IMF Reaches Staff-Level Agreement on the First Review under the Extended Credit Facility, Extended Fund Facility, Resilience and Sustainability Facility, and Concludes the 2023 Article IV Consultation with Bangladesh

IMF News, October 19, 2023

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Canonical URL: IMF Reaches Staff-Level Agreement on the First Review under the Extended Credit Facility, Extended Fund Facility, Resilience and Sustainability Facility, and Concludes the 2023 Article IV Consultation with Bangladesh

IMF mission led by Mr. Rahul Anand visited Dhaka during October 4–19, 2023 to conduct discussions in the context of the first review of the ECF, EFF, RSF and the 2023 Article IV consultation.
IMF staff and the Bangladesh authorities reached staff-level agreement on the policies needed to complete the first review under the ECF/EFF/RSF arrangements.
The staff-level agreement is subject to IMF Management approval and Executive Board endorsement, which is expected in the coming weeks.
End-of-mission statement emphasizes that views are those of IMF staff and do not necessarily represent the IMF’s Executive Board.

Completion of the first review will make available about US$ 462 million (SDR352.35 million equivalent of 33 percent of quota) under the ECF/EFF.
Completion of the first review will make available about US$ 219 million (SDR166.67 million equivalent of 15.8 percent of quota) under the RSF.

Growth is projected to stay at 6 percent in FY24.
Inflation is projected to moderate to 7¼ percent by end-FY24.
FX reserves are expected to increase gradually in the near term and are projected to reach about four months of prospective imports in the medium term.
Uncertainties around the outlook remain high and risks are tilted to the downside.

Contain inflation, soften the impact on the vulnerable, and build external resilience.
Monetary policy:
- Welcome Bangladesh Bank’s decision to raise the policy rate by 75 basis points (bps) on October 4, 2023.
- Further calibrated monetary policy tightening is recommended.
- Bangladesh Bank should continue to fully operationalize the interest rate targeting framework.
Exchange rate policy:
- Greater exchange rate flexibility is recommended.
- The introduction of the interest rate corridor system and the adoption of a unified single exchange rate are noted as welcome steps.
- Gradual move to a flexible exchange rate regime is advised.
Fiscal policy:
- Neutral/tight fiscal policy is recommended to help restore macroeconomic stability.
- Raising revenue is critical to create additional space for social spending and investment.
- Concerted tax policy and administration measures are needed to raise Bangladesh’s low tax-to-GDP ratio in a sustainable manner.
- Rationalizing subsidies, improving expenditure efficiency, and managing fiscal risks will allow for additional spending on social safety nets and growth-enhancing investment.

Address banking sector vulnerabilities to meet growing financing needs:
- Reduce non-performing loans of state-owned commercial banks.
- Enhance supervision, strengthen governance, and improve regulatory frameworks.
- Developing domestic capital markets will help mobilize financing to support growth objectives.

Structural reform agenda aims to support the authorities’ ambition to reach an upper middle-income status by 2031.
Key areas to boost growth potential:
- Expanding trade.
- Attracting more FDI.
- Enhancing the investment climate.
- Raising women’s economic participation.
Climate vulnerability and resilience:
- Scale up resilient infrastructure investment through climate-responsive public investment management and green public financial management reforms.
- Better management of climate-related risks will help enhance financial sector resilience and mobilize private climate finance.

IMF team held meetings with Finance Minister A H M Mustafa Kamal, Bangladesh Bank Governor Abdur Rouf Talukder, and other senior officials; and with private sector, think tanks, bilateral donors, and development partners.
Staff will prepare a report, subject to management approval, to be presented to the IMF's Executive Board for discussion and decision.

IMF Press Release No. 23/357 — October 19, 2023.