December 12, 2023
PRESS OFFICER: Pemba Sherpa
Phone: +1 202 623-7100Email: MEDIA@IMF.org
Washington, DC: The Executive Board of the International Monetary Fund (IMF) completed the first review under the ECF/EFF and RSF arrangements for Bangladesh, allowing the authorities to withdraw the equivalent to SDR 352.35 million (about US$468.3 million) under the ECF/EFF, and SDR 166.67 million (about US$221.5 million) under the RSF. This brings total disbursements under the ECF/EFF thus far to SDR 704.70 million (about US$936.6 million) and under the RSF to SDR 166.67 million (about US$221.5 million). The Executive Board also concluded the 2023 Article IV consultation with Bangladesh.[1], [2]
The ECF/EFF and RSF arrangements for Bangladesh were approved by the Executive Board on January 30, 2023 (see Press Release No. 23/25 ) in an amount equivalent to SDR 2.5 billion (231.4 percent of quota or about US$3.3 billion) under the ECF/EFF and SDR 1 billion (93.8 percent of quota or about US$1.4 billion) under the RSF. The ECF/EFF arrangement has helped preserve macroeconomic stability and prevent disruptive adjustments to protect the vulnerable, while laying the foundations for strong, inclusive, and environmentally sustainable growth. The concurrent RSF arrangement has supplemented the resources made available under the ECF/EFF to expand the fiscal space to finance climate investment priorities identified in the authorities’ plans, help catalyze additional financing, and build resilience against long-term climate risks.
Bangladesh economy has been buffeted by multiple shocks. Spillovers from Russia’s war in Ukraine and global monetary tightening have interrupted a strong post-pandemic recovery, with real GDP growth slowing to 6 percent in FY23 and headline inflation reaching a decade high of 9.9 percent year-on-year in August 2023. Due to strict import compression, the current account (CA) deficit narrowed considerably (¾ percent of GDP in FY23 compared to 4.1 percent of GDP in FY22). However, an unprecedented reversal of financial account, driven by global uncertainties and inadequate policy response, has kept FX reserves and the Taka under pressure.
Real GDP growth is projected to remain at 6 percent in FY24 on the back of relatively resilient exports, despite subdued private demand. Helped by continued monetary policy tightening and neutral fiscal stance, inflation is projected to moderate to 7¼ percent y‑o‑y by end-FY24, albeit slowly, on account of elevated inflation expectations. The fiscal stance is projected to stay neutral, with fiscal deficit at 4.6 percent of GDP in FY24 remaining broadly unchanged from FY23. The CA deficit is likely to remain compressed at around ¾ percent of GDP in FY24, while the financial account is expected to improve, including through timely repatriation of export proceeds. 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. However, uncertainties around the outlook remain high and risks are tilted to the downside.
Following the Executive Board’s discussion, Ms. Antoinette Sayeh, Deputy Managing Director and Acting Chair, issued the following statement:
“Bangladesh’s economy is navigating multi-faceted economic challenges. Despite a difficult external environment, program performance has been broadly on track, reflecting the authorities’ strong commitment. The Fund-supported program is helping restore macroeconomic stability and protect the vulnerable, while accelerating macro-critical structural reforms to bolster growth potential and delivering on the climate agenda.
“Near-term policies should continue to focus on containing inflation and rebuilding external resilience. This requires a calibrated monetary policy tightening, supported by a neutral fiscal stance, and greater exchange rate flexibility to alleviate foreign exchange pressures and rebuild buffers. Ongoing reforms to modernize the monetary policy framework will improve policy transmission and foster macroeconomic stability. Gradually transitioning to a more flexible exchange rate regime and strengthening FX reserve management would enhance external resilience.
“Raising tax revenues and rationalizing expenditures will allow increasing social, developmental, and climate-related spending. Continued efforts to enhance public financial and investment management are needed to increase spending efficiency and mitigate fiscal risks.
“Financial reforms should focus on addressing vulnerabilities in the financial sector, by strengthening banking regulation, supervision, and governance. Deepening capital markets will help mobilize financing to support growth objectives.
“Further trade liberalization and enhancements to the investment climate will help bolster export diversification and foreign direct investment. Raising productivity, including through education and upskilling, along with increasing female labor participation, is pivotal to boost growth potential.
“Building resilience to climate change and natural disasters is a priority for achieving high, inclusive, and green growth. In this context, strengthening institutions, improving climate spending efficiency, and mobilizing climate financing remain crucial.”
Executive Board Assessment[3]
Executive Directors agreed with the thrust of the staff appraisal. They noted that Bangladesh’s economy has been buffeted by multiple external shocks. Directors noted however, that program performance is broadly on track despite the difficult environment and welcomed the recent implementation of corrective actions and the efforts to push key reforms forward, including with support from Fund capacity development. Directors stressed that near term policies should focus on containing inflation and building external resilience, while mitigating the impact of these policies on the most vulnerable. They also underscored the importance of addressing structural challenges to support strong, inclusive, and green growth.
Directors called for a calibrated monetary policy tightening, supported by a neutral fiscal stance, and for greater exchange rate flexibility to restore near term macroeconomic stability and bolster external resilience. They commended the authorities’ efforts to further modernize the monetary policy framework, which will enhance policy transmission and help reduce inflation. Directors also welcomed the adoption of a unified exchange rate and stressed that a gradual transition to a more flexible regime is needed to enhance the economy’s resilience to external shocks.
Directors emphasized that creating fiscal space for social spending and growth enhancing investment is critical. They stressed the need to raise tax revenues by implementing concerted tax policy and administration measures. Directors also called for rationalizing subsidies, improving expenditure efficiency, and better managing fiscal risks.
Directors underscored that advancing financial sector reforms remains important to meet growing financing needs and support growth. They emphasized the need to reduce banking sector vulnerabilities by implementing NPL reduction and capital restoring strategies in state owned commercial banks. Directors agreed that enhancing supervision and regulatory frameworks, strengthening governance, and developing domestic capital markets will help increase financial sector efficiency and mobilize financing to support growth objectives.
Directors encouraged the authorities to expedite long standing reforms to help Bangladesh reach upper middle income status. They emphasized that liberalizing trade, enhancing the investment climate and governance, upskilling the labor force, and increasing female labor force participation are crucial to attract more FDI, diversify exports, and boost growth potential. Given Bangladesh’s high vulnerability to natural disasters and climate change, Directors underscored the need to improve climate responsive public investment management and advance green public financial management reforms. They noted that better management of climate related risks will help enhance financial sector resilience and mobilize private climate finance.
It is expected that the next Article IV consultation with Bangladesh will be held in accordance with the Executive Board decision on consultation cycles for members with Fund arrangements.
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Bangladesh: Selected Economic Indicators, FY2020-2028 1/ |
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2/ Includes central government's gross debt, including debt owed to the IMF, plus domestic bank borrowing by nonfinancial public sector and public enterprises' external borrowing supported by government guarantees, including short-term oil-related suppliers' credits. |
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[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] SDR figures for the disbursed are converted at the market rate of U.S. dollar per SDR on the day of the Board approval.
[3] 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 .
