Press Release No. 21/383

IMF Staff Completes 2021 Article IV Mission to Bangladesh

December 18, 2021

• Since independence, Bangladesh has achieved impressive economic growth and social development. Building on this success, while addressing structural issues and modernizing policy frameworks, would be needed to reach the upper-middle income status by 2031.
• Growth is expected to pick up to 6.6 percent in FY22. Supporting recovery while addressing vulnerabilities remain vital. Subsequently, priorities should shift to creating greater fiscal space, reducing fiscal risks, preserving the stability of the financial system, and modernizing policy frameworks.
• To maintain competitiveness in a post-pandemic world, structural policies should focus on accelerating growth, attracting private investment, and enhancing productivity to lift growth potential. Building climate resilience remains critical.

Washington, DC: An International Monetary Fund (IMF) staff team, led by Mr. Rahul Anand, visited Dhaka from December 5-19 to hold discussions on the 2021 Article IV Consultation with Bangladesh.

At the conclusion of the visit, Mr. Anand made the following statement:

“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. Growth is expected to pick up to 6.6 percent in FY22 as the impact of COVID-19 abates and policies remain accommodative. Reflecting non-food price inflation and recent fuel price increases, inflation is projected to be slightly higher than the authorities’ target. The fiscal deficit is projected to reach 6.1 percent of GDP in FY22 as the pandemic-related spending increases. 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 percent in FY23. The uncertainty around the outlook remains high and risks are tilted to the downside.

“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.

“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.

“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.”

The team met with the Bangladesh Bank Governor, the Finance Secretary, the Chairman of the National Board of Revenue, and other senior government officials, as well as representatives of the business and banks, labor unions, and development partners. The team would like to thank the authorities for their hospitality and candid discussions.