Bangladesh flag

Bangladesh

Unrest is affecting economic activity


Published 4th April, 2013

The International Monetary Fund (IMF) has conducted an Article IV consultation with Bangladesh. The IMF found that “Exports are picking up, remittances remain strong, reserves continue to rise, and inflation pressures have eased, supported by restrained fiscal and monetary policies”. The IMF also noted that “ . . . unrest in recent months is affecting economic activity, with real GDP growth now expected to moderate to below 6 percent in fiscal year (FY) 2013”.

The full press release as published on the IMF website is as follows:

“Bangladesh: Statement at the Conclusion of the IMF Mission on the Second Review Under the
Extended Credit Facility Arrangement

Press Release No. 13/101

April 2, 2013

An International Monetary Fund mission visited Dhaka March 20-April 2 to conduct discussions on the second review under a three-year Extended Credit Facility (ECF) arrangement. The ECF was approved on April 11, 2012 in a total amount equivalent to SDR 639.96 million (see Press Release No. 12/129). 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.

At the conclusion of the visit, Mr. David Cowen, the outgoing mission chief for Bangladesh, and Mr. Rodrigo Cubero, the incoming mission chief, made the following statement:

“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. Quantitative targets under the ECF arrangement are broadly on track, with all performance criteria met at end-December 2012, except the ceiling on non-concessional 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.

“However, unrest in recent months is affecting economic activity, with real GDP growth now expected to moderate to below 6 percent in fiscal year (FY) 2013 (July 2012-June 2013). To safeguard growth performance and consolidate macroeconomic stability gains, the authorities reaffirmed their commitment to undertaking prudent policies and building external buffers. 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: 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).”

If you want to do business in this or any other of the 196 countries we cover, or if you want political or security risk advice on any country then write to Trade Bridge Consultants at enquiries@tradebridgeconsultants.com