The International Monetary Fund (IMF) on Tuesday said the resurgence of unrest in recent months is taking a toll on the economy in Bangladesh and expects that the real GDP to grow by about 6 percent in the current fiscal year.
“For FY15 (July 2014-June 2015) as a whole, we expect real GDP to grow by about 6 percent,” said the IMF in a statement at the conclusion of the IMF Mission for the fifth and sixth reviews under the Extended Credit Facility (ECF) arrangement with Bangladesh.
The IMF observed that the economic activity in Bangladesh has maintained momentum, buoyed by robust domestic demand this year, according to a message received from the IMF headquarters.The inflation in the country has eased against lower food prices, but faces upside risks from unrest-related supply disruptions, the statement added.
The external current account is expected to shift to a deficit on the heels of strong import growth and a moderation in exports. Nevertheless, foreign exchange reserves have continued to increase. “Should calm be restored and uncertainty abates, the growth should strengthen to 6½ percent in FY16.”
An IMF mission, led by Rodrigo Cubero, visited Dhaka from February 25 to March 10 to conduct discussions on the fifth and sixth reviews under a three-year Extended Credit Facility (ECF) arrangement.
The ECF was approved on April 11, 2012 for a total amount of SDR 639.96 million (about US$ 887.64 million) based on the SDR exchange rate on March 9, 2015.
The mission met the Minister of Finance, Minister of Planning, Bangladesh Bank Governor, Finance Secretary, Banking Secretary, the Chairman of the National Board of Revenue, the Chairman of the Parliamentary Committee on Finance, other senior officials, representatives of the private sector, think tanks, and development partners.
At the conclusion of the visit, Cubero said, “The three-year ECF arrangement between Bangladesh and the IMF is drawing to a close. Over these three years, the authorities’ prudent macroeconomic policies and reforms have helped consolidate macroeconomic stability and lay the foundation for a strong, inclusive growth.”
International reserves have been rebuilt, inflation has come down, and the public debt-to-GDP ratio has declined, Cubero said.
Besides, the growth has remained robust and resilient, social spending as a share of GDP has been protected, and poverty has continued to fall, the official said.
“To support stronger growth and sustained poverty reduction over the medium term, it will be necessary to preserve macroeconomic stability and create fiscal space to boost critical power and transport infrastructure investment and well-targeted social spending,” Cubero said.
This, in turn, will require much higher fiscal revenue as Bangladesh has one of the lowest tax-to-GDP ratios in the world.
The mission welcomed the authorities’ strong commitment to launching the new VAT in July 2016.
The IMF said this effort should be complemented by further progress in modernising and automating tax revenue administration and by enhanced taxpayer education.
The mission also appreciated the progress made in improving working conditions in the garment industry, and steps taken to enhance the investment climate, including by liberalising foreign exchange regulations on current account transactions. – UNB
