Journal Issue

Bangladesh: Staff Report for the 2013 Article IV Consultation and Third Review Under the Extended Credit Facility and Request for Modification of Performance Criteria—Informational Annex

International Monetary Fund. Asia and Pacific Dept
Published Date:
December 2013
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Fund Relations

(As of October 31, 2013)

Membership Status

Joined August 17, 1972; accepted the obligations under Article VIII, Sections 2, 3, and 4 on April 11, 1994.

General Resources Account
SDR MillionPercent Quota
Fund holdings of currency (exchange rate)532.8299.91
Reserve tranche position0.490.09
SDR Department
SDR MillionPercent Allocation
Net cumulative allocation510.40100.00
Outstanding Purchases and Loans
SDR MillionPercent Quota
ECF arrangements373.2469.99
Latest Financial Arrangements(In millions of SDRs)
TypeDate of ArrangementExpiration DateAmount ApprovedAmount Drawn
ECFApr. 11, 2012Apr. 10, 2015639.96274.27
ECF1Jun. 20, 2003Jun. 19, 2007400.33316.73
ECF1Aug. 10, 1990Sep. 13, 1993345.00330.00

Extended Credit Facility (ECF), formerly PRGF.

Extended Credit Facility (ECF), formerly PRGF.

Projected Payments to the Fund2(In millions of SDRs (based on existing use of resources and present holdings of SDRs))

Article IV Consultation

The previous Article IV consultation was concluded on October 28, 2011 (IMF Country Report No. 11/314).

Safeguards Assessment

  • A safeguards assessment of Bangladesh Bank (BB) was concluded in July 2011. Since then, BB has implemented a number of recommendations, including approval for incorporation of the Security Printing Corporation (Bangladesh) Limited, a subsidiary of BB, in the audit plan of BB’s internal audit department; and approval of Reserve Management Guidelines by the BB Board and monitoring of investment of foreign exchange reserves by a committee headed by a Deputy Governor. Most recently, BB received an unqualified audit report on its FY13 financial accounts from a global audit firm.

  • Going forward, the authorities expressed their commitment to continue to engage a global firm to audit BB’s financial statements on an annual basis. Further, by March 2014, the BB Board will appoint a certified chartered accountant as an advisor to the Audit Committee of the BB Board, until the committee is reconstituted to include such an expert. To further strengthen BB’s internal audit function, the authorities are committed to improve the risk-based audit approach; develop procedure manuals; establish a viable information technology (IT) audit; and recruit qualified staff and skill enhancement of the existing staff. Bangladesh Bank is also in the process of completing the integration of its dual IT platform for the financial management information system. The safeguards assessment also recommended that the legal framework of the BB be strengthened.

Exchange Arrangement

  • Exchange regime. The de jure exchange rate regime is a managed float. Effective December 19, 2011, the de facto regime was reclassified from crawl-like to other managed.

  • Exchange restriction. At the last Article IV consultation, the Executive Board urged the authorities to adopt a timetable to remove the remaining exchange restriction on the convertibility and transferability of proceeds of current international transactions in nonresident taka accounts. In September 2013, a strategy paper to review the 1947 Foreign Exchange Regulations Act was approved, laying out a roadmap toward gradual liberalization of exchange regulations. In accordance with the roadmap, BB is committed to reviewing and adopting the necessary amendments to all foreign exchange regulations and reporting routines for current account transactions by December 2014.

Resident Representative

The resident representative office was established in 1972. Ms. Eteri Kvintradze has been the Resident Representative since February 2010.

Bangladesh: Technical Assistance, 2012–13
LEGAmendments to the Bank Companies Act2012: April and November
MCMCentral bank accounting/internal audit Banking supervision2012: April, July, and October.

2013: January and April May 2011–present (resident advisor)

2012: October and November

2013: January
Restructuring state-owned commercial banks2013: July
Bank resolution framework and lender of last resort facility2013: July
Exchange control and capital account liberalization2013: August
FADVAT administration and implementation of the new VAT law2012: December 2013: January, April, and November February 2013–present (resident advisor)
Budget and accounting classification system (BACS)2013: August and October
Automatic fuel pricing mechanism2012: September
Transfer pricing2012: October

2013: August
Public financial management (PFM)2013: March
STANational accounts statistics2012: March and November

2013: resident advisor on real sector statistics from November
Consumer price index2012: July

2013: March and October
External sector statistics2013: March
Government finance statistics2012: July and November

IMF-World Bank Collaboration

(October 2013)

1. The IMF and World Bank Group (both International Development Association (IDA) and International Finance Corporation (IFC) teams) work together to promote policies and critical reforms that are essential for maintaining macroeconomic and financial stability and for sustained high growth and poverty reduction in Bangladesh.

  • The Fund’s priorities for macroeconomic policies and structural reforms are anchored by the US$1 billion, three-year Extended Credit Facility (ECF) arrangement, approved in April 2012. The program aims to safeguard macroeconomic stability; create fiscal space, through revenue enhancement and spending reforms, to boost development spending; improve public financial and debt management; strengthen the financial sector, including financial supervision; and enhance the trade and investment regime.

  • The Bank’s strategy is reflected in the Country Assistance Strategy (CAS) for FY11–14, approved in July 2010. The strategy, which proposed a financial support of about US$6 billion, focuses on increasing transformative investments to accelerate growth; reducing vulnerability to climate change and natural disasters; improving social services delivery; and strengthening accountability and inclusion.

2. The teams note that collaboration between the Fund and the Bank is strong, both at headquarters and in the field (through the IMF Resident Representative’s Office and the World Bank’s Country Office). For instance:

  • There are frequent formal and informal exchanges of information on each other’s activities and on assessments of developments, the outlook, and key policy issues.

  • The teams invite each other to participate in critical internal discussions, share key documents, and seek comments on them. For instance, the Fund invites the Bank to its policy consultation meetings and requests comments on the draft policy notes. The Bank invites the Fund to concept note review meetings and to decision meetings, and also seeks Fund’s staff views on the corresponding documents ahead of these meetings.

  • Staffs are also invited to relevant Board meetings.

  • The teams regularly discuss the division of labor between the two institutions, and collaborate on joint papers, such as the Joint Staff Assessment Notes (JSAN) and the Debt Sustainability Analysis (DSA).

3. The teams agreed that the two institutions should remain focused on the following reform areas, and based on the following division of labor:

  • Tax policy and administration. Higher public investment in critical infrastructure is needed for Bangladesh to accelerate economic growth. To create the necessary fiscal space to achieve this, improved revenue generation is necessary. Development of a modern tax regime and a strengthening of tax administration at the National Board of Revenue (NBR) are essential. At present, the centerpiece of the government’s tax reform program is the introduction of a new value-added tax (VAT), for which a law was passed in November 2012. Efforts to boost the capacity of NBR focus on automation and recruitment. Division of labor: The new VAT law and the VAT implementation plan received significant technical assistance (TA) from the Fund, and the Fund assigned a resident advisor to assist NBR in VAT implementation. IDA has agreed to finance most of the costs for acquiring and operating the new VAT computer system and for designing organizational reforms and new administrative processes, which are urgent priorities. The IFC will provide consultancy support for automation and other targeted implementation tasks.

  • Public financial management (PFM). Sound PFM is important for maintaining fiscal discipline and improving the quality of public expenditure. Division of labor: IDA is providing assistance through its administration of the Strengthening Public Expenditure Management Program (SPEMP), supported by a multi-donor trust fund. SPEMP focuses on core PFM issues in the executive branch of government, as well as strengthening public expenditure oversight functions in parliament and audit institutions. IDA is also taking the lead on public procurement reform and capacity building. The IMF is providing support through several TA missions on cash flow forecasting and management, and on budget and accounting classification.

  • Debt management. There has been significant progress on strengthening debt management practices under the ECF, but more needs to be done. Division of labor: The IMF and IDA will continue working jointly in this area, including on the DSA, with the IMF coordinating views on main macroeconomic assumptions and outlook and supporting structural reforms on debt management through ECF conditionality, and IDA providing technical support on debt management capacity through the SPEMP as well as a Debt Management Performance Assessment (DeMPA).

  • Monetary and exchange rate policies. The IMF will take the lead in this area. IDA will play a complementary role through operations to strengthen payments systems at Bangladesh Bank (BB).

  • Financial sector reform. A sound and viable financial sector will remain critical for creating an improved environment for private sector investment. Ensuring steady sector growth and institutional development and sound prudential oversight and risk management will require considerable technical cooperation in the coming years. Strengthening the central bank’s regulatory and supervisory framework and internal accounting and controls underpins this work. Division of labor: IDA/IFC and IMF are both engaged in this area, with the former taking the lead on financial market development and governance and institutional strengthening of BB, and the latter on bank supervision and oversight, supported by a resident advisor in BB.

  • Energy sector reform. Under the Fund-supported program, the government has initiated a subsidy reform, raising retail and bulk tariffs to reduce overall subsidies and create fiscal space for more pressing spending needs. Further such adjustments are needed. Reducing financial and operational inefficiencies in state-owned enterprises in the energy sector is also critical. Severe power shortages constrain growth in Bangladesh. Selection of sponsors through transparent and competitive processes will send the right signal to the market, and help in financial closure of power projects. Finally, shortage of primary fuel supply for power generation remains a key constraint. Proper incentives are needed for stepped-up private investment in the sector. Division of labor: IDA will lead on policy dialogue and investment in this area, with the IMF focused on policies to address fiscal implications.

  • Social protection. Bangladesh has a large number of mostly inadequately targeted social safety net (SSN) programs. Consolidation and improvement in the targeting and implementation of SSNs is necessary to enhance their efficiency and poverty-reduction impact, and provide support as universal subsidy schemes are phased out. Division of labor: IDA is taking the lead in this area through support to the development of the Bangladesh Poverty Database and improved management and administration of SSNs, with the Fund-supported program tracking social-related expenditure to ensure that fiscal targets under the program protect social spending.

  • Trade and investment climate reform. To boost productivity and investment, it is vital to create a level playing field for all sectors and reduce the cost of doing business. Division of labor: IDA has the leadership of a Diagnostic Trade Integration Study that is close to being finalized and IFC is targeting incremental reforms with the aim of improving legal and administrative procedures. The IMF is providing support on the review of foreign exchange regulations.

  • Statistical policy. Improvements in statistics are critical to formulating sound policies and monitoring their outcomes. Both IDA and the IMF have sustained engagement in this area and will ramp it up further in the future. Division of labor: IDA on poverty, social, and development statistics and the IMF on macroeconomic and financial statistics.

  • Other structural policies. The World Bank keeps the IMF informed about its work on governance and anti-corruption, local government and decentralization, and private sector development. Upstream sharing allows the IMF to comment on such work before it is finalized.

4. The teams agree to continue to keep each other informed of their respective activities, coordinate financial and technical support, and share key documents.

Relations with the Asian Development Bank1

(October 2013)

Lending and Technical Assistance Operations

Bangladesh had cumulative public sector borrowing from the Asian Development Bank (AsDB) of US$14.1 billion (234 loans) as of December 31, 2012, and technical assistance (TA) grants of US$221.7 million (389 projects). The country is one of the largest borrowers of concessional Asian Development Fund (ADF) resources. The loans and TA have supported all key sectors, including energy and transport, social infrastructure, and agriculture and natural resources. The AsDB has also supported twelve private sector projects worth US$297.2 million, including the Meghnaghat Power Project—the first build-own-operate power project in the country—and GrameenPhone, which substantially expanded rural access to mobile phone services.

In 2012, the AsDB approved a total amount of US$1.07 billion in loans. This included loans for (i) Power System Expansion and Efficiency Improvement Investment Program Multitranche Financing Facility (Tranche 1) (US$185 million OCR); (ii) Coastal Climate-Resilient Infrastructure Project (US$20 million ADF); (iii) Second Teaching Quality Improvement in Secondary Education Project (US$70 million ADF); (iv) Urban Primary Healthcare Services Delivery Project (US$50 million ADF); (v) Second Capital Market Development Program (US$300 million, of which US$205 million is from ADF); (vi) Financing Brick Kiln Efficiency Improvement Project (US$50 million, of which US$20 million is from ADF); (vii) SASEC Road Connectivity Project (US$198 million ADF); (viii) Dhaka-Chittagong Expressway Public-Private Partnership Design TA Loan (US$10 million ADF); (ix) Greater Dhaka Sustainable Urban Transport Project (US$160 million, of which US$60 million is from ADF); (x) Coastal Towns Infrastructure Improvement Project (project design advance) (US$3.5 million), and (xi) South Asia Subregional Economic Cooperation Trade Facilitation Program (US$21 million ADF). In 2013 (calendar year), planned AsDB disbursements are about US$603 million (see table below).

AsDB Loan Disbursement to Bangladesh, 2011–2013(In millions of U.S. dollars)
201120122013 (Proj.)
Project loans367440558
Power sector86132114
Gas transmission and development1725111
Emergency assistance200
Program loans4517145
Good governance program0045
Countercyclical support000
Public expenditure support01510
Total loans412611603
Source: Asian Development Bank.
Source: Asian Development Bank.

Country Partnership Strategy

The Country Partnership Strategy (CPS) 2006–10 lapsed in December 2010. The CPS 2011–2015, approved on October 27, 2011, focuses on six sectors: energy, transport, urban development, education, agriculture and natural resources, and finance. The CPS is closely aligned with the government’s Sixth Five-Year Plan priorities and aims to contribute to more inclusive and greener growth. Under the CPS, the total indicative resources for public sector lending during 2011–2015 included US$2.4 billion in ADF and US$2.1 billion in OCR. AsDB’s OCR financing would be used for major revenue-generating infrastructure projects. An average of US$9.6 million per annum in TA resources was included, of which 35 percent would be allocated for project design.

The CPS prioritizes the thematic drivers of environmental sustainability and climate resilience, regional cooperation, knowledge solutions, partnerships, good governance and capacity development, gender equity, and private sector development. Country Operations Business Plan (2014–2016), under the current CPS, was approved in July 2013.

Over a five-year cumulative period from 2007–2011, Bangladesh leveraged the highest amount of cofinancing among AsDB’s developing member countries at US$3 billion. By the end of 2012, cumulative direct value-added official cofinancing for Bangladesh amounted to US$4.37 billion for 42 investment projects and US$72.3 million for 90 technical assistance projects. In 2012, four projects received loan cofinancing: (i) from Agence Française de Développement for Greater Dhaka Sustainable Urban Transportation Project (US$45 million); (ii) from the International Fund for Agricultural Development (US$59 million) and Strategic Climate Fund—Pilot Program for Climate Resilience (US$20 million) for Coastal Climate–Resilient Infrastructure Project; (iii) from the Abu Dhabi Fund for Development (US$30 million) and OPEC Fund for International Development (US$30 million) for South Asia Subregional Economic Cooperation Road Connectivity Project; and (iv) from European Investment Bank (US$91 million) and IsDB (US$85 million) for Power System Expansion and Efficiency Improvement Investment Program (Tranche 1).

Economic and Sector Work Program

Each year, the AsDB publishes its Asian Development Outlook and Asian Development Outlook Update, in which it assesses macroeconomic performance. The AsDB’s Bangladesh resident mission (BRM) also publishes the Bangladesh Quarterly Economic Update. A bimonthly Economic Indicators Update is also prepared. BRM also commissions studies on economic and thematic areas.

Statistical Issues

(October 2013)

Assessment of Data Adequacy for Surveillance

General. Data provision has some shortcomings, but is broadly adequate for surveillance. The most affected areas are national accounts, fiscal, and external sector statistics.

National accounts. The paucity of source data remains the main impediment to improving national accounts statistics. It adversely affects the ability of the Bangladesh Bureau of Statistics (BBS) to absorb technical assistance (TA) aimed at improving compilation techniques. The BBS does not conduct an annual national accounts survey of business enterprises. Source data are primarily from benchmark surveys and a biennial census of manufacturing establishments and household expenditure survey. Many of the benchmark surveys were conducted over five years ago and are based on outdated sample frames. The shortcomings in the data also affect compilation practices. In addition, a system of price indices for estimating national accounts at constant prices needs to be developed. Technical assistance missions, conducted between 2009 and 2012, developed and agreed a detailed work program with the BBS for undertaking the exercise of updating the base year from 1995/96 to 2005/06 and creating a comprehensive benchmark estimate and new series with the new base year. In September 2013, BBS announced the introduction of a new GDP series with base year 2005/06, details for which are awaited at this time. Revisions to national accounts data are done annually, reported data often have large statistical discrepancies, and currently there are no quarterly national accounts statistics available. A Fund resident advisor on real sector statistics is expected to be in place at the BBS by November 2013.

Price statistics. In July 2012, BBS introduced a new CPI series (base year 2005/06) with updated weights and coverage and, from August 2013, it discontinued publication of the old CPI series (base year 1995/96). With support from Fund TA, BBS is currently working on further improving and updating the CPI weights, including incorporating the recent household survey and the Classification of Individual Consumption According to Purpose (COICOP). The producer price index (base year 1988/89) continues to suffer from outdated weights.

Government finance statistics. A 2008 STA multisector mission recommended additional actions to strengthen the analytical usefulness of fiscal data, including to: (i) improve the integration of debt stocks and related financial flows; (ii) sensitize donors to the need to promptly provide complete data on direct project assistance; and (iii) establish an inter-agency committee to prepare a migration plan to the GFSM 2001. STA-assisted missions in 2012 and 2013 found some progress in migration toward the GFSM 2001 system, including the launch of a new accounting and budget classification system. Remaining priorities here for the authorities include to disseminate stock data on financial assets and liabilities, and to broaden the coverage to general government.

Monetary and financial statistics. Bangladesh Bank compiles monetary data using the standardized report forms (SRFs) framework. The SRFs are reported electronically to the IMF on a regular basis. As a result, a consistent time series based on SRF data is available from December 2001.

External sector statistics. Pressing issues need to be addressed in balance of payments and international investment position statistics, mainly in trade in goods, trade credits, and related financing. In the area of goods transactions, data are collected from different data sources: exports are based on information from customs declarations, while imports used to be reported on the basis of settlement of payments. Efforts are underway by the authorities to unify the source data based on customs declarations only, in line with STA’s recommendations, and import data from FY11 onward are now being reported on this basis. This should help resolve inconsistencies with the national accounts, where customs trade data are used in compiling net exports of goods and services. Bangladesh Bank, the institution in change of external sector statistics, also needs to employ additional data sources, apart from the settlement data, for the financial account, including for trade credits and external borrowing by private and public entities, and should discontinue some adjustments to the financial account that are deemed to be unsound. International investment position data remain weak.

Data Standards and Quality

Bangladesh has participated in the GDDS since March 2001. The Data Module of the ROSC was published in December 2005.

Bangladesh: Table of Common Indicators Required for Surveillance(As of October 31, 2013)


latest Observation







Exchange Rates10/31/1310/31/13DDD
International Reserve Assets and Reserve Liabilities of the Monetary Authorities210/30/1310/30/13DDD
Reserve/Base Money10/30/1310/30/13DDD
Broad MoneyAug. 2013Oct. 2013MMM
Central Bank Balance SheetJun. 2013Sep. 2013MMM
Consolidated Balance Sheet of the Banking SystemJun. 2013Sep. 2013MMM
Interest Rates310/30/1310/30/13WWD
Consumer Price IndexSep. 2013Oct. 2013MMM
Revenue, Expenditure, Balance and Composition of Financing4—General Government5n/an/an/an/an/a
Revenue, Expenditure, Balance and Composition of Financing4—Central GovernmentJul. 2013Sep. 2013MMM
Stocks of Central Government and Central Government-Guaranteed Debt6Jun. 2013Sep. 2013MMM
External Current Account BalanceJul. 2013Oct. 2013MMM
Exports and Imports of Goods and ServicesJun. 2013Aug. 2013MMM
GDP/GNPFY2013Jun. 2013AAA
Gross External DebtFY2013Aug. 2013AA/MA
International Investment Position7End-2012Jun. 2013QQA

Daily (D); weekly (W); monthly (M); quarterly (Q); annually (A); irregular (I); not available (NA).

Includes reserve assets pledged or otherwise encumbered as well as net derivative positions.

Both market-based and officially determined, including discount rates, money market rates, and rates on treasury bills, notes, and bonds.

Foreign, domestic bank, and domestic nonbank financing.

The general government consists of the central government (budgetary funds, extra-budgetary funds, and social security funds) and state and local governments. Data for the general government are currently not being compiled due to capacity limitations.

Including currency and maturity composition.

Includes external gross financial asset and liability positions vis-à-vis nonresidents.

Daily (D); weekly (W); monthly (M); quarterly (Q); annually (A); irregular (I); not available (NA).

Includes reserve assets pledged or otherwise encumbered as well as net derivative positions.

Both market-based and officially determined, including discount rates, money market rates, and rates on treasury bills, notes, and bonds.

Foreign, domestic bank, and domestic nonbank financing.

The general government consists of the central government (budgetary funds, extra-budgetary funds, and social security funds) and state and local governments. Data for the general government are currently not being compiled due to capacity limitations.

Including currency and maturity composition.

Includes external gross financial asset and liability positions vis-à-vis nonresidents.

Bangladesh joined the Asian Development Bank (AsDB) in 1973.

When a member has overdue financial obligations outstanding for more than three months, the amount of such arrears will be shown in this section.

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