IMF Executive Board Concludes 2021 Article IV Consultation with Bangladesh
IMF News, March 3, 2022
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- Published: March 3, 2022
Overview
- The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Bangladesh on March 2, 2022.
- Since 2010, per capita real GDP growth averaged 5 percent annually, contributing to a steady decline in poverty and increasing access to education and healthcare.
- Bangladesh met the UN criteria to graduate from the category of Least Developed Countries in February 2021.
- The authorities announced support packages worth Tk 1.9 trillion (or 6 percent of GDP) to address the economic fallout of the pandemic.
Recent macroeconomic developments
- GDP growth:
- FY20: 3.5 percent (reflecting sharp contraction in exports, remittances, and imports, and a nation-wide lockdown).
- FY21 (estimate): 5.0 percent (supported by a rebound in exports, high take-up of stimulus packages by the export sector, and a partial exemption of the RMG sector from second-round lockdowns).
- External sector:
- Current account (CA) deficit: FY20: 1.7 percent of GDP; FY21: 1.3 percent of GDP (remittances surpassed pre-crisis levels).
- Pandemic response and vaccination:
- Authorities reacted quickly and decisively with fiscal support and suspended low-priority capital projects to create space for support.
- Vaccination progress: “Vaccination, dragged down by initial supply shortages, is catching up.”
- Macroeconomic outcomes in recent years:
- Inflation: generally stable.
- Debt-to-GDP: low.
- External buffers: adequate.
Projections and risks
- Growth and inflation projections:
- FY22: Growth expected to pick up to 6.6 percent.
- FY22: Headline CPI inflation projected to rise to 5.9 percent driven by higher international commodity prices.
- Fiscal and external projections:
- Fiscal deficit: projected to peak at 6.1 percent of GDP in FY22 as pandemic-related spending increases.
- Current account deficit: projected to widen to 2.4 percent of GDP in FY22 as imports rebound and remittances moderate.
- Outlook and risks:
- The uncertainty around the outlook is high and risks are tilted to the downside.
Executive Board assessment and policy recommendations
- Commendations and overall assessment:
- Directors commended prompt and decisive policy response to the pandemic that facilitated a faster recovery.
- Directors recognized impressive economic growth and social development but noted risks from the uncertain path of the pandemic, low vaccination rates, and vulnerabilities to climate change.
- Directors noted that Bangladesh’s capacity to repay the Fund remains sound and that fiscal prudence has helped maintain a low risk of debt distress.
- Fiscal policy recommendations:
- Modernize revenue administration and implement tax policy reforms to raise revenues for sustainable increases in development, social, and climate spending.
- Accompany revenue measures with measures to rationalize spending and improve spending efficiency.
- Monetary and exchange rate policy recommendations:
- Closely monitor inflation developments and stand ready to normalize monetary policy.
- Phase out caps on interest rates to improve credit allocation.
- Continue modernizing the monetary policy framework and gradually increase exchange rate flexibility.
- Safeguard reserves coverage and avoid using reserves for nonmonetary purposes.
- Banking sector and financial stability recommendations:
- Exit COVID-19 policies in a timely and orderly way, monitor bank asset quality closely, and ensure adequate capital buffers.
- Strengthen banking regulation and supervision, improve corporate governance, and reform legal systems to stem high non-performing loans, particularly in state-owned commercial banks.
- Implement recommendations of the 2021 safeguards assessment and further strengthen the AML/CFT framework.
- Further develop capital markets and strengthen governance to attract private financing.
- Publish completed audits related to COVID-19 spending without further delay.
- Structural and climate-related recommendations:
- To lift growth potential, focus structural policies on diversifying exports, increasing FDI, enhancing productivity, investing in human capital, and addressing corruption.
- Continue building resilience to climate change and natural disasters, including allocating budgetary support for climate adaptation, and undertake reforms to help catalyze climate financing.
Selected economic indicators (highlights from Table 1)
- Social and demographic indicators:
- Population (2020, millions; estimate): 165
- Infant mortality (2016, per thousand live births): 28.0
- GDP per capita (2020, U.S. dollars): 1962
- Life expectancy at birth (2016, years): 71.6
- Labor force participation rate (2017, percent; national measure): 58.4
- Adult literacy (2016, percent of people): 73.0
- Poverty headcount ratio (2019, national measure, percent): 20.5
- Population dependency ratio (2017, percent): 50.0
- Gini index (2016,World Bank estimate): 32.1
- Population growth (FY20, y/y, percent; estimate): 1.0
- Macroeconomic indicators (selected annual percent change and ratios):
- Real GDP:
- FY18: 7.9
- FY19: 8.2
- FY20: 3.5
- FY21 (Est.): 5.0
- FY22 (Proj.): 6.6
- FY23 (Proj.): 7.1
- CPI inflation (annual average):
- FY18: 5.5
- FY19: 5.9
- Central government operations (percent of GDP):
- Total revenue and grants: FY18: 10.4; FY19: 9.5; FY20: 9.8; FY21: 10.9; FY22: 10.8
- Total expenditure: FY18: 15.2; FY19: 15.7; FY20: 15.4; FY21: 15.1; FY22: 16.9; FY23: 16.5
- Overall balance (including grants): FY18: -4.8; FY19: -6.3; FY20: -5.6; FY21: -4.2; FY22 (Proj.): -6.1; FY23 (Proj.): -5.7
- Primary balance (excluding grants): FY18: -3.0; FY19: -4.4; FY20: -3.6; FY21: -1.9; FY22: -3.7
- Total central government debt (percent of GDP): FY18: 34.6; FY19: 36.1; FY20: 39.5; FY21: 41.4; FY22: 42.5; FY23: 42.7
- Money and credit (end of fiscal year; percent change):
- Credit to private sector by the banking system: FY18: 17.0; FY19: 11.3; FY20: 8.3; FY21: 11.6; FY22: 11.5
- Reserve money: FY18: 4.0; FY19: 15.5; FY20: 22.3; FY21: 10.0; FY22: 13.7
- Broad money (M2): FY18: 9.2; FY19: 12.7; FY20: 13.6; FY21: 15.0
- Balance of payments (billions of U.S. dollars / percent of GDP):
- Exports, f.o.b.:
- FY18: 36.3
- FY19: 39.6
- FY20: 36.9
- FY21: 43.2
- FY22 (Proj.): 44.6
- Annual percent change: FY18: 6.7; FY19: 9.1; FY20: -18.9; FY21: 14.9; FY22: 3.3
- Imports, f.o.b. (billions of U.S. dollars):
- FY18: -54.5
- FY19: -55.4
- FY20: -50.7
- FY21: -60.7
- FY22: -67.8
- FY23: -71.0
- Annual percent change: FY18: 25.2; FY19: -8.6; FY20: 19.7; FY21: 11.7; FY22: 4.7
- Current account balance (billions of U.S. dollars):
- FY18: -9.6
- FY19: -4.5
- FY20: -5.4
- FY21: -4.6
- FY22: -9.4
- FY23: -11.3
- (Percent of GDP): FY18: -3.5; FY19: -1.5; FY20: -1.7; FY21: -1.3; FY22: -2.4; FY23: -2.6
- Gross official reserves (billions of U.S. dollars) 2/:
- FY18: 32.9
- FY19: 32.7
- FY20: 36.0
- FY21: 46.4
- FY22 (Proj.): 47.7
- FY23 (Proj.): 45.5
- In months of prospective imports of goods and services: FY18: 6.5; FY19: 7.0; FY20: 6.9
- Exchange rate:
- Taka per U.S. dollar; period average: FY18: 82.1; FY19: 84.0; FY20: 84.8
- Taka per U.S. dollar; end-period: FY18: 83.7; FY19: 84.5; FY20: 84.9
- Memorandum item:
- Nominal GDP (billions of taka): FY18: 22,505; FY19: 25,425; FY20: 27,393; FY21: 30,284; FY22 (Proj.): 34,086; FY23 (Proj.): 38,610
IMF Press Release No. 22/57 — "IMF Executive Board Concludes 2021 Article IV Consultation with Bangladesh" (March 3, 2022).