IMF Executive Board Concludes 2019 Article IV Consultation with Bangladesh
IMF News, September 18, 2019
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- Published: September 18, 2019
Summary of findings
- On September 9, 2019, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Bangladesh.
- Bangladesh continues to achieve impressive economic growth and social development, including steady progress in reducing income poverty and improving many Sustainable Development Goal indicators.
- Rapid expansion of the Ready-Made Garment (RMG) sector contributed to the economy’s transformation toward manufacturing, and large inflows of remittances strengthened the external position and supported private consumption.
- Slow progress in resolving the Rohingya refugee crisis could add to social tensions and spending pressures; donor support will remain essential.
Economic performance (FY18 and recent developments)
- Real GDP growth increased to 7.9 percent in FY18.
- Private consumption growth was exceptionally strong, influenced by the rebound in remittances and exports growth.
- Average annual inflation picked up slightly to 5.8 percent in FY18, due mainly to higher food prices.
- The current account deficit expanded to 3½ percent of GDP with higher import growth, reflecting the need for capital goods due to mega infrastructure projects and temporary flood-related food imports.
- Bangladesh Bank kept inflation broadly stable; however, inflation expectations remained elevated.
Outlook and projections (FY19–FY20)
- Growth is projected to be strong at above mid-7 percent in FY19 and FY20.
- After a slowdown in private investment prior to the December election, robust growth is expected, led by private consumption with strong remittance inflows and smaller negative contributions from net exports.
- Average annual inflation is expected to close to the central bank’s 5½ percent target, though non-food inflation slightly picked up over the last few months.
- The current account deficit is projected to decline to around 2 percent of GDP with strong export and remittance growth.
Executive Board assessment — policy recommendations and concerns
- Commendations:
- Directors commended the authorities for strong and stable economic performance, reduced income poverty, and improving social indicators.
- Directors commended Bangladesh Bank for keeping inflation broadly stable.
- Directors welcomed the authorities’ effort to address vulnerability to climate change and natural disasters.
- Monetary and exchange rate policy:
- Urged Bangladesh Bank to monitor inflation developments closely and stand ready to adjust policy promptly if warranted.
- Encouraged gradual increase in exchange rate flexibility to buffer external shocks, preserve foreign reserves, and support modernization of the monetary policy framework.
- Fiscal policy and revenue mobilization:
- Commended fiscal discipline and urged keeping the public debt ratio broadly stable.
- Stressed the need to step up efforts to increase revenues to finance infrastructure upgrades, support the vulnerable, and meet potential climate change costs.
- Highlighted expanding the tax base by reducing exemptions and modernizing tax administration.
- Welcomed the launch of the new VAT and noted that simplifying multiple rates would facilitate administration and improve revenue intake.
- Financial sector:
- Expressed concern about weak banking sector performance, including high nonperforming loans and rising restructured and rescheduled loans.
- Called for resolute steps: enhance banking regulation and supervision; reform state‑owned commercial banks; tighten criteria for loan rescheduling and restructuring; strengthen banks’ corporate governance; and enhance legal systems to accelerate loan recovery.
- Encouraged development of a well‑functioning capital market to reduce dependence on bank financing.
- Welcomed ongoing reform of the National Savings Certificates system and called for further steps, including reform of the pricing mechanism.
- Public financial management and governance:
- Underscored the importance of improvements in public financial management and strengthening governance for continued growth.
- Highlighted better public investment management and tax administration, and welcomed revision of the medium‑term debt management strategy.
- Urged continued progress in strengthening the AML/CFT framework.
- Structural policies and exports:
- Emphasized greater export diversification for stronger and more sustainable growth.
- Noted that improving the business environment and boosting human capital would help integration into global value chains and make exports more resilient.
- Climate change:
- Recommended continued efforts to create fiscal space for adaptation and mitigation, managing natural disaster impacts, and promoting climate‑friendly investments.
Key statistics (selected indicators from Table 1)
- Social and Demographic Indicators
- Population (2017, millions; estimate): 165
- Infant mortality (2016, per thousand live births): 28.0
- GDP per capita (2017, U.S. dollars): 1517
- Life expectancy at birth (2016, years): 71.6
- Labor force participation rate (2017, percent; national measure): 58
- Adult literacy (2016, percent of people): 73.0
- Poverty headcount ratio (2016, national measure, percent): 24
- Population dependency ratio (2017, percent): 50.0
- Gini index (2016,World Bank estimate): 32
- Population growth (FY16, y/y, percent; estimate): 1.1
- Macroeconomic Indicators (select series; annual percent change unless noted)
- Real GDP: FY13 6.6; FY15 7.1; FY16 7.3; FY17 7.9; FY18 8.0; FY19 7.6 (Staff proj.); FY20 …
- GDP deflator: FY13 5.9; FY15 6.7; FY16 6.3; FY17 5.6; FY18 5.8
- CPI inflation (annual average): FY13 6.4; FY15 5.4; FY16 5.5
- Central government operations (percent of GDP) — Total revenue and grants: FY13 9.8; FY15 10.1; FY16 10.2; FY17 9.7; FY18 9.9; FY19 …
- Total revenue: FY13 9.6; FY15 10.0
- Tax: FY13 8.5; FY15 8.8; FY16 9.0; FY17 8.6; FY18 9.1
- Total expenditure: FY13 13.8; FY15 13.4; FY16 13.6; FY17 14.3; FY18 14.8; FY19 15.1
- Annual Development Program (ADP): FY13 4.3; FY15 4.4; FY16 4.1; FY17 5.3; FY18 5.2
- Overall balance (including grants): FY13 -4.0; FY15 -3.4; FY16 -3.3; FY17 -4.6; FY18 -4.8
- Primary balance (excluding grants): FY13 -2.1; FY15 -1.6; FY16 -1.7; FY17 -2.8; FY18 -3.1
- Total central government debt (percent of GDP): FY13 33.7; FY15 33.3; FY16 32.6; FY17 34.0; FY18 34.6; FY19 35.2
- Credit to private sector by the banking system (end of fiscal year; percent change): FY13 13.2; FY15 16.8; FY16 15.7; FY17 16.9; FY18 15.2; FY19 14.2
- Reserve money (percent change): FY13 30.1; FY15 16.3; FY16 4.0; FY17 13.9
- Broad money (M2) (percent change): FY13 12.4; FY15 10.9; FY16 9.2; FY17 12.7
- Exports, f.o.b. (billions of U.S. dollars): FY13 30.7; FY15 33.4; FY16 36.2; FY17 40.7; FY18 44.1
- Imports, f.o.b. (billions of U.S. dollars): FY13 -37.7; FY15 -39.9; FY16 -43.5; FY17 -54.5; FY18 -56.9; FY19 -61.5
- Current account balance (billions of U.S. dollars): FY13 3.5; FY15 -1.3; FY16 -9.8; FY17 -5.9; FY18 -6.9
- Current account (Percent of GDP): FY13 1.8; FY15 1.9; FY16 -0.5; FY17 -3.6; FY18 -2.0
- Capital and financial account balance (billions of U.S. dollars): FY13 2.4; FY15 1.4; FY16 4.6; FY17 9.4
- Gross official reserves (billions of U.S. dollars): FY13 24.9; FY15 30.2; FY16 33.5; FY17 33.0
- In months of prospective imports of goods and services: FY13 6.5; FY15 7.2
- Exchange rate (taka per U.S. dollar; period average): FY13 77.7; FY15 78.3; FY16 79.1; FY17 82.1
- Exchange rate (taka per U.S. dollar; end-period): FY13 77.8; FY15 78.4; FY16 80.6; FY17 83.7
- Nominal GDP (billions of taka): FY13 15,158; FY15 17,329; FY16 19,758; FY17 22,505; FY18 25,706; FY19 29,276
Source: Press Release No. 19/337, IMF Communications Department, September 18, 2019.
