IMF Staff Completes 2019 Article IV Visit to Bangladesh

IMF News, June 27, 2019

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IMF staff team led by Mr. Daisaku Kihara visited Dhaka from June 16-27 to hold discussions on the 2019 Article IV Consultation with Bangladesh.
End-of-Mission press release conveys preliminary findings of IMF staff; views are those of IMF staff and do not necessarily represent the views of the IMF’s Executive Board.

FY2018: robust private consumption pushed real GDP growth close to 8 percent.
Recent developments: inflation increased slightly, due mainly to higher food prices; export growth has picked up recently driven by the ready-made garments sector; remittance inflows have strengthened; current account deficit narrowed despite higher imports of capital goods.
FY2019/20 projection: macroeconomic performance is set to remain strong, with growth projected at above mid-7 percent and inflation close to the central bank’s target.

Monetary policy should be geared toward containing risks to the inflation outlook arising from:
- higher global oil prices,
- rapid economic growth, and
- elevated inflation expectations.
Continuous efforts to control the issuance of National Savings Certificates should:
- support deepening of the capital market, and
- reduce budget interest payments.

Fiscal policy guidance:
- Keep the public debt ratio stable by strengthening revenue mobilization and containing spending pressures from higher subsidies.
- Improve public investment management.
Rohingya refugee crisis: fiscal pressures appear limited so far, but continued financial support from donors remains essential.
Public investment management priority: better project appraisal and selection and alignment of public investment priorities with national and sectoral plans.

Implementation of the new VAT law in FY 2020 is a step toward modernization, but its revenue impact is uncertain because of multiple rates and implementation challenges.
Recommended tax policy actions:
- Continue efforts to increase tax revenues.
- Focus tax policy reforms on tax base broadening and ensuring tax compliance.
- Modernize the organizational structure of the National Board of Revenue to improve coordination and efficiency.

The financial situation in the banking sector continues to deteriorate despite strong growth.
Resolutely addressing the high level of non-performing loans is essential to mitigate financial stability risks and associated fiscal risks.
A comprehensive, credible, and time-bound action plan could notably focus on:
- strengthening banking sector supervision and avoiding regulatory forbearance;
- a close assessment of banking sector assets;
- tighter criteria and limited use of rescheduling/restructuring of loans;
- improving corporate governance;
- reforming the legal system to strengthen creditor rights;
- redefining the role and mandate of state-owned commercial banks;
- developing bank crisis management and resolution mechanisms.

Reform priorities to reach upper middle-income status and preserve growth resilience:
- (i) reducing elevated banking sector vulnerabilities;
- (ii) creating fiscal space to address social needs, infrastructure requirements, and climate change vulnerabilities;
- (iii) diversifying the economy by strengthening the business environment through improved governance.
Diversification recommendations:
- Move into more complex products to spur integration into global value chains and make exports more robust to changes in global demand patterns.
- Improve the business environment and strengthen frameworks to limit vulnerability to corruption.

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.
The team met with the Bangladesh Bank Governor, the Finance Secretary, the Chairman of the National Board of Revenue, other senior officials, members of Parliament, representatives of the business and banking sectors, labor unions, think tanks, and development partners.

IMF Communications Department, June 27, 2019.