Statement at the Conclusion of the IMF Mission for the Fifth and Sixth Reviews under the Extended Credit Facility (ECF) Arrangement with Bangladesh | WPN World People News

An International Monetary Fund (IMF) mission led by Mr. 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 with 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.

“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 strong, inclusive growth. International reserves have been rebuilt, inflation has come down, and the public debt-to-GDP ratio has declined. Moreover, growth has remained robust and resilient, social spending as a share of GDP has been protected, and poverty has continued to fall.

“This year, economic activity in Bangladesh has maintained momentum, buoyed by robust domestic demand. However, the resurgence of unrest in recent months is taking a toll on the economy. For FY15 (July 2014-June 2015) as a whole, we expect real GDP to grow by about 6 percent. Inflation has eased against lower food prices, but faces upside risks from unrest-related supply disruptions. 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 abate, growth should strengthen to 6½ percent in FY16.

“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. This, in turn, will require much higher fiscal revenue: Bangladesh has one of the lowest tax-to-GDP ratios in the world. The government’s main policy reform in this regard is the implementation of the new VAT Act, passed by Parliament in November 2012.

“The new VAT will provide a significant increase in revenue, while reducing taxpayer harassment and compliance costs for business, shielding small businesses through a minimum threshold, and protecting poor households through the exemption of basic consumption items. The mission welcomes the authorities’ strong commitment to launching the new VAT in July 2016. This effort should be complemented by further progress in modernizing and automating tax revenue administration and by enhanced taxpayer education.

“Strengthening the financial system is another priority to safeguard stability and boost growth. Bangladesh Bank is committed and, following passage of amendments to the Bank Companies Act in 2013, empowered to enhance bank supervision, strictly enforce prudential regulations, and improve governance and risk management, particularly in state-owned banks. Efforts in these areas are welcome and should continue.

“The mission also welcomes the progress made in improving working conditions in the garment industry, and steps taken to enhance the investment climate, including by liberalizing foreign exchange regulations on current account transactions. These efforts will further contribute to support high, inclusive growth.

“The authorities and the mission have reached staff-level understandings on the completion of the fifth and sixth reviews under the ECF arrangement. These staff-level understandings are subject to review by the management and Executive Board of the IMF.

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