Building Economic Progress in Bangladesh
IMF News, February 28, 2017
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- Authors: Misuhiro Furusawa
- Published: February 28, 2017
Global Outlook
- IMF World Economic Outlook update (January) projected global growth in 2016 of 3.1 percent — the weakest growth rate since 2009.
- Central projection: global growth will rise to 3.4 percent in 2017, and 3.6 percent in 2018.
- Drivers and regional notes:
- Activity rebounded in the United States after a weak first half of 2016.
- Output remained below potential in a number of other advanced economies, especially the euro area.
- Emerging market and developing economies showed signs of rebound after a weak 2015; China’s growth was a bit stronger than expected.
- Growth is projected to remain strongest in emerging and developing Asia.
- Key risks noted that could prompt forecast adjustments:
- Uncertainty about the policies of the new U.S. administration.
- Potential slowdown in China driven by rapid credit expansion, government support for inefficient state-owned companies, and overall accumulation of corporate debts.
Risks to the Outlook
- Political risks:
- Rising discontent with globalization in advanced economies could lead to increased protectionism, affecting productivity, incomes, market sentiments, and economic growth.
- Geopolitical and security risks:
- Increased geopolitical tensions and terrorism affecting outlooks, especially in the Middle East.
- Increasing refugee flows with clear implications for many countries.
- Advanced-economy risks:
- Extended shortfall in private demand and inadequate progress on reforms could lead to permanently lower growth and lower inflation, with negative implications for debt dynamics.
- Emerging-market risks:
- High corporate debt, declining profitability, weak bank balance sheets, and thin policy buffers could increase exposure if global financial conditions tighten.
- Low-income economy risks:
- Continued effects of low commodity prices; some countries have pursued expansionary policies that eroded fiscal reserves and remain vulnerable to external shocks.
The Challenges Facing Asia
- Short-term:
- Near-term outlook remains strong and stable; accommodative policies and easing financial conditions should underpin domestic demand and help offset weak export growth.
- China expected to remain a major driver of growth in 2017; projections revised upward for Japan.
- Forecast for India in the current and next fiscal years has been trimmed, primarily due to the temporary impact of the recent currency note initiative.
- Growth revised downward in Indonesia and Thailand.
- Longer-term structural challenges:
- Need for economic reforms to rebalance supply and demand, reduce vulnerabilities, increase economic efficiency and potential growth.
- Need to foster more inclusive growth and address rising income inequality in most of Asia.
- Need to rebalance growth toward domestic demand as demand from advanced economies grows more slowly.
- Challenge of climate change and natural disasters, requiring measures from mitigation infrastructure investment to carbon taxes.
Bangladesh’s Transformation
- Structural achievements:
- Rapid expansion of the garment industry has helped reduce poverty and raise employment of women.
- Sustained increase in per capita income; progress toward middle-income status.
- Poverty has been nearly halved since 1990.
- Inequality remains low and stable.
- Strong development indicators for a low-income country: life expectancy, child mortality, and access to water and sanitation highlighted.
- Good progress on financial inclusion; Bangladesh compares very favorably with other developing countries across a broad range of FI indicators.
- Macroeconomic outcomes:
- IMF-supported Extended Credit Facility Arrangement was successfully completed in October 2015.
- Post-program outcomes: higher reserves, lower public debt as a share of GDP, and lower underlying inflation.
- Remaining challenges and priorities:
- Need to increase private investment to sustain high levels of growth.
- Need for a significant increase in public investment to maintain competitiveness and generate further productivity growth.
- Capital market development to channel savings toward long-term investments.
- Raise revenues and lift foreign direct investment; implement the VAT law.
- Remove red tape and simplify the trade regime.
- Structural reforms, strengthened institutions, and capacity development—priorities include improving tax system efficiency, fiscal management, and the business environment.
- Sustaining medium-term growth requires a stable security situation to maintain market confidence.
- Ongoing engagement:
- An IMF team was in Dhaka for the Article IV consultation to assess developments and discuss policies.
The IMF and Bangladesh
- IMF roles and instruments:
- Provides analysis and policy advice for countries and on regional and global trends.
- Offers financial assistance through lending programs aimed at supporting effective policies and structural reforms, including concessional loans to developing countries (as with Bangladesh’s Extended Credit Facility).
- Provides technical assistance and training—an important part of the IMF’s operational budget—to strengthen government capacity to design and implement effective policies.
- Bangladesh-specific support:
- Bangladesh is one of the largest recipients of IMF technical assistance, focused on public financial management, tax policy and administration, banking supervision, and statistics.
- Bangladesh is a member of the South Asia Regional Training and Technical Assistance Center in New Delhi (opened earlier this month) — a collaboration among the IMF, six member countries (Bhutan, India, the Maldives, Nepal, Sri Lanka, and Bangladesh), and development partners to meet regional technical assistance and training demand.
- Encouragement to use the center to strengthen institutional and human capacity for policy design and implementation.
- IMF presence and commitment:
- Resident Representative Stella Kaendera is based in Dhaka and in daily contact with government officials.
- IMF will continue to provide assistance, analysis, and advice to support Bangladesh’s objectives of growth and poverty reduction.
Speech by Mitsuhiro Furusawa, IMF Deputy Managing Director, Dhaka University, Bangladesh, February 28, 2017.