20220306-IMF-Bangladesh_2021_Article_IV_Consultation-Press_Release_Staff_Report_and_Statement_by_the_Executive_Director_for_Bangladesh_107页_12mb

Summary of IMF Country Report No. 22/71: Bangladesh 2021 Article IV Consultation

Core Content

The 2021 Article IV Consultation with Bangladesh, conducted by the IMF, assessed the country's economic performance, policy response to the pandemic, and future outlook. The consultation concluded on March 2, 2022, and the report outlines key economic indicators, policy recommendations, and the Executive Board's assessment of Bangladesh's progress and challenges.

Main Points

Economic Progress and Development

• Bangladesh has made substantial progress in its first 50 years of independence, achieving significant reductions in poverty and improvements in education and healthcare.
• The country met the UN criteria to graduate from the Least Developed Countries (LDC) category in February 2021.
• Since 2010, per capita real GDP growth has averaged 5 percent annually, contributing to a steady decline in poverty.

Macroeconomic Performance

• Macroeconomic policies have successfully kept inflation stable, debt-to-GDP low, and external buffers adequate.
• Real GDP growth was 3.5 percent in FY20, which was impacted by the pandemic, but increased to 5.0 percent in FY21 due to export recovery and stimulus packages.
• Inflation is projected to rise to 5.9 percent in FY22, driven by higher international commodity prices.
• The fiscal deficit is expected to peak at 6.1 percent of GDP in FY22, but will return to a medium-term target of 5 percent of GDP by FY25.

External Sector

• The current account (CA) deficit is expected to widen to 2.4 percent of GDP in FY22, but stabilize at around 2.5 percent of GDP in the medium term.
• Gross official reserves peaked at 7.0 months of prospective imports at the end of FY21, but are projected to decline to around 5 months in the medium term.
• Bangladesh remains at a low risk of external and overall debt distress, with external public and publicly guaranteed debt expected to remain sustainable at around 14 percent of GDP.

Pandemic Response

• The authorities implemented a comprehensive support package worth Tk 1.9 trillion (6 percent of GDP), including wage support, working capital loans, and social assistance.
• The pandemic led to multiple lockdowns, but the RMG sector was partially exempted in the second lockdown.
• Vaccination rates have improved, with over 300 million doses secured and a target of 70-80 percent population coverage by early 2022.

Key Policy Recommendations

Fiscal Policy

• Create fiscal space and enhance fiscal governance through increased tax revenues, rationalized spending, and improved efficiency.
• Address medium-term fiscal risks to support development, social, and climate spending while maintaining fiscal sustainability.

Monetary and Exchange Rate Policy

• Foster macroeconomic stability by closely monitoring inflation pressures and normalizing monetary policy as needed.
• Modernize the monetary policy framework and gradually increase exchange rate flexibility.

Financial Sector

• Reduce financial sector vulnerabilities by strengthening banking regulation, improving corporate governance, and reforming legal systems.
• Develop capital markets to support long-term investment and growth.

Investment Climate and Productivity

• Improve the investment climate and boost productivity through structural reforms, diversification of exports, and investment in human capital and climate resilience.

Structural Reforms and Governance

• Strengthen governance to enhance investment and growth.
• Develop new growth engines and increase productivity to create decent jobs for an estimated 2.2 million annual entrants.
• Invest in infrastructure and human capital to address existing gaps and build resilience.
• Tackle climate change and build competitiveness through targeted investments and policy reforms.

Risks and Uncertainties

• The outlook remains uncertain, with risks tilted to the downside.
• External risks include slower-than-expected recovery in trading partners, rising food and oil prices, and heightened cyber-attack threats.
• Domestic risks include another surge in COVID-19, lower-than-expected vaccination rates, and elevated non-performing loans (NPLs).
• The Rohingya crisis may slow progress and lead to donor fatigue.

Authorities' Views

• The authorities expect continued economic activity growth and inflation to remain contained.
• They target a 7.2 percent growth rate for FY22, supported by stimulus continuation, domestic demand recovery, and strong export performance.
• They acknowledge inflationary pressures from global commodity prices but believe the impact will be temporary.
• The authorities plan to gradually reduce the fiscal deficit to 5 percent of GDP and address high interest costs through NSC reforms.

Key Economic Indicators (FY2018–23)

Conclusion

The IMF Executive Board commended Bangladesh for its prompt and decisive response to the pandemic, emphasizing the importance of maintaining sound macroeconomic policies, modernizing frameworks, and addressing structural issues to achieve the goal of graduating from LDC status and reaching upper-middle income status by 2031. The report highlights the need for continued fiscal and monetary discipline, financial sector reforms, and structural changes to support sustainable and inclusive growth.