Washington, DC (BBN)- The Executive Board of the International Monetary Fund (IMF) has approved a three-year arrangement for Bangladesh under the Extended Credit Facility (ECF) in a total amount about US$987 million.
The Board’s decision will immediately enable the initial disbursement of an amount equivalent to about US$141 million, an IMF announcement said on Wednesday.
The ECF arrangement is designed to support the authorities’ program, which aims to restore macroeconomic stability, strengthen the external position, and engender higher, more inclusive growth.
During the program period, the authorities are committed to taking actions to create fiscal space, reinvigorate the financial sector, and catalyze additional resources, in order to boost social- and development-related spending, tackle power shortages and the infrastructure deficit, and stimulate export-oriented investment and job growth.
“Macroeconomic pressures have intensified in Bangladesh over the past 18 months,” the IMF said.
The balance of payments (BoP) went into a deficit in FY11 (July 2010–June 2011) and reserves declined significantly owing mainly to increased demand for oil imports.
Global headwinds and firming oil prices have accentuated these pressures in the current fiscal year, with growth in exports outstripped by that in imports.
“As a result, GDP growth is expected to slow to 5.5 percent in FY12. Fiscal strains have emerged due to rising subsidy costs, mainly on account of higher fuel consumption,” it noted.
Finally, headline inflation, while moderating recently, remains at an elevated level, with nonfood inflation the main driver.
The near- to medium-term outlook hinges on timely progress on policy adjustments and structural reforms envisaged under the authorities’ program.
Starting in FY13, growth is projected to rebound, assuming stable domestic economic conditions; more effective resource usage, notably development partner support; and improved global economic conditions.
The IMF said inflation is expected to decline to single digits by end 2012 through appropriately restrained fiscal and monetary policies and, over time, by a further easing of supply constraints.
The overall BoP is projected to return to a surplus in FY13 through a combination of policy tightening measures, exchange rate flexibility, and more supportive global conditions.
Reserves are programmed to rise, reaching nearly three months of import cover by FY15.
“Bangladesh’s medium-term prospects are broadly favorable, but still subject to risks. Policy buffers are limited in the event of adverse real shocks, given heightened inflation and reserve losses,” it said.
Prolonged delays in adjusting fuel, electricity, and fertilizer prices and unanticipated increases in import-related costs could exert additional pressure on the fiscal and external positions, the IMF added.
BBN/SSR/AD-12Apr12-7:30 am (BST)
