1. This statement contains information that has become available since the staff report was circulated to the Executive Board on January 20, 2006. This information does not alter the thrust of the staff appraisal.

2. Despite a backdrop of security concerns and political confrontation (as outlined in ¶4 of the staff report) the growth outlook remains robust. Industrial production grew by 20 percent (y/y) in November, led by a healthy expansion in construction and manufacturing, especially the garment and pharmaceutical sectors. Exports continue to perform better than expected in the wake of the phase out of MFA quotas, with total exports growing by 13 percent during July–November (compared with the same period in the previous fiscal year) on account of strong growth in knitwear, frozen foods, and jute products. Import demand remains strong, reflecting high international prices for petroleum products, although overall import growth slowed to 11 percent in the July–November period with non-oil import growth having declined to 9 percent.

3. Policy interest rates, the exchange rate, and international reserves have remained broadly stable since the issuance of the staff report. On January 26, Bangladesh Bank released a monetary policy statement for the first time. The statement published the authorities' monetary policy framework supported by the PRGF program and also projects that the steps already taken to tighten monetary policy would be sufficient to contain inflation at 7 percent, notwithstanding the expectation of further fuel price adjustments. The statement also pledges that the central bank will remain alert to the need for further monetary policy measures. Staff welcomes the monetary measures the authorities have taken and continues to believe that a slightly more pro-active stance may be needed to achieve monetary objectives (as emphasized in the appraisal).

4. Preliminary data indicate that tax revenue collection during the first half of the fiscal year (through December 2006) was about Tk 8.6 billion, or 5.6 percent short of the Tk 54 billion indicative target. The shortfall was largely due to poor performance in the collection of customs revenue. On the positive side, income tax and VAT revenue grew by 19 and 17 percent, respectively, compared with the same period in the previous fiscal year. Very preliminary expenditure data suggest that current expenditure has remained in line with budget estimates and, as in past years, spending under the Annual Development Program fell below budget targets reflecting limitations in implementation capacity. Accordingly, preliminary financing data suggest that the December indicative target for domestic financing of the government was met by a small margin.

5. The government continues to take steps to strengthen the bank restructuring process. For Rupali Bank, a road show will be held starting in mid-February after which qualified bidders will be invited to conduct due diligence. The Privatization Commission expects to finalize the divestment of the bank by end-July. For Agrani Bank, discussions are currently underway with the World Bank to strengthen the role of the consulting teams and introduce explicit performance targets.

6. The World Bank Executive Board met on Thursday, January 26 to discuss the authorities' National Strategy for Accelerating Poverty Reduction and the Joint IDA-IMF Staff Advisory Note (JSAN). Directors commended Bangladesh's macroeconomic management and recent strong growth record, and urged the authorities to continue to make progress in these areas, while addressing critical elements such as revenue collection, tax reforms, state enterprise reform, public financial management, and structural reforms in the banking sector.