Staff Reporter: The International Monetary Fund (IMF) has suggested cautious monetary policy to restore the macroeconomic stability of Bangladesh in the short term.
Along with this, the agency has said to be more flexible in terms of neutral fiscal policy and currency exchange rate as a supporting policy. The IMF suggested taking these measures along with increasing resilience to external shocks.
IMF has appreciated Bangladesh Bank’s initiative to further modernize the monetary policy framework. If monetary policy is modern, it will reduce inflation and strengthen the effect of central bank policy in various areas. While praising the currency’s decision to adopt a single exchange rate, the IMF insisted on gradual more flexibility in this regard. They think it is necessary to deal with external shocks in the economy.
IMF released US$ 68.98 million as the second installment of Bangladesh’s $4.7 billion loan. The meeting of the executive board of the organization was held yesterday at the head office of the IMF in Washington. In that meeting, the final decision was taken regarding the second installment of the loan to Bangladesh. They have said these things in the statement given by the organization evaluating the country’s economy after the installment discount.
The IMF lends in three categories – Enhanced Credit Facility (ECF), Enhanced Funding Facility (EFF) and Resilience and Sustainability Facility (RSF). This time, the IMF has released $468.3 million under the ECF or EFF and $221.5 million under the RSF – a total of $689.8 million. Through this, the IMF has completed Article 4 consultations with Bangladesh.
The IMF has forecast Bangladesh’s real GDP growth of 6 percent in FY 2023-24. Although domestic demand is on the decline, the company believes that exports will turn around. Inflation is likely to come down to 7.25 percent by the end of the next fiscal year thanks to tight monetary policy and neutral fiscal policy. Fiscal deficit will remain at 4.6 percent of GDP.
The IMF believes that increased spending in the social security sector and growth-promoting investment are essential. The agency has emphasized on increasing tax revenue through tax policy reform and administrative measures. They emphasized rationalization of subsidies, increased spending capacity and more efficient management of financial risks.
The country’s need for financing for development is increasing. In this reality, the IMF thinks that the reform of the financial sector is necessary. In order to reduce the risk of the banking sector, the organization has urged to formulate special strategies for capital recovery as well as reducing the defaulted loans of the state-owned banks.
Bangladesh is at high risk of climate change and natural disasters. In these circumstances, the IMF believes that improving public investment management is necessary to mitigate the effects of climate change; Along with that, they have urged to improve environment-friendly government financial management. The agency believes that improving climate change risk mitigation will help increase the financial sector’s resilience to shocks.
The country’s economy has been in need of reforms for a long time – the IMF believes these are essential if the country is to reach the upper-middle income category. Along with this, it is necessary to increase Foreign Direct Investment (FDI), diversification of export products and increase overall growth speed, trade liberalization in labor force, development of investment environment, development of labor force skills and increase participation of women.
Bangladesh’s economy has been hit by multiple external shocks. The directors of the IMF believe that despite the difficult situation, Bangladesh has not deviated as a whole in fulfilling the conditions of the organization. Apart from this, the multilateral organization has welcomed the corrective measures that Bangladesh has taken recently and is emphasizing on the implementation of urgent reforms
