Dhaka, Bangladesh (BBN)- The International Monetary Fund (IMF) sees unrest in recent months is affecting economic activity, with real gross domestic product (GDP) growth now expected to moderate to below 6.0 percent by the end of this fiscal year (FY).
“To safeguard growth performance and consolidate macroeconomic stability gains, the authorities reaffirmed their commitment to undertaking prudent policies and building external buffers,” the IMF said in a statement on Tuesday.
An IMF mission visited Dhaka March 20-April 2 to conduct discussions on the second review under a three-year Extended Credit Facility (ECF) arrangement.
The mission met with the Minister of Finance, Bangladesh Bank Governor, Finance Secretary, and other senior officials, and development partners.
The mission welcomed the authorities’ continued commitment to the implementation of their reform program, which is being supported by the ECF.
It also wishes to thank them for the excellent cooperation and warm hospitality during the visit.
“Despite global uncertainties, economic developments have been broadly as envisaged. Exports are picking up, remittances remain strong, reserves continue to rise, and inflation pressures have eased, supported by restrained fiscal and monetary policies,” it said.
The IMF said quantitative targets under the ECF arrangement are broadly on track, with all performance criteria met at end-December 2012, except the ceiling on nonconcessional external debt, as reported at the time of completion of the first ECF review.
Progress continues to be made on structural measures, highlighted by a new VAT law now firmly moving in the implementation phase, according to the statement.
The IMF said they will also advance critical structural reforms aimed at expanding tax revenues, improving public financial management, and ensuring a stable, well-governed financial system.
The mission and the Bangladesh authorities reached ad referendum understandings on a set of economic policies and reforms focused on: pursuing sound fiscal and debt management, ensuring stable monetary conditions and strengthening the financial sector.
Pursuing sound fiscal and debt management: The authorities are on track to contain the budget deficit (excluding grants) to 4.5 percent of GDP in FY13. While tax revenue has fallen short of the government’s targets, expenditure has been kept under control, in part through containment of fuel and electricity subsidies.
In the near term, revenues will be buttressed through more aggressive tax enforcement. For FY14, the authorities will keep the budget deficit similarly contained at 4.3 percent of GDP, with a commitment to continue to strengthen tax collection efforts and a further rationalization of exemptions, providing the fiscal space for a significant increase in Annual Development Plan spending.
Concrete steps will also be taken to strengthen debt management practices, focused on better monitoring and stronger internal controls.
Ensuring stable monetary conditions: Bangladesh Bank (BB) remains committed to maintaining a restrained monetary policy to keep inflation in check, while providing adequate space to support private credit growth.
New instruments will be introduced to help manage the impact of foreign inflows on monetary aggregates. The central bank will also take steps to facilitate a deepening of the government debt market.
In keeping with IMF safeguard requirements, an external audit of BB by a global audit firm will be completed by December 2013, with the selection of the auditor now in train.
Strengthening the financial sector: The authorities have submitted amendments to the Banking Companies Act to Parliament as a key plank of their efforts to strengthen banking system governance.
In light of the recent erosion in the financial performance of state-owned commercial banks (SOCBs), BB is conducting diagnostic examinations of these banks, focused on their internal controls.
The results will be used to strengthen existing memoranda of understanding between BB and the SOCBs to better enforce financial discipline.
“These staff level understandings are subject to review by the IMF’s management and its Executive Board in the context of the second review under the ECF arrangement. Upon the Executive Board’s completion of this review, which is expected by late May 2013, SDR 91.4 million (about US$137 million) would be made available to Bangladesh, bringing total disbursements under the arrangement to SDR 274.3 million (about US$412 million),” it noted.
BBN/SSR/AD-03Mar13-10:32 am (BST)
