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Monday, March 27, 2023

Bangladesh economy to grow 6.6% in FY22: IMF

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Bangladesh’s economic growth is expected to increase to 6.6% in the fiscal year ending June 2022, according to the International Monetary Fund, as the coronavirus pandemic abates and policies remain accommodative.

The Washington-based multilateral lender came up with the revised projection in a statement on its website on Saturday (18 December).

Growth may rise to 7.1% the fiscal year after that, the IMF said in the statement, citing an improvement in the external environment and progress with the domestic vaccination program.

Led by IMF Mission Chief for Bangladesh Rahul Anand, an IMF team visited Dhaka earlier this month for an Article IV Consultation before releasing the statement on Sunday.

The last time an IMF delegation visited Bangladesh was in 2019.

“Despite being hit by multiple waves of the Covid-19 pandemic, quick and decisive actions by the authorities, supported by the external environment, led to a much quicker rebound than Bangladesh’s regional peers,” reads the statement.

Growth is expected to pick up to 6.6% in FY22 as the impact of the pandemic abates and policies remain accommodative while the country will see a rise to 7.1% in the next fiscal with more of the population getting Covis-19 vaccines, it said.

However, IMF warned that the uncertainty of this outlook “remains high” and “risks are tilted to the downside.”

Expressing concerns about inflation, which is projected to be slightly higher than the government-set target (due to non-food price inflation and fuel price hike) IMF said that fiscal deficit will increase to 6.1% of the total GDP in FY22 due to Covid-related spending.

“With the projected pick up in the imports of capital goods, industrial raw materials, and commodities, the current account deficit is expected to widen in FY22. Public debt will remain sustainable over the long term. As the external environment improves and the domestic vaccination program progresses, growth is projected to increase to 7.1% in FY23. The uncertainty around the outlook remains high and risks are tilted to the downside,” adds the statement.

“Increasing revenue and enhancing fiscal policy frameworks are necessary to scale up inclusive and productivity-enhancing investments while safeguarding fiscal sustainability. Modernizing revenue administration, streamlining tax expenditure, separating National Savings Certificates (NSC) from direct budget financing, and adopting a fuel pricing mechanism will help accommodate additional social, developmental, and climate-related spending.

“With the economy rebounding, the central bank should closely monitor inflationary pressures and stand ready to normalize. Caps on the lending and borrowing rates limit the policy space and should be phased out to strengthen market-based pricing, improve credit allocation and monetary transmission. Greater exchange rate flexibility, together with safeguarding foreign exchange reserves, will help buffer external shocks,” it said.

“An orderly exit from Covid-19 related financial policies remain important to reduce the buildup of financial sector vulnerabilities. Addressing structural weaknesses in corporate governance, regulatory, supervisory, and the legal framework are important to stem NPL growth. Absent reforms, financial sector risks could be a drag on medium-term growth prospects. Ensuring that classification and provisioning requirements are in line with Basel standards is an important first step towards NPL resolution.

Recent NSC price changes are welcome, but efforts to reform the NSC scheme and to develop the bond market remain important for developing capital markets,” it added.

“More decisive reforms are needed to facilitate Bangladesh’s transition out of the LDC status and to maintain competitiveness in a post-pandemic world. To support private sector-led growth, underpinned by exports and investments, structural reforms should focus on improving governance, diversifying exports, increasing productivity, and building climate resilience to lift growth potential.

“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,” IMF further observed.

The IMF team had discussions with the Bangladesh Bank (BB) governor, the finance secretary, the chairman of the National Board of Revenue (NBR), and other senior government officials, as well as representatives of the business and banks, labor unions, and development partners.

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