Bangladesh should focus on containing inflation and rebuilding external resilience in the near term in order to tackle the current macroeconomic volatility and the balance of payments crisis, said a top official of the International Monetary Fund (IMF) today.
"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."
The briefing came two days after the IMF executive board completed the first review of the IMF-supported programme and the Article IV consultations, and unlocked disbursements of about $689 million of the second tranche of the $4.7 billion loan.
Anand said Bangladesh's economy has continued to face economic challenges.
External headwinds, coupled with initially inadequate domestic policy response, have made macroeconomic management challenging. An unprecedented reversal of the financial account deteriorated the overall balance of payments in 2022-23, leading to continued pressures on foreign currency reserves and the taka.
In response to these shocks, the government has taken several measures to deal with macroeconomic challenges. The Bangladesh Bank has tightened monetary policy, allowed greater exchange rate flexibility, and unified the multiple exchange rates. The authorities also kept the fiscal primary balance within the programme target.
"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 said going forward, the country should focus on a few areas.
First, raising tax revenues and rationalising non-priority expenditure is key. This will allow the authorities to increase investment in social development and climate spending. Continued efforts to enhance public financial and investment management are also needed to increase spending efficiency and mitigate fiscal risks.
Second, modernising the monetary policy framework and improving policy transmission will foster macroeconomic stability. Further reforms to modernise the exchange rate framework and strengthen forex reserve management would enhance external resilience.
Third, reform priorities should also focus on addressing 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."