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© 2008 International Monetary Fund
October 2008
IMF Country Report No. 334
Bangladesh: 2008 Article IV Consultation—Staff Report; Staff Supplement; Staff Statement; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director for Bangladesh
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of the 2008 Article IV consultation with Bangladesh, the following documents have been released and are included in this package:
The staff report for the 2008 Article IV consultation, prepared by a staff team of the IMF, following discussions that ended on July 15, 2008, with the officials of Bangladesh on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on August 27, 2008. The views expressed in the staff report are those of the staff team and do not necessarily reflect the views of the Executive Board of the IMF.
A staff supplement on the joint IMF/World Bank debt sustainability analysis.
A staff statement of September 19, 2008 updating information on recent developments.
A Public Information Notice (PIN) summarizing the views of the Executive Board as expressed during its September 19, 2008 discussion of the staff report that concluded the Article IV consultation.
A statement by the Executive Director for Bangladesh.
The document listed below has been or will be separately released.
Selected Issues
The policy of publication of staff reports and other documents allows for the deletion of market–sensitive information.
Copies of this report are available to the public from
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International Monetary Fund
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INTERNATIONAL MONETARY FUND
BANGLADESH
Staff Report for the 2008 Article IV Consultation
Prepared by the Staff Representatives for the 2008 Consultation with Bangladesh
Approved by Kalpana Kochhar and Anthony Boote
August 27, 2008
Mission: Discussions were held in Dhaka during July 2–15, 2008. The staff team met with Chief Advisor Fakhruddin Ahmed, Minister of Finance and Planning Mirza Md. Azizul Islam, Finance Secretary Mohammad Tareque, Bangladesh Bank Governor Salehuddin Ahmed, and other senior officials. The team also met with representatives of donors, NGOs, business, labor, the media, and academics.
Team: Mr. Rumbaugh (head), Messrs. Davies, J. Kang (all APD), Arslanalp (FAD), and Perone (PDR), assisted by the resident representative, Mr. Dunn. Mr. Ray (Advisor to the Executive Director) participated in key meetings.
Focus: Identify short–term policy priorities during the current political transition and review medium term economic prospects.
The 2007 Article IV consultation was completed on June 22, 2007: Directors pointed to low revenue collection, poor infrastructure, low skill levels, and corruption as the main impediments to sustained growth and poverty reduction (Country Report No. 07/234). The Fund provided SDR133 million in Emergency and Natural Disaster Assistance in April 2008 (Country Report No. 08/138).
Exchange regime: The exchange rate regime is a managed float. A restriction remains in place on the convertibility and transferability of proceeds of current international transactions in nonresident taka accounts.
Statistical issues: Data are adequate for surveillance. The authorities are working to address the deficiencies identified in the 2005 ROSC.
Contents
Executive Summary
I. Background
II. Recent Economic Developments
III. Economic Outlook
IV. Macroeconomic Policy Discussions
A. Containing Inflation
B. Improving Exchange Rage Management
C. Deepening the Financial Sector
D. Building on Improvements in Fiscal Management
V. Other Issues
VI. Staff Appraisal
Boxes
1. Equilibrium Exchange Rate Assessment and External Stability
2. Subsidies and State–Owned Enterprises
3. Revenue Administration Reforms
Figures
1. Real and Fiscal Sector Indicators, FY2001–09
2. Monetary and External Sector Indicators, FY2001–09
Tables
1. Key Economic Indicators, FY2004–14
2. Balance of Payments, FY2005–09
3. Central Government Operations, FY2006–09
4. Central Bank Balance Sheet, June 2006–June 2009
5. Monetary Survey, June 2006–June 2009
6. Financial Soundness Indicators
7. Millennium Development Goals, 1990–2007
Executive Summary
Background
Macroeconomic performance has been remarkably resilient in a year of multiple natural disasters and elevated international food and fuel prices. Growth picked up strongly from a slow start to the year with rebounds in agriculture and garment exports playing a leading role. Strong growth of remittances and increased external assistance helped support the balance of payments in the face of rising import costs.
Nevertheless, life has become more difficult for large segments of the population. The natural disasters and subsequent rapid food price increases of early 2008 put severe pressure on incomes, reversing some of the recent reductions in poverty.
Inflation remains uncomfortably high despite delays in passing through fuel price increases. Consumer Price Index (CPI) inflation averaged 10 percent during FY08 and is expected to increase further with the 40 percent increase in administered fuel prices announced in July.
The fiscal position was supported by a significant improvement in revenue collections, which helped offset increased subsidies and outlays on safety nets.
Growth in monetary aggregates moderated early in the year but has rebounded quickly. Private sector credit growth reached 25 percent at end–June.
Key Policy Issues
The authorities have made significant efforts to maintain a stable macroeconomic situation. An impressive increase in government revenues, bringing state–owned enterprise (SOE) losses onto the budget and the recent substantial increase in administered prices were significant achievements. Staff and the authorities agreed on the policy framework required to achieve the projected increase in economic growth over the medium term.
Staff recommended adjustments in monetary policy to rein in inflationary pressures. The authorities, however, were more optimistic that inflationary pressures could be contained without monetary policy adjustments.
Staff urged the authorities to remain within the macroeconomic targets of the FY09 budget to prevent putting further pressure on inflation. The authorities were confident that expenditure reprioritization would enable them to remain within the budget framework.
A complete modernization of the tax system is needed to underpin much–needed increases in revenue. Recent improvements in administration are welcome but need to be accompanied by accelerated efforts to modernize the legal framework.
Further financial sector development is needed to allow Bangladesh to achieve its growth potential. Key priorities include strengthening the foreign exchange and government debt markets, and improving the financial position of the state–owned banks.
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INTERNATIONAL MONETARY FUND
BANGLADESH
Staff Report for the 2008 Article IV Consultation—Informational Annex
Prepared by Asia and Pacific Department (In consultation with other departments)
August 27, 2008
Contents
I. Fund Relations
II. Fund and World Bank Work Priorities
III. Relations with the Asian Development Bank
IV. Statistical Issues
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INTERNATIONAL MONETARY FUND AND INTERNATIONAL DEVELOPMENT ASSOCIATION
BANGLADESH
Joint Fund–World Bank Debt Sustainability Analysis (DSA) 2008 1
Prepared by the Staffs of the International Monetary Fund and the International Development Association
Approved by Kalpana Kochhar and Anthony Boote (IMF) and Carlos Braga and Ernesto May (IDA)
September 2, 2008
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September 19, 2008
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Public Information Notice (PIN) No. 08/126
FOR IMMEDIATE RELEASE
September 30, 2008
International Monetary Fund
700 19th Street, NW
Washington, D. C. 20431 USA
Washington, D.C. 20431 • Telephone 202-623-7100 • Fax 202-623-6772 • www.imf.org
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September 19, 2008
