IMF suggests Bangladesh to focus on growth–boosting reforms

Bangladesh needs to prioritize two key areas in order to address its current macroeconomic volatility and balance of payments crisis, according to a senior International Monetary Fund (IMF) official.

"This would require a calibrated monetary policy tightening, which is supported by a prudent fiscal policy stance. At the same time, a more flexible exchange rate system will help alleviate foreign exchange pressures and rebuild external buffers," said Rahul Anand, IMF mission chief for Bangladesh, at a press briefing on the country.

"In addition, we also need to focus on growth–boosting reforms. By that, we mean reforms that target the most binding structural constraints on Bangladesh's economic activity."

At a briefing on Friday, it was disclosed that Bangladesh's economy is still grappling with economic challenges. The combination of external headwinds and an initially inadequate domestic policy response has made macroeconomic management difficult. 

The financial account has experienced an unprecedented reversal, negatively impacting the overall balance of payments, putting continuous pressure on foreign currency reserves and the taka. 

To address these shocks, the government has implemented various measures. The Bangladesh Bank has tightened monetary policy, introduced greater exchange rate flexibility, and unified multiple exchange rates. 

Additionally, the authorities have managed to keep the fiscal primary balance in line with program targets.

"Thanks to these efforts by the authorities, and despite the difficult macroeconomic environment, the overall programme performance has been broadly satisfactory. I am happy to report that most programme targets and reform commitments were met," said Anand in a press release.

Anand suggests that going forward, the country should focus on a few key areas. 

Firstly, they should focus on raising tax revenues and rationalising non-priority expenditure in order to increase investment in social development and climate spending. It is important to improve public financial and investment management to increase spending efficiency and mitigate fiscal risks. 

Secondly, modernising the monetary policy framework and improving policy transmission will help foster macroeconomic stability. This can be achieved by further reforms to modernise the exchange rate framework and strengthen forex reserve management to enhance external resilience. 

Lastly, it is crucial to address vulnerabilities in the financial sector by strengthening banking regulation, supervision, and governance.

"We would also encourage deepening of capital markets to help mobilise private financing to support growth objectives," he said.

Based on IMF's discussions with Bangladesh and the progress so far, the lender is encouraged that the authorities remain fully committed to taking necessary steps to restore near-term macroeconomic stability and accelerate economic reforms, while also protecting the vulnerable and delivering on the climate agenda, Ananda said.

"At the same time, the authorities are also making good progress on implementing reforms to boost growth. We look forward to the authorities' accelerated implementation of these reforms, which will help Bangladesh to successfully graduate from the LDC status in 2026 and achieve its aspiration of reaching the upper-middle income status in 2031."

/MHK/