IMF Executive Board Concludes 2021 Article IV Consultation with Bangladesh

March 3, 2022

Washington, DC : The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] with Bangladesh on March 2, 2022.

Bangladesh has made substantial progress in its first 50 years of independence. Since 2010, per capita real GDP growth, averaging 5 percent annually, has resulted in a steady decline in poverty, with increasing access to education and healthcare. Bangladesh met the UN criteria to graduate from the category of Least Developed Countries in February 2021. Macroeconomic policies in recent years have been successful in keeping inflation stable, debt-to-GDP low, and external buffers adequate.

The authorities reacted quickly and decisively to address the economic fallout of the pandemic. Entering the crisis with macroeconomic stability, the authorities announced support packages worth Tk 1.9 trillion (or 6 percent of GDP) with space from curtailing non-priority current spending and suspending low-priority capital projects. Vaccination, dragged down by initial supply shortages, is catching up.

GDP grew by 3.5 percent in FY20 reflecting a sharp contraction in exports, remittances, and imports at the onset of the pandemic, and a nation-wide lockdown that decreased domestic activity. Growth is estimated to have picked up to 5 percent in FY21 supported by a rebound in exports reflecting the recovery of external demand from main trading partners, high take-up of stimulus packages by the export sector, and a partial exemption of the RMG sector from the second-round lockdowns. Remittances surpassed pre-crisis levels, supporting consumption and moderating the current account (CA) deficit to 1.3 percent of GDP in FY21 from 1.7 percent in FY20.

Growth is expected to pick up to 6.6 percent in FY22 supported by a robust rebound in exports, continued implementation of the stimulus packages, and accommodative monetary and fiscal policies. Headline CPI inflation is projected to rise to 5.9 percent in FY22 driven by higher international commodity prices. The fiscal deficit is projected to peak at 6.1 percent of GDP in FY22 as the authorities increase pandemic-related spending. The CA deficit is projected to widen to 2.4 percent of GDP in FY22 as imports rebound and remittances moderate. The uncertainty around the outlook remains high and risks are tilted to the downside.

Executive Board Assessment [2]

Executive Directors commended the authorities for their prompt and decisive policy response to the pandemic, which has facilitated a faster recovery. Directors recognized Bangladesh’s impressive economic growth and social development, but noted the risks, including from the uncertain path of the pandemic, low vaccination rates, and vulnerabilities to climate change. Directors emphasized that continuing with sound macroeconomic policies, modernizing policy frameworks, and addressing structural impediments will be key to successfully graduate from the Least Developed Country status and realize the country’s aspiration of reaching upper-middle income status.

Directors commended the authorities for exercising fiscal prudence and maintaining a low risk of debt distress, while noting that Bangladesh’s capacity to repay the Fund remains sound. They underscored that modernizing revenue administration and implementing tax policy reforms would help raise revenues to sustainably increase development, social, and climate spending. Revenue measures should be accompanied by measures to rationalize spending and improve spending efficiency.

Directors highlighted the need to closely monitor inflation developments and stand ready to normalize monetary policy. They suggested phasing out caps on interest rates to improve credit allocation. Directors encouraged the authorities to continue modernizing the monetary policy framework and suggested to gradually increase exchange rate flexibility. Noting that reserves coverage is adequate, they emphasized need to safeguard reserves and cautioned against using them for nonmonetary purposes.

Directors noted that the pandemic increased existing vulnerabilities in the banking sector that could impair medium-term growth. They called for exiting the COVID-19 policies in a timely and orderly way, monitoring bank asset quality closely, and ensuring adequate capital buffers. Directors stressed the need to strengthen banking regulation and supervision, improve corporate governance, and reform legal systems to stem the flow of high non-performing loans, particularly in the state-owned commercial banks. They urged the authorities to implement the recommendations of the 2021 safeguards assessment and to further strengthen the AML/CFT framework. Further developing capital markets and strengthening governance to attract private financing will also be necessary. Directors welcomed the completion of the audits related to COVID-19 spending and urged the authorities to publish them without further delay.

Directors noted that to lift growth potential, structural policies should focus on diversifying exports, increasing FDI, enhancing productivity, investing in human capital and addressing corruption. They welcomed the authorities’ efforts to build resilience to climate change and natural disasters, including by allocating budgetary support for climate adaptation. Directors also encouraged the authorities to undertake reforms to help catalyze climate financing.



[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

[2] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm .

Table 1. Bangladesh: Selected Economic Indicators, FY2018–23 1/

I. 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

II. Macroeconomic Indicators

FY18

FY19

FY20

FY21

FY22

FY23

Est.

Est.

Proj.

Proj.

National income and prices (annual percent change)

Real GDP

7.9

8.2

3.5

5.0

6.6

7.1

GDP deflator

5.6

4.5

4.1

5.3

5.6

5.8

CPI inflation (annual average)

5.8

5.5

5.6

5.6

5.9

5.8

CPI inflation (end of period)

5.5

5.5

6.0

5.6

5.9

5.7

Nonfood CPI inflation (end of period)

4.9

5.7

5.2

5.9

6.4

5.9

Central government operations (percent of GDP)

Total revenue and grants

10.4

9.5

9.8

10.9

10.8

10.9

Total revenue

10.3

9.4

9.7

10.9

10.8

10.9

Tax

9.3

8.7

8.1

8.9

8.9

9.0

Nontax

1.0

0.7

1.6

1.9

1.8

1.8

Grants

0.1

0.1

0.1

0.1

0.0

0.0

Total expenditure

15.2

15.7

15.4

15.1

16.9

16.5

Current expenditure

8.2

8.7

8.6

8.7

9.9

9.3

Annual Development Program (ADP)

5.9

5.9

5.7

5.3

5.5

5.9

Other expenditures

1.1

1.1

1.1

1.1

1.5

1.3

Overall balance (including grants)

-4.8

-6.3

-5.6

-4.2

-6.1

-5.7

(Excluding grants)

-4.8

-6.3

-5.7

-4.3

-6.1

-5.7

Primary balance (excluding grants)

-3.0

-4.4

-3.6

-1.9

-3.7

-3.0

Total central government debt (percent of GDP)

34.6

36.1

39.5

41.4

42.5

42.7

Money and credit (end of fiscal year; percent change)

Credit to private sector by the banking system

17.0

11.3

8.6

8.3

11.6

11.5

Reserve money

4.0

5.3

15.5

22.3

10.0

13.7

Broad money (M2)

9.2

9.9

12.7

13.6

15.0

13.7

Balance of payments (billions of U.S. dollars)

Exports, f.o.b.

36.3

39.6

32.1

36.9

43.2

44.6

(Annual percent change)

6.7

9.1

-18.9

14.9

17.0

3.3

Imports, f.o.b.

-54.5

-55.4

-50.7

-60.7

-67.8

-71.0

(Annual percent change)

25.2

1.8

-8.6

19.7

11.7

4.7

Current account balance

-9.6

-4.5

-5.4

-4.6

-9.4

-11.3

(Percent of GDP)

-3.5

-1.5

-1.7

-1.3

-2.4

-2.6

Capital and financial account balance

9.5

6.1

9.5

13.3

9.5

9.3

Of which: Foreign direct investment

1.9

2.6

1.3

1.4

1.6

1.8

Overall balance

-0.7

1.0

3.8

9.3

0.1

-2.1

Gross official reserves (billions of U.S. dollars) 2/

32.9

32.7

36.0

46.4

47.7

45.5

In months of prospective imports of goods and services

6.0

6.5

6.1

7.0

6.9

6.4

Exchange rate (taka per U.S. dollar; period average)

82.1

84.0

84.8

84.8

Exchange rate (taka per U.S. dollar; end-period)

83.7

84.5

84.9

84.8

Nominal effective rate (2010=100; period average)

95.1

97.6

99.1

95.6

Real effective rate (2010=100; period average)

132.3

139.9

146.9

147.0

Memorandum item:

Nominal GDP (billions of taka)

22,505

25,425

27,393

30,284

34,086

38,610

Sources: Bangladesh authorities; World Bank, World Development Indicators; and IMF staff estimates and projections.

1/ Fiscal year begins July 1.

2/ Excludes deposits held in offshore accounts of resident financial institutions, noninvestment grade sovereign bonds, and foreign exchange overdrafts provided by BB to domestic banks.

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