptive policy tightening in the future.
- Directors broadly concurred with staff that monetary policy is better placed to manage short-term demand fluctuations, and that fiscal policy should focus on keeping the public debt to GDP ratio broadly stable.
- Fiscal policy, revenue mobilization, and budget credibility:
- Directors welcomed the authorities’ commitment to launch the modern VAT on July 1, 2017.
- Emphasis that mobilizing domestic revenue should be a policy priority to allow increases in public investment and strengthening of social safety nets.
- In addition to modernizing the VAT, Directors emphasized continuing efforts to improve the income tax regime and to strengthen tax administration.
- Directors noted the FY17 budget was based on overly ambitious projections for revenue growth and equally ambitious capital spending targets, and that actual outcomes usually deviate significantly from budget targets.
- Recommendation to improve the credibility of the budgeting process by improving budget formulation and execution.
- Financial market and savings instruments:
- For reaching middle-income status, Directors underscored the need to boost investment and to modernize policy-making practices and institutions, highlighting the pivotal role of developing capital markets to improve intermediation of underutilized savings over longer horizons.
- Directors called on authorities to reduce increasing reliance on high-cost National Savings Certificates as a financing vehicle for the government budget.
- Recommendation that better targeted and less costly alternatives be considered to achieve social policy goals without distorting financial markets.
Key statistics and selected indicators (FY2013–17, as presented)
- I. Social and Demographic Indicators
- Population (FY16, millions; estimate): 161
- Infant mortality (2015, per thousand live births): 31
- GDP per capita (FY16, U.S. dollars): 1357
- Life expectancy at birth (2014, years): 72
- Labor force participation rate (FY10, percent; national measure): 59
- Adult literacy (2015, percent of people): 62
- Poverty headcount ratio (2010, national measure, percent): 32
- Population dependency ratio (2015, percent): 52
- Gini index (World Bank estimate):
- Population growth (FY16, y/y, percent; estimate): 1.3
- II. Macroeconomic Indicators (annual percent change / percent of GDP / levels)
- Real GDP:
- FY13: 6.0
- FY14: 6.1
- FY15: 6.6
- FY16: 7.1
- FY17 Est.: 6.8 (Staff proj.)
- GDP deflator:
- FY13: 7.2
- FY14: 5.7
- FY15: 5.9
- FY16: 7.0
- CPI inflation (annual average):
- FY13: 7.3
- FY14: 6.4
- CPI inflation (end of period):
- FY13: 8.1
- FY14: 6.3
- FY15: 5.5
- Nonfood CPI inflation (end of period):
- FY13: 7.7
- FY14: 5.4
- FY15: 6.2
- FY16: 5.2
- Central government operations (percent of GDP):
- Total revenue and grants:
- FY13: 11.2
- FY14: 10.9
- FY15: 9.9
- FY16: 10.4
- FY17 Est.: 10.8
- Total revenue:
- FY13: 10.7
- FY14: 9.6
- FY15: 10.3
- FY16: 10.6
- Tax:
- FY13: 9.0
- FY14: 8.6
- FY15: 8.5
- FY16: 8.8
- FY17 Est.: 9.1
- Nontax:
- FY13: 1.8
- FY14: 1.1
- FY15: 1.5
- Grants:
- FY13: 0.5
- FY14: 0.3
- FY15: 0.1
- FY16: 0.2
- Total expenditure:
- FY13: 14.6
- FY14: 14.0
- FY15: 13.8
- FY16: 15.6
- Current expenditure:
- FY13: 8.3
- FY14: 8.2
- FY15: 7.8
- FY16: 9.4
- Annual Development Program (ADP):
- FY13: 4.2
- FY14: 4.1
- FY15: 4.3
- FY16: 4.4
- Other expenditures 2/:
- FY13: 2.1
- FY14: 1.7
- Overall balance (including grants):
- FY13: -3.4
- FY14: -3.1
- FY15: -3.9
- FY16: -4.7
- (Excluding grants):
- FY13: -3.5
- FY14: -4.2
- FY15: -4.9
- Primary balance (excluding grants):
- FY13: -1.9
- FY14: -1.5
- FY15: -2.1
- FY16: -1.6
- FY17 Est.: -2.8
- Total central government debt (percent of GDP):
- FY13: 34.5
- FY14: 33.9
- FY15: 33.1
- FY16: 33.7
- Money and credit (end of fiscal year; percent change):
- Credit to private sector by the banking system:
- FY13: 12.3
- FY14: 13.2
- FY15: 16.8
- Reserve money 3/:
- FY13: 15.0
- FY14: 15.4
- FY15: 14.3
- FY16: 30.1
- Broad money (M2):
- FY13: 16.7
- FY14: 16.1
- FY15: 12.4
- FY16: 16.3
- FY17 Est.: 15.1
- Balance of payments (billions of U.S. dollars):
- Exports, f.o.b.:
- FY13: 26.6
- FY14: 29.8
- FY15: 30.7
- FY16: 33.4
- FY17 Est.: 35.3
- (Annual percent change):
- FY13: 12.1
- FY14: 3.1
- FY15: 8.9
- FY16: 5.6
- Imports, f.o.b.:
- FY13: -33.6
- FY14: -36.6
- FY15: -37.7
- FY16: -39.7
- FY17 Est.: -43.3
- Current account balance 4/ (billions of U.S. dollars):
- FY13: 0.8
- FY14: 3.0
- FY15: 2.4
- FY16: 1.4
- FY17 Est.: 2.9
- FY16: 3.7
- FY17 Est.: -0.9
- (Percent of GDP):
- FY13: 1.6
- FY14: -0.4
- Capital and financial account balance:
- FY13: 3.5
- Of which : Foreign direct investment:
- FY13: 2.0
- Overall balance:
- FY13: 5.1
- Gross official reserves (billions of U.S. dollars) 5/:
- FY13: 21.4
- FY14: 24.9
- FY15: 30.2
- FY16: 32.3
- In months of prospective imports of goods and services:
- FY13: 5.8
- FY14: 6.5
- Exchange rate (taka per U.S. dollar; period average):
- FY13: 79.9
- FY14: 77.7
- FY15: 79.3
- Exchange rate (taka per U.S. dollar; end-period):
- FY13: 77.8
- FY14: 77.6
- FY15: 81.3
- Nominal effective rate (2010=100; period average):
- FY13: 86.9
- FY14: 89.7
- FY15: 95.4
- FY16: 100.4
- Real effective rate (2010=100; period average):
- FY13: 99.3
- FY14: 107.7
- FY15: 120.4
- FY16: 132.7
- Memorandum item:
- Nominal GDP (billions of taka):
- FY13: 11,989
- FY14: 13,437
- FY15: 15,158
- FY16: 17,296
- FY17 Est.: 19,764
Italicized: IMF Communications Department press release, June 8, 2017.