Bangladesh: Building a Strong and Inclusive Economy
IMF News, June 8, 2018
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- Published: June 8, 2018
Growth and structural transformation
- Bangladesh is undergoing a transformation from a low-income to a middle-income economy.
- Growth projected at around 7 percent for 2018.
- Growth has averaged more than 6 percent over the last decade, significantly lifting per capita income.
- The economy has diversified away from an agrarian base toward manufacturing, with rapid growth in the ready-made garment industry.
- Social indicators improved: poverty has declined steadily; gender disparity in education and maternal mortality have improved.
IMF assessment and key recommendations
- Boost productive investment by addressing infrastructure bottlenecks (roads and electricity coverage) and strengthening the banking sector to sustain growth momentum.
- Priority tax reform:
- Implement the delayed value-added tax, preferably with a single rate, reaching a broad base.
- Strengthen tax administration and improve tax compliance with online registration and filing of tax returns.
- Fiscal context:
- Tax revenues currently low at 9 percent of GDP.
- Comparable benchmark: average tax revenue to GDP ratio for non-resource rich, low-income countries is around 15 percent.
Rohingya refugee crisis and economic implications
- Bangladesh welcomed close to 700,000 refugees in a very short period.
- Economic and budgetary impact has been limited so far, helped by international attention and financial support.
- Risks and challenges going forward:
- Spending pressures could increase.
- Need to reduce risk of flooding and landslides in refugee camps as the monsoon approaches.
- Maintain cooperative relations with host communities.
- Provide key social services and infrastructure.
Banking sector health and policy actions
- Banks remain the main source of financing for companies; their ability to extend credit at reasonably priced terms is important to keep growth strong.
- Current concerns:
- Non-performing loans continue to increase, particularly in state-owned commercial banks.
- Room for improvement in balance sheets and operational efficiency.
- Recommended measures:
- Strengthen banks’ internal control and governance.
- Expedite loan recovery procedures.
- Improve creditors’ rights with a more effective legal system.
- Regulators should enforce existing regulatory standards resolutely and deal promptly with noncompliant banks.
Financial inclusion and outreach
- Bangladesh has been a pioneer in financial inclusion: microfinance, mobile financial services, and agent-based banking notable.
- Authorities’ measures:
- Promote lending for small and medium-sized enterprises and women entrepreneurs.
- Require that banks open at least fifty percent of their branches in rural areas.
- Outcomes:
- Improved ratio of bank deposit accounts in the adult population.
- Increased credit provided to small and medium-sized enterprises run by women.
- Growth in the number of women entrepreneurs and active mobile money accounts.
- The forthcoming National Financial Inclusion Strategy will carry forth this momentum.
IMF Country Focus interview with Daisaku Kihara, IMF mission chief for Bangladesh; June 8, 2018.