Bangladesh has succeeded in fostering a dynamic and fast-growing economy with significant poverty reduction and the country’s economic growth continues to be strong, observed International Monetary Fund (IMF) here today.
A visiting team of IMF, led by its Mission Chief for Bangladesh Daisku Kihara, came up with the observation while presenting its statement on Bangladesh economy at a press conference at Bangladesh Bank (BB) headquarters in the city.Kihara said important challenges remain to realize the authorities’ aspiration to reach upper middle-income status and preserve the resilience and sustainability of growth.
He recommended taking reform initiatives for reducing elevated banking sector vulnerabilities, creating fiscal space to address social needs, infrastructure requirements, and climate change vulnerabilities and diversifying the economy by strengthening the business environment through improved governance.
“Economic growth in Bangladesh continues to be strong. Robust private consumption pushed real GDP growth close to 8 percent in fiscal year 2017-18, while inflation increased slightly, due mainly to higher food prices,” he added.
He said export growth has picked up recently, based on solid performance of the ready-made garments sector and remittances inflows have also strengthened.
“This has led to a narrowing of the current account deficit despite higher imports of capital goods,” he opined.
The IMF mission chief said macroeconomic performance is set to remain strong in the fiscal 2019-20, with growth projected at above mid-7 percent and inflation close to the central bank’s target.In the proposed national budget for fiscal 2019-20, Bangladesh government has targeted to achieve 8.2 percent GDP growth containing the inflation rate below 5.5 percent.
Kihara said monetary policy should be geared toward containing risks to the inflation outlook stemming from higher global oil prices, rapid economic growth, and elevated inflation expectations.
“Continuous efforts to control the issuance of National Savings Certificates should support deepening of the capital market and reduce budget interest payments,” he added.
He said fiscal policy should keep the public debt ratio stable by strengthening revenue mobilization and containing spending pressures from higher subsidies, accompanied by efforts to improve public investment management.
While fiscal pressures from the Rohingya refugee crisis appear to be limited so far, continued financial support from donors remains essential, he added.
The IMF mission chief said the financial situation in the banking sector continues to deteriorate despite strong growth. “Resolutely addressing the high level of non-performing loans in the banking sector is essential to address financial stability risks and associated fiscal risks,” he added.
He said a comprehensive, credible, and time-bound action plan could notably focus on strengthening banking sector supervision and avoiding regulatory forbearance, a close assessment of banking sector assets, tighter criteria and limited use of rescheduling or restructuring of loans, improving corporate governance, reforming the legal system to strengthen creditor rights, redefining the role and mandate of state-owned commercial banks, and developing bank crisis management and resolution mechanisms.
He said implementation of the new VAT law in fiscal 2019-20 is a step towards modernization of the tax regime, but its revenue impact is uncertain because of multiple rates and implementation challenges.
“Efforts to increase tax revenues should continue. Tax policy reforms should focus on tax base broadening and ensuring tax compliance,” he added.
Kihara said the IMF stands ready to support the government’s reform efforts through policy advice and capacity building, including on monetary and fiscal policies, financial sector supervision and regulation, and macroeconomic statistics.
Among others, IMF Resident Representative for Bangladesh Ragnar Gudmundsson and IMF Economist for Bangladesh desk Muhammad Imam Hussain were present.