## Public Information Notice: IMF Executive Board Concludes 2008 Article IV Consultation with Bangladesh _IMF News, September 30, 2008_ ## Source details **Canonical URL:** [Public Information Notice: IMF Executive Board Concludes 2008 Article IV Consultation with Bangladesh](https://www.imf.org/en/news/articles/2015/09/28/04/53/pn08126) ## Other formats - [Markdown version](/en/news/articles/2015/09/28/04/53/pn08126/index.md) - [Structured JSON version](/en/news/articles/2015/09/28/04/53/pn08126/index.json) - [Bundle manifest](/en/news/articles/2015/09/28/04/53/pn08126/bundle-manifest.json) ## Bibliographic details - Published: September 30, 2008 --- ### Background - Article IV consultation concluded by the Executive Board on September 19, 2008. - Macroeconomic performance and shocks - Real GDP growth in FY08 (July-June) remained strong at above 6 percent. - Inflation picked up to average 10 percent over the year, driven by escalating international food and fuel prices. - Inflationary pressures expected to remain high with the increase in administered fuel prices implemented on July 1 and signs of emerging demand pressures. - External sector - Nominal exchange rate remained stable in dollar terms in FY08, but depreciated by 6½ percent in effective terms as the dollar's value decreased in international markets. - Strong remittance growth, a pickup in garment exports and external assistance kept the current account in surplus despite an increase in the trade deficit. - International reserves grew moderately to 2¾ months of prospective imports in a year of increased import demand and high international commodity prices. - Fiscal developments - Overall fiscal balance for FY08 estimated to have been below the budget target. - Government revenue collection improved impressively and exceeded the budget target for the first time in recent history, driven by improved taxpayer compliance and collection of tax arrears. - Overall fiscal deficit was 3.3 percent of GDP compared with the budget target of 4.5 percent of GDP (excluding historical losses of the petroleum company). - Increased external assistance allowed domestic financing to remain below 2 percent of GDP. - Revenue administration and tax policy - Institutional framework for separating tax policy from administration has been established; a new unit will begin work by the end of the year. - Two Large Taxpayer Units placed under control of a single member at the National Board of Revenue to improve enforcement. - Revenue gains reflected improvement in taxpayer compliance in part from the authorities' new universal self-assessment. - Monetary and financial developments - Growth in monetary aggregates moderated in the first half of FY08 but picked up rapidly in the last part of the year. - Broad money growth stood at 17½ percent at end-June. - Private sector credit growth reached 25 percent in June, reflecting need to finance increased food imports and Bangladesh Bank's selectively accommodative monetary policy focusing on growth-driving sectors. - Financial sector reforms undertaken: strengthen regulatory and prudential framework of Bangladesh Bank (BB); corporatize and improve management of state-owned commercial banks (SCBs); automate stock trading; establish a government securities market. - SCBs still account for over 30 percent of total banking sector assets and remain moribund, undermining financial system efficiency. - Inflexibility in interest rates in the auction process of government securities has limited operation of the primary dealer system and development of an active secondary market. - Medium-term outlook - Growth projected to increase to around 7 percent over the medium term, driven by improvements in agriculture and expansion in domestic services and construction, supported by strong regional growth momentum. - External current account projected to remain broadly in balance, with export and remittance growth offsetting growth in imports arising from higher investment. - External assistance and gradually increasing capital inflows expected to underpin a steady increase in international reserve coverage. ### Executive Board Assessment - Commendations and overarching view - Directors commended authorities for maintaining macroeconomic stability amid multiple natural disasters and elevated food and fuel prices, which severely pressured incomes, particularly of the urban and landless rural poor. - Despite long-term challenge of climate change, Directors judged medium-term outlook favorable. - Economic growth expected to increase as key structural reforms take root and the country capitalizes on accelerating regional growth. - Inflation and monetary policy - Preventing an increase in inflation identified as the immediate priority because the poor and vulnerable are hit hardest. - With fiscal policy focusing on addressing social impact of higher commodity prices, most Directors saw need to tighten monetary policy to keep inflation expectations in check. - Directors welcomed recent action by the central bank in this regard. - External stability and exchange rate policy - Directors agreed macroeconomic policies are consistent with external stability; external current account expected to stay broadly in balance. - Current exchange rate policy has allowed the real exchange rate of the taka to remain in line with medium-term fundamentals. - Directors broadly agreed more flexibility in the rate would support monetary policy objectives and encourage deepening of the foreign exchange market. - Directors urged authorities to adopt a timetable to remove the remaining exchange restriction. - Fiscal policy, revenue, and social protection - Directors congratulated authorities on recent progress in fiscal stability; significant improvement in revenue collections has helped offset increasing energy and fertilizer subsidies and larger outlays on social safety nets. - The July increase in administered prices was described as a bold step that prevented deterioration in state-owned enterprise finances. - Directors noted more remains to be done to place state-owned enterprises on a secure footing and to increase poverty-reducing spending. - Keeping to macroeconomic targets of the FY09 budget considered important in controlling inflation. - Directors supported the budget's mildly expansionary stance, given recent fiscal prudence and the need to address social impact of higher food prices. - Given current inflationary pressures, Directors encouraged authorities to use any excess revenue collections to reduce domestic financing. - Increasing revenue seen as crucial to return fiscal policy to a lower deficit path in the medium term while increasing essential public expenditures. - Directors encouraged authorities to revise income tax and value-added tax legislation and to maintain progress in strengthening revenue administration and enforcement. - Replacing open-ended price subsidies with more affordable and better-targeted social safety nets recommended to provide fiscal space for increases in public investment and social services. - Directors urged authorities to address constraints in implementing the Annual Development Program so that priority spending increases align with development needs. - Financial sector deepening and structural reforms - Further deepening of the financial sector seen as key to achieving growth potential. - Authorities encouraged to prioritize strengthening financial positions of SCBs and developing a secondary market for government securities. - Directors called on authorities to accelerate implementation of structural reforms and strengthen institutions to attract investment and prevent a slowdown that could jeopardize debt sustainability. - Improving infrastructure, particularly in the electric power sector, highlighted as important. ### Bangladesh: Selected Economic Indicators, FY2004-08 - National income and prices (percent change) - Real GDP: FY04 6.3; FY05 6.0; FY06 6.6; FY07 6.4; FY08 6.2 (Est.) - GDP deflator: FY04 4.2; FY05 5.1; FY06 5.2; FY07 6.8; FY08 8.0 - CPI inflation (annual average): FY04 5.8; FY05 6.5; FY06 7.2; FY07 9.9; FY08 (not listed in table cells beyond narrative) - Central government operations (percent of GDP) - Total revenue: FY04 10.2; FY05 10.5; FY06 10.7; FY07 11.4; FY08 (not listed in table cells) - Tax: FY04 8.2; FY05 8.5; FY06 9.1 - Nontax: FY04 1.9; FY05 2.0; FY06 2.2; FY07 2.3 - Total expenditure: FY04 13.3; FY05 13.8; FY06 13.9; FY07 13.4; FY08 16.1 - Current expenditure: FY04 7.8; FY05 8.4 - Of which: Interest payments: FY04 1.6; FY05 1.7; FY06 1.8 - Of which: Subsidies: FY04 2.4; FY05 2.8; FY06 2.6; FY07 3.0; FY08 3.6 - Annual Development Program: FY04 5.0; FY05 4.7; FY06 4.0 - Other expenditures 2/: FY04 0.5; FY05 0.4; FY06 0.8; FY07 0.3; FY08 3.2 - Overall balance (excluding grants) 3/: FY04 -3.1; FY05 -3.3; FY06 -3.2; FY07 -4.7 - Primary balance 3/: FY04 -1.4; FY05 -1.7; FY06 -1.3; FY07 -2.5 - Financing (net) - FY04 3.1; FY05 3.3 - Domestic 3/: FY04 2.1; FY05 2.5 - External: FY04 1.3; FY05 1.2 - Total central government debt (percent of GDP) - FY04 51.0; FY05 50.1; FY06 48.3; FY07 46.0; FY08 43.8 - Money and credit (end of fiscal year; percent change) - Net domestic assets: FY04 13.5; FY05 17.1; FY06 19.6; FY07 12.6; FY08 18.0 - Credit to private sector: FY04 17.5; FY05 17.0; FY06 18.3; FY07 15.1; FY08 25.1 - Broad money (M2): FY04 16.7; FY05 19.3; FY06 17.6 - Balance of payments (in billions of U.S. dollars) - Exports, f.o.b.: FY04 7.5; FY05 8.6; FY06 10.4; FY07 12.1; FY08 14.2 - (Annual percent change): FY04 15.9; FY05 14.0; FY06 21.6; FY07 15.6; FY08 18.1 - Imports, f.o.b.: FY04 -9.8; FY05 -11.9; FY06 -13.3; FY07 -15.5; FY08 -19.5 - (Annual percent change): FY04 13.0; FY05 20.6; FY06 16.6; FY07 25.8 - Current account (in billions): FY04 0.2; FY05 -0.6; FY06 0.6; FY07 1.0 - (Percent of GDP): FY04 -0.9; FY05 0.9; FY06 1.4 - Gross official reserves (in billions of U.S. dollars): FY04 2.7; FY05 2.9; FY06 3.5; FY07 6.1 - In months of imports of goods and nonfactor services: (table indicates measure but specific FY08 months value given in narrative as) 2¾ months of prospective imports. - Memorandum item - Nominal GDP (in billions of taka): FY04 3,330; FY05 3,707; FY06 4,157; FY07 4,725; FY08 5,419 *Public Information Notice (PIN) No. 08/126, September 30, 2008. On Article IV consultations: the IMF holds bilateral discussions with members under Article IV of the IMF's Articles of Agreement.* --- ## References - [Bangladesh and the IMF](http://www.imf.org/external/country/BGD/index.htm) - [Public Information Notices](https://www.imf.org/en/news/searchnews) - [https://www.imf.org/en/home](https://www.imf.org/en/home) _Source: https://www.imf.org/en/news/articles/2015/09/28/04/53/pn08126_