Dhaka, Bangladesh (BBN)- The International Monetary Fund (IMF) has suggested the authorities concerned of Bangladesh to give priority to strengthening the financial positions of the sate-owned commercial banks (SCBs) and to developing a secondary market for government securities.

The IMF executive board also noted that further deepening of the financial sector will help Bangladesh to achieve its growth potential.

“Several actions have been taken to further develop the financial sector such as strengthening the regulatory and prudential framework of BB, corporatizing and improving the management of the SCBs, automating stock trading, and establishing a government securities market,” the IMF’s executive board said as it concluded the Article IV consultation with Bangladesh.

However, SCBs, which still account for over 30 percent of total banking sector assets, remain moribund and undermine the efficiency of the financial system. Inflexibility with regard to interest rates in the auction process of government securities has limited the operation of the primary dealer system and the development of an active secondary market.

The IMF sees Bangladesh’s medium-term economic outlook is favorable.

“Though growth could slow in the near term while inflationary pressures and other current challenges are addressed, it is projected to increase to around 7 per cent over the medium term, mainly driven by improvements in agriculture and expansion in domestic services and construction, supported by strong regional growth momentum,” it noted.

The external current account is projected to remain broadly in balance, with export and remittance growth offsetting growth in imports arising from higher investment, it said, adding that external assistance and gradually increasing capital inflows are expected to underpin a steady increase in international reserve coverage.

The IMF considered that preventing an increase in inflation is the immediate priority, as the poor and vulnerable are hit hardest by inflation.

“With fiscal policy focusing on addressing the social impact of higher commodity prices, most Directors saw the need to tighten monetary policy to keep inflation expectations in check, and welcomed the recent action by the central bank in this regard,” it added.

BBN/SI/SS/AD-05October08-3:15 PM (BST)