Transcript of Press Briefing: IMF Executive Board Completion of First Review for IMF-Supported Program for Bangladesh and 2023 Article IV Consultation
IMF News, December 14, 2023
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- Published: December 14, 2023
Board decision and disbursements
- The IMF Executive Board completed the first review of the IMF-supported program and the 2023 Article IV consultations on December 12.
- Board approvals unlocked disbursements of about US $469 million of the second tranche of the Extended Credit Facility and the Extended Fund Facility, bringing the total disbursements under the ECF, EFF thus far to about $938 million US dollars.
- The Board’s approval also unlocked about $222 million US dollars, as the first tranche of the Resilience and Sustainability Facility, RSF.
Macroeconomic assessment and recent performance
- Bangladesh faced external headwinds and an "unprecedented reversal of the financial account" that deteriorated the overall balance of payments in FY-23, pressuring FX reserves and the Taka.
- The authorities’ policy response included tightened monetary policy, greater exchange rate flexibility, and unification of multiple exchange rates.
- Overall program performance described as "broadly satisfactory" with "most program targets and reform commitments" met.
- The staff report and a table of specific quantitative targets and structural benchmarks were published on imf.org and referenced in the briefing.
Monetary policy, interest rates, and inflation
- Bangladesh Bank began a tightening cycle in May 2022 and "cumulatively, they have raised the monetary policy by 300 basis points."
- "Since October, they have raised the policy rates by almost 125 basis points."
- Transmission effects: "the yield curves have moved up on an average by 200 basis points."
- Reported yields: lower end of government treasury bills and bonds trading "around 10 percent," longer end trading "around 11.2 percent."
- Current inflation reported as "9.5" (percent implied from context); pre-shock inflation target or comfort level is "5 percent to 6 percent."
- Lending rate regime changes:
- Bangladesh Bank removed lending/deposit caps; introduced lending tied to "the smart rate and then they widened the band around the smart rate cap."
- New-loan lending rates noted as "above 11 percent."
- Text references lending tied to "smart plus 375 basis points" in one explanation, and later refers to "there is a 350-basis point" band in another passage.
Exchange rate flexibility and framework
- IMF recommends greater exchange rate flexibility to absorb external shocks and rebuild external buffers.
- A fully floating exchange rate is noted as requiring careful transitional steps; IMF and authorities are working on a crawling peg arrangement with a bank corridor as an intermediate/transitional step.
- Staff report contains a "selected issues paper" with more detail on the proposed exchange rate framework.
Fiscal policy, revenue, and public spending
- Priority: raise tax revenues and rationalize non-priority expenditure to increase investment in social development and climate spending.
- Bangladesh’s tax-to-GDP ratio described as "one of the lowest" and revenue mobilization is a core reform area.
- Suggested tax-revenue measures include: tax expenditure rationalization, improving efficiency of tax administration, increasing the tax base, and digitalization. IMF technical assistance on tax expenditure noted (one mission has happened; another planned early next year).
- Program includes a floor on social spending; authorities met the social spending floor for the first review.
Structural reforms and growth-enhancing measures
- Key reform areas identified:
- Modernizing monetary policy framework and improving policy transmission.
- Further modernization of the exchange rate framework and strengthening foreign exchange reserve management.
- Addressing vulnerabilities in the financial sector: strengthen banking regulation, supervision, and governance.
- Deepening capital markets to mobilize private financing.
- Further trade liberalization and improvements in the investment climate to boost FDI and diversify exports.
- Raise productivity via education and skills development; increase female labor force participation.
- Improve efficiency in climate spending and mobilize climate financing.
- Reform objectives linked to Bangladesh’s long-term goals: graduation from LDC status in 2026 and reaching upper-middle income status in 2031.
Financial sector governance, AML/CFT, and anticorruption
- Program priorities include fiscal governance improvements (public financial management, e-procurement, digitalization) and corporate governance in banks (fit-and-proper criteria, willful default definition under Bank Companies Act).
- IMF is providing technical assistance on risk-based supervision of AML/CFT and is working closely with BIFU in Bangladesh Bank.
- Strengthening of the anticorruption commission and providing adequate resources is mentioned as part of governance priorities.
Exports, FDI, and competitiveness
- Bangladesh exports are "very concentrated" by products and destinations; trade diversification is needed as some LDC-related trade preferences expire.
- Policy tools to support diversification and competitiveness: tariff reforms, new tariff policy, boosting FDI (FDI to GDP ratio noted as "one of the lowest"), vocational training and skill development, and reducing gender gaps in labor force participation.
Social protection and distributional concerns
- IMF program emphasizes protecting the poor and vulnerable; social spending is a prioritized floor and was met in the first review.
- Targeting of subsidies and better social-protection measures are underscored to ensure support reaches those most in need amid elevated inflation and price hikes.
Program conditions, structural benchmarks, and next disbursement
- Disbursement decisions linked to mutually agreed quantitative targets (net international reserves, primary balance, tax revenues, social spending, capital spending) and structural reform benchmarks listed in the staff report’s table.
- Examples of structural benchmarks mentioned: revenue mobilization reforms, public financial management improvements, monetary policy modernization steps, adaptation of formula-based pricing for petroleum products, and integrating climate risks into financial sector surveillance.
Reported communication lines and logistics
- Press briefing was on the record; a press release had been issued earlier and the staff report was posted on imf.org (link posted by IMF staff during the briefing).
- IMF Press Center is referenced as a password-protected site for working journalists.
Closing takeaways (as summarized by IMF mission chief)
- The program has supported authorities to preserve macroeconomic stability and protect the vulnerable despite significant challenges.
- Near-term policy prescription: "a calibrated monetary policy tightening supported by neutral fiscal policy and greater exchange rate flexibility" to restore near-term macroeconomic stability and bolster external resilience.
- Accelerating growth-oriented reforms is essential for meeting Bangladesh’s aspirations to reach upper middle-income status by 2031.
Transcript of Press Briefing published December 14, 2023 — IMF Communications Department