Speech

Building Economic Progress in Bangladesh

February 28, 2017

I am honored by this opportunity to speak with the faculty and students of the University of Dhaka. This institution has a rich history that is closely identified with the history of this country.

I would like to start today’s conversation with a brief overview of recent global economic developments, including in Asia. After that, I will offer some perspectives on the impressive economic performance of Bangladesh in recent years, and the work of the IMF in your country.

Global Outlook

In January, we released an updated forecast for the global economy. It was contained in an update World Economic Outlook—our flagship publication on the global economy that is released twice a year, in April and October.

Our update projected global growth in 2016 of 3.1 percent. That was the weakest growth rate since 2009, because of a challenging first half last year that reflected difficulties in financial markets.

Among the advanced economies, activity rebounded in the United States after that weak first half. But output remained below potential in a number of other advanced economies, especially the euro area.

Among the emerging market and developing economies, we saw some signs of a rebound after a weak 2015. The growth rate in China was a bit stronger than expected. But activity was weaker than forecast in some countries, especially those that have been dealing with recessions.

Looking ahead, economic activity is expected to accelerate in 2017 and 2018. Our central projection is that global growth will rise to 3.4 percent in 2017, and 3.6 percent in 2018. This improved outlook reflects faster growth in advanced economies and in emerging and developing economies. Growth is projected to remain strongest in emerging and developing Asia.

But there is still reason for caution. We still see downside risks. Uncertainty has risen, in particular about the policies of the new U.S. administration. As these policies become clearer, we may adjust our forecast.

China is expected to remain a major driver of global economic developments in the coming year. This reflects an expectation of continued government support for the Chinese economy. But we cannot rule out the risks of a slowdown that could affect other countries. One key risk is rapid credit expansion—particularly government support for inefficient state-owned companies—and the overall accumulation of corporate debts.

Risks to the Outlook

Let’s take a closer look at some of the other risks that could affect the global outlook. I would like to emphasize that these are only risks.

The first is political. I am sure you are very aware of recent developments in advanced economies that reflect discontent with globalization. If this important political trend leads to increased protectionism, there could be implications for productivity and incomes, market sentiments and economic growth.

There is also a risk from increased geopolitical tensions and terrorism. This already has affected the outlook for various countries, especially in the Middle East. Increasing refugee flows have clear implications for many countries, including in the advanced economies. It is essential to address the root causes of these problems.

In some advanced economies, there is a risk that an extended shortfall in private demand and inadequate progress on reforms could lead to permanently lower growth and lower inflation. This could also have negative implications for debt dynamics.

The issues that some emerging market economies face include high corporate debt, declining profitability, weak bank balance sheets, and thin policy buffers. If not addressed, these issues could increase the exposure of some countries in case of tighter global financial conditions

Finally, many low-income economies continue to feel the effects of low commodity prices. Some of these countries have pursued expansionary policies that have eroded fiscal reserves. They are vulnerable to further external shocks.

Again, let me emphasize that these are risks, and not foregone conclusions.

The Challenges Facing Asia

Let’s take a moment to say a few more words about Asia. Since the global financial crisis in 2008, Asia has been a key engine of global growth. It has also been a source of economic stability.

The near-term outlook for the region remains strong and stable. Looking to the coming year, accommodative policies and a recent easing of financial conditions will underpin domestic demand. This should help to offset weak export growth.

As I mentioned earlier, growth in China is expected to remain strong in 2017. The projections have also been revised upward for Japan.

But the forecast for India in the current and next fiscal years has been trimmed. This is primarily due to the temporary impact of the recent currency note initiative. Growth has also been revised downward in Indonesia and Thailand.

Asia continues to face a number of longer-term challenges:

First, economic reforms will be critical to ensure that the region remains a global growth leader. These structural reforms are needed to help rebalance supply and demand, reduce vulnerabilities, and increase economic efficiency and potential growth.

Second, reforms will also be needed to foster more inclusive growth. This includes reducing income inequality, which has risen in most of Asia. This is in contrast to other regions where income inequality has been reduced.

Third is the challenge of rebalancing growth. This is especially important because demand from advanced economies is growing more slowly. Asia needs to rely more on domestic demand to fuel growth.

Finally, there is the challenge of climate change and natural disasters—issues that I know are very important to this country. This will require a wide range of measure—from investment in mitigation infrastructure to carbon taxes.

Bangladesh’s Transformation

Let’s turn now to Bangladesh. The Bangladeshi economy has undergone a major transformation over the past two decades. This change has been spearheaded by the rapid expansion of the garment industry, which has helped reduce poverty and raise the employment of women.

The result has been a sustained increase in per capita income. It is important to recognize that Bangladesh is making important progress toward its goal of middle-income status.

Bangladesh also stands out in terms of development indicators. Poverty has been nearly halved since 1990. Inequality remains low and stable, defying the regional trend I just described. Your country also stands out among low-income countries in terms of life expectancy, child mortality, and access to water and sanitation.

In addition, there has been good progress on financial inclusion. This includes efforts to enhance access and usage of financial services. Bangladesh compares very favorably with other developing countries across a broad range of FI indicators.

These are all impressive achievements.

The IMF-supported Extended Credit Facility Arrangement with your government was successfully completed in October 2015. It helped lay the foundations for strong policies that are helping to spur the recent strong growth. Macroeconomic stability has been preserved, and Bangladesh is now in a stronger position. This means higher reserves, lower public debt as a share of GDP, and lower underlying inflation.

Clearly, Bangladesh has done well. However, there is no reason for over-confidence. Major challenges remain that need to be addressed before your country leaps to the next stage of development.

We currently have an IMF team here in Dhaka at the moment for your country’s annual consultation with the Fund, called the Article IV consultation. At the end of their visit, the team will discuss in detail the specific challenges facing the Bangladeshi economy.

That said, allow me to lay out some of these challenges in broad terms. One is the need to increase private investment. This investment is very important if your country is to sustain the recent high levels of growth. At the same time, a significant increase in public investment is necessary to maintain competitiveness and generate further productivity growth. There also is clear scope to pursue capital market development to provide new vehicles to channel savings toward long-term investments.

Another way to achieve this needed increase in investment is to focus on raising revenues and lifting foreign direct investment. It is important that the VAT law be implemented. In addition, policies that remove red tape and simplify the trade regime should be put in place.

Structural reforms, strengthened institutions, and capacity development are all priorities if Bangladesh is going to unleash its full economic potential. The efficiency of the tax system is one priority, along with reforms to improve fiscal management and improve the business environment.

Finally, sustaining strong, medium-term growth will require a stable security situation. This is necessary to avoid adverse effects on market confidence.

The IMF and Bangladesh

The IMF can assist with these efforts. Just as we do with all of our 189 member countries, we are in a position to help Bangladesh secure financial stability and promote sustainable growth.

We offer analysis and policy advice for individual countries, as well as on regional and global trends. The IMF team currently in Dhaka is part of this ongoing effort. They are assessing economic and financial developments, and discussing economic and financial policies with your government’s officials.

We also offer financial assistance through lending programs. This lending is aimed at supporting effective policies and structural reforms—especially in response to economic shocks. We provide loans to developing countries at concessional interest rates. This was the case with your country’s completed Extended Credit Facility arrangement.

Finally, an important part of our interaction with member countries is the provision of technical assistance and training. This work represents an important part of our operational budget. It is aimed at strengthening a government’s capacity to design and implement effective policies. Bangladesh is one of the largest recipients of IMF technical assistance—focused on public financial management, tax policy and administration, banking supervision, and statistics.

Bangladesh is also a member of the recently established South Asia Regional Training and Technical Assistance Center in New Delhi. This center was opened earlier this month as a collaboration among the IMF, six member countries, and development partners to meet the region’s demand for technical assistance and training. The other countries are Bhutan, India, the Maldives, Nepal, and Sri Lanka.

I would encourage the Bangladeshi authorities to use the center to continue strengthening institutional and human capacity. This can make an important contribution to the efforts to design and implement economic and financial policies that promote growth and reduce poverty.

I can assure you that the IMF will continue to work closely with Bangladesh to support policies aimed at achieving these goals. Our Resident Representative—Stella Kaendera—who is based here in Dhaka, is in daily contact with your government’s officials. I assure you that the Fund will be here to provide assistance, analysis, and advice. Together, we can work to build a strong economy and a brighter future for Bangladesh.

Once again, thank you very much for your hospitality. We at the IMF strongly support the adventure of learning. So, as a measure of our respect for your university, I am announcing today that we will make a book donation to your university in the near future.

I wish the students and faculty of this great university every success in the future.

I now look forward to hearing from all of you.