The Executive Board of the International Monetary Fund (IMF) completed the fourth review of Bangladesh’s economic program under a three-year arrangement supported by the Extended Credit Facility (ECF). The Executive Board’s decision enables the immediate disbursement of an amount equivalent to SDR 91.423 million (about US$140.9 million) to Bangladesh. This would bring total disbursements under the arrangement to SDR 457.115 million (about US$704.3 million). The decision was taken without a formal Board meeting.
Bangladesh has made further progress in strengthening macroeconomic stability under the ECF-supported program. While economic activity was affected by unrest and uncertainty in the run-up to the January 2014 general elections, international reserves have continued to increase, the ratio of public debt to GDP is on a downward path, and underlying inflation has been easing. All performance criteria under the ECF arrangement for end-December 2013 were met. There has also been progress on structural reforms, and all structural benchmarks for this review were completed.
Macroeconomic policies under the authorities’ program are set to remain focused on safeguarding stability and building policy buffers. With inflation risks tilted to the upside in the near term, monetary policy should remain prudent. Fiscal policy will be anchored on a continued gradual reduction of the public debt-to-GDP ratio, while allowing for increased public investment and social spending. Continued fiscal prudence will also help provide greater room for credit growth to finance a recovery in private investment.
Bangladesh has one of the lowest tax-to-GDP ratios in the world, and it is critical to strengthen revenues so as to broaden fiscal space for priority development spending, while resisting pressures to provide further tax benefits. Implementation of the new VAT remains the foremost priority, complemented by reforms to strengthen revenue administration.
Bangladesh Bank is expected to continue strengthening financial supervision, while avoiding regulatory forbearance. Its steps to tighten regulations on related lending and closely monitor banks’ stock market exposures are welcome. Strengthening the state-owned commercial banks remains another focus of financial reforms, centered on improving governance, automating financial reporting, and recapitalizing these banks.
