2017 Article IV Consultation-Press Release; Staff Report


2017 Article IV Consultation-Press Release; Staff Report

Fund Relations

(As of March 31, 2017)

Membership Status

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

General Resources Account

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SDR Department

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Outstanding Purchases and Loans

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Latest Financial Arrangements

(In millions of SDRs)

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Extended Credit Facility (ECF), formerly PRGF.

Projected Payments to the Fund 2

(In millions of SDRs (based on existing use of resources and present holdings of SDRs))

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

Article IV Consultation

The previous Article IV consultation was concluded on November 17, 2015 (IMF Country Report No. 16/27).

Safeguards Assessment

  • A safeguards assessment of Bangladesh Bank (BB) was concluded in July 2011. Since then, the BB has implemented a number of recommendations, including the approval for the incorporation of the Security Printing Corporation (Bangladesh) Limited, a subsidiary of BB, in the audit plan of BB’s internal audit department; and the 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. In the last two years, the authorities appointed local audit firms which are members of a global network of independent audit firms to audit BB’s financial statements. They have provided unqualified audit reports explaining why management believes that the funds paid out through unauthorized transactions in February 2016 are recoverable. The BB’s audit committee was reestablished in April 2017.

Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT)

  • Bangladesh has made progress in strengthening the anti-money laundering and counter-terrorism financing. The Asia/Pacific Group on Money Laundering (APG) completed its assessment of Bangladesh’ anti-money laundering and counter-terrorist financing (AML/CFT) system. The assessment is a comprehensive review of the effectiveness of Bangladesh’ AML/CFT system and its level of compliance with the FATF Recommendations. The report was formally adopted by at the APG Annual Meeting in September 2016. Bangladesh has made significant progress since the last Mutual Evaluation Report in 2009, reflecting political commitment and leadership on AML/CFT. The levels of technical compliance with the forty recommendations are generally high. However, levels of effectiveness across the eleven immediate outcomes are more mixed. The authorities are preparing an action plan to address the shortcomings.

Exchange Arrangement

  • Exchange regime. The de jure exchange rate regime is a float. Effective February 7, 2013, the de facto regime was reclassified from other managed to a stabilized arrangement.

  • Exchange restriction. Bangladesh is an Article VIII member and maintains one restriction subject to Fund approval under Article VIII, Section 2(a) on the convertibility and transferability of proceeds of current international transactions in nonresident taka accounts. In September 2013, a strategy paper laid out a roadmap toward gradual liberalization of exchange regulations. Since then, BB has eased several foreign exchange regulations and reporting routines. These include easing of restrictions on certain debits for current transactions purposes from the nonresident taka accounts, though a prior approval is required. In September 2015, amendments to the 1947 Foreign Exchange Regulations Act were approved in parliament, also easing existing regulations.

Resident Representative

The resident representative office was established in 1972. Ms. Stella Kaendera is the current Resident Representative since July 2014.

Bangladesh Technical Assistance, Oct 2015 - Mar 2017

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IMF-World Bank Collaboration

(April 2017)

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.

  • Until recently, the IMF’s priorities for macroeconomic policies and structural reforms were anchored by the Extended Credit Facility (ECF) arrangement, approved in April 2012 and completed in October 2015. With support from this arrangement, the authorities restored macroeconomic stability and undertook reforms in the areas of domestic revenue mobilization, notably enacting a new Value Added Tax Act in 2012; tax revenue administration; fiscal expenditure allocation, including the reduction in regressive energy subsidies and strengthening of social safety nets; public financial management, including strengthening the external debt management; banking supervision and regulation, including amending the Banking Companies Act in 2013; addressing weaknesses in the state-owned commercial banks; improving central bank operations; and liberalizing foreign exchange regulations. The priorities for macroeconomic policies and reforms going forward are identified in the main text of this report.

  • The Bank’s strategy is reflected in the Country Partnership Framework (CPF) for FY16-20, endorsed by the Bank Board in April, 2016. The CPF, which is aligned with the Government’s Seventh Five Year Plan, is anchored in the Bangladesh Systematic Country Diagnostic (SCD), which was completed in 2015. The SCD identified five transformational investments needed for Bangladesh to create more and better jobs and to accelerate poverty reduction. These are in the areas of energy; inland connectivity and logistics; regional and global integration; urbanization; and adaptive delta management. In addition, the SCD identified three foundational priorities which represent important prerequisites for growth and where policy attention must be sustained: macroeconomic stability; human development; and institutions and business environment.

2. The teams note that collaboration between the IMF and the World Bank Group 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.

  • Staffs are also invited to relevant Board meetings.

  • The teams regularly discuss the division of labor between the two institutions, and collaborate on the Debt Sustainability Analysis (DSA).

  • WBOD and IMF are now also in the same building in Dhaka, facilitating yet deeper collaboration.

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

Tax policy and administration. Bangladesh has one of the lowest tax-to-GDP ratios in the world. To boost growth, higher public investment in critical infrastructure is needed and for that purpose it is necessary to improve revenue generation. Under the ECF arrangement, the authorities enacted a new Value Added Tax (VAT) Act, 2012, which is now being implemented for a launch in July 2017. The new VAT is currently the authorities’ main tool to boost tax collections over the medium term. Efforts to boost the capacity of the National Board of Revenue are ongoing.

Division of labor: The new VAT law and the VAT implementation plan continue to receive technical assistance (TA) from the IMF. A resident advisor was in place until late 2014 to help with VAT implementation. IDA is providing financial and TA support for several aspects of implementation, including designing organizational reforms, new business processes, and taxpayers’ outreach which are urgent priorities under the VAT Improvement Program (VIP). Both institutions are currently providing TA to the implementation process. In early 2017, a joint Bank-Fund mission carried out the Tax Administration Diagnostic Assessment Tool (TADAT). The team is now currently working with the National Board of Revenue (NBR) to finalize the results of the assessment. Prior to the TADAT mission, a joint Bank-Fund team also provided training to tax administration officials across South Asia. The training was hosted by the NBR and was attended by tax administrators from Nepal, Sri Lanka, Bhutan and Bangladesh.

Public financial management (PFM). Sound PFM is important for maintaining fiscal discipline and improving the quality of public expenditure. The Government of Bangladesh (GoB) has undertaken series of public financial reform programs since the 1990s onwards. Since 2007, the WB-administered a Multi Donor funded Strengthening Public Expenditure Management Program (SPEMP) for supporting GoB PFM Vision and Medium Term Rolling Action Plan 2007-12. Through three discrete projects, SPMEP supported improving core PFM issues in the executive branch of government, as well as strengthening public expenditure oversight functions in Parliament (PAC) and Auditor General. In FY 2016, the GoB approved a new PFM strategy 2016-2021. The PFM reform strategy draws on Bank supported four policy notes (legal and regulatory framework; Integrated Budget and Accounting System (iBAS++); strengthening policy-budget link and integration of non-development and development budgets; and analysis of State-Owned Enterprises (SOE) financial reporting and oversight) and IMF Fiscal Affairs Department Technical Assistance Report 2015 on Strengthening the Budget Formulation Process, and other IMF analyses.

Division of labor: IDA has provided assistance through its administration of the Strengthening Public Expenditure Management Program (SPEMP). The MDTF was recently extended for five-years which will allow the WBG and the SPEMP Donors to support the PFM Strategy implementation as a key element of a broader engagement with the Government in this area. Concurrently, IDA is also taking the lead on public procurement reform and capacity building, and assisting the Government over the last one decade through two consecutive credits (Public Procurement Reform Project- PPRP; PPRPII), with the recent introduction of electronic government procurement that is rapidly expanding. Another project, Digitizing Implementation Monitoring and Public Procurement Project (DIMAPPP), is now at the advance stage of preparation (negotiations). The IMF is providing support through several TA missions on cash flow forecasting and management, on budget and accounting classification, and on the budget formulation process.

Debt management. There had been significant progress on strengthening debt management practices under the ECF arrangement, 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 Article-IV consultations, and IDA providing technical support on debt management capacity through the Public Expenditure and Revenue Analysis (PERA) work, Analytical Support Activity on PFM reforms as well as a Debt Management Performance Assessment (DeMPA).

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

Financial sector reforms. A sound and viable financial sector will remain critical for creating an improved environment for private sector investment. The IMF had provided TA on banking supervision, including through a resident advisor until late 2014, and on strengthening the state-owned commercial banks (SOCBs). The IMF will continue to support banking sector reforms through the Article-IV consultations. IDA will provide support to improve the regulatory and oversight capacity of BB. The case for improving governance, non-performing loans situation, and operational efficiency in the banking sector, especially in the SOCBs, continue to be relevant as well.

Energy sector reform. Over the last three years, spending on subsidies, particularly on energy, has declined as a share of GDP, initially through domestic price adjustments and more recently with help from a decline in the international oil prices. Reducing financial and operational inefficiencies in state-owned enterprises in the energy sector is also critical. Although there is a strong political will to corporatize the remaining distribution and generation assets to improve transparency, productivity and accountability, there has been strong resistance from the worker’s union. Bangladesh ranks poorly among the low-income countries in terms of availability of electricity. While the fuel diversity is a necessity with the shortage in availability of natural gas which is primary fuel, reliance on expensive liquid fuel for power generation needs to be reduced which eventually would reduce the subsidy burden on the government. Proper incentives are needed for step up private investment in the energy sector. Institutionalization of transparent and competitive procurement processes will send the right signal to the market and help attract qualified sponsors. 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. Under the ECF arrangement social spending as a share of GDP was protected. However, further improvement is needed, particularly through better targeting, and consolidation of a large number of programs. Rationalization of regressive subsidies will also help provide additional room for enhanced spending on social safety programs.

Division of labor: IDA is taking the lead in this area through support to the development of the National Household Database to be used for objective and transparent beneficiary selection and strengthening administrative platforms at the central and local levels for improved management and better coordination of SSNs.

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: The Trade & Competitiveness (T&C) Global Practice, a joint IDA-IFC Unit, is targeting trade and investment reforms through a holistic approach. As part of integrated solution, IDA is providing investment financing (including pipeline) while IFC provides complementary advisory services in areas of business environment reforms, special economic zones, and trade and sectoral competitiveness for export diversification. T&C will address institutional and policy reforms (including those addressed in the Diagnostic Trade Integration Study and Doing Business analytics) to boost trade and sectoral competitiveness. The IMF provided support in reviewing the 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 as needed.

Division of labor: IDA is working on poverty, social, development statistics, and statistical infrastructure including IT needs and the IMF on macroeconomic and financial statistics. IDA is currently in the preparation phase of a new investment loan to enhance the capacity of the Bangladesh Bureau of Statistics (BBS).

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

(April 2017)

Lending and Technical Assistance Operations

1. Bangladesh had cumulative public sector borrowing from the Asian Development Bank (ADB) of US$18.0 billion (256 loans) as of December 31, 2016, and technical assistance (TA) grants of US$252.4 million (422 projects). The country has been one of the largest borrowers of concessional resources. The loans and TA have supported all key sectors, including energy and transport, social infrastructure, and agriculture and natural resources.

2. In 2016, the ADB approved a total amount of US$1.1 billion in loans. This included loans for (i) Skills for Employment Investment Program (tranche 2) (US$100 million concessional ordinary capital resources loans (COL)); (ii) Natural Gas Infrastructure and Efficiency Improvement Project (US$167 million of which US$67 million is from COL); (iii) Railway Sector Investment Program-tranche 4 (US$50 million); (iv) SASEC Chittagong-Cox’s Bazar Railway Project Phase 1- tranche 1 (US$300 million of which US$90 million is from COL); (v) Second Small and Medium-Sized Enterprise Development Project (US$200 million); (vi) Dhaka Water Supply Network Improvement Project (US$275 million); (vii) Coastal Towns Environmental Infrastructure Project-additional financing (US$6 million); (viii) Rural Infrastructure Maintenance Program- PDA (US$2 million COL); and (ix) City Region Development Investment Program- PDA (US$5 million COL).

3. The ADB has also supported 13 private sector projects worth US$422.3 million as of December 31, 2016. A US$20 million loan to Eastern Bank was approved in 2016 to finance the construction or expansion of textile and garment factories that will meet the high structural, fire, and electrical supply safety standards required by the 2013 Accord on Fire and Building Safety in Bangladesh and the 2013 Alliance for Bangladesh Worker Safety.

Country Partnership Strategy

4. The Country Partnership Strategy (CPS) 2016-2020, approved on September 28, 2016, focuses on the following priority investments for projects and programs: (i) easing infrastructure constraints in key sectors such as energy, transport and urban development; (ii) improving human capital through better education and skills development; (iii) promoting economic corridor development; (iv) improving rural livelihoods; and (v) providing climate and disaster resilient infrastructure and services. The CPS is closely aligned with the government’s Seventh Five-Year Plan (FY2016-FY2020) priorities and aims to contribute to faster, inclusive and environmentally sustainable economic growth. Under the CPS, ADB aims for lending totaling US$8 billion for the period of 2016-2020, including nonsovereign lending. ADB’s market-based financing from its ordinary capital resources would be used for major revenue-generating infrastructure projects. An average of US$4.3 million per annum and above in TA resources was included. In addition, TA loans and project design advances under the lending programs will support project and program preparation and advance their readiness.

5. The CPS prioritizes the drivers of change—higher private sector participation, addressing institutional capacity constraints and improving governance, deepening regional cooperation and integration and promoting gender equality. The CPS will combine financial support with knowledge. The CPS is operationalized through the Country Operations Business Plans (COBPs). The COBP, 2017–2019 was approved in October 2016.

6. Over a five-year cumulative period from 2012–2016, Bangladesh leveraged US$3.5 billion of cofinancing. By the end of 2016, cumulative direct value-added official cofinancing for Bangladesh amounted to US$7.5 billion for 58 investment projects and US$84.9 million for 101 technical assistance projects. In 2016, seven projects received cofinancing: (i) from the World Bank, Chevron USA, and the Government of Switzerland for Skills for Employment Investment Program- tranche 1 (US$80 million) and tranche 2 (US$4.5 million); (ii) from the Asian Infrastructure Investment Bank for Natural Gas Infrastructure and Efficiency Improvement Project (US$60 million); (iii) from Danish International Development Agency, Agence Française de Développement, and European Investment Bank for Dhaka Water Supply Network Improvement (US$372 million); (iv) from Japan International Cooperation Agency, and KEXIM Bank for Railway Sector Investment Program- tranche 4 (US$138.72 million); and (v) from KEXIM Bank for South Asia Subregional Economic Cooperation Railway Connectivity: Akhaura-Laksam Double Track (US$192 million).

Economic and Sector Work Program

7. Each year, the ADB publishes its Asian Development Outlook and Asian Development Outlook Update, in which it assesses macroeconomic performance. The ADB’s Bangladesh Resident Mission (BRM) also prepares a bimonthly Economic Indicators Update. In addition, BRM commissions studies on economic and thematic areas, relevant to the country’s development issues.

Statistical Issues

(April 2017)

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. Bangladesh’s annual GDP time series has a base year of 2005/06 based on a comprehensive benchmark compiled and published by the Bangladesh Bureau of Statistics (BBS) in 2013. There is a material statistical discrepancy in subsequent time periods as minimal source data is available – estimates are predominately derived from a biennial census of manufacturing establishments or extrapolations from the 2005/06 benchmark. A revision of the entire GDP time series based on the new 2015-16 benchmark is expected to be published in financial year 2019-20. Final annual GDP estimates are now published four, rather than ten, months after the reference period. The BBS has been provided with technical assistance to use value-added tax (VAT) data from the National Board of Revenue (NBR) to compile contemporary estimates and construct a contemporary statistical business register to increase the scope and coverage of economic statistics, and monthly VAT data from NBR is expected to be available from July 2017. Quarterly GDP is currently not compiled, but a technical assistance has been provided to develop a plan for quarterly flash GDP indicators based on available monthly and quarterly data, including the VAT data. The BBS is also implementing recommendations provided by the resident advisor to: (a) improve compilation procedures used to construct GDP; and (b) enhance institutional arrangements and address concerns raised by users.

Price Statistics. A new CPI series with base year 2005/06 was introduced in July 2012 and improved coverage. However, data users such as Bangladesh Bank have raised concern about the reliability of the CPI data. The CPI series is currently undergoing further improvements, including incorporating the recent household survey and Classification of Individual Consumption According to Purpose (COICOP). The IMF provided technical assistance TA in these areas. The producer price index has an outdated base year (1988/89) and requires urgent attention.

Government Finance Statistics. The Ministry of Finance (MoF) is currently revising the Budget and Accounting Classification System (BACS) to follow the latest international standard (GFSM 2014) and integrate the accounting and reporting systems for the budgetary central government. The new BACS is expected to be incorporated into the FY18 Budget. Bangladesh currently reports budgetary central government flow data for the GFS yearbook. No stock data is reported. The coverage of extrabudgetary and local government units outside central government is inadequate and is an area for future attention. The Bangladesh Bank (BB) provides data to the World Bank-IMF Quarterly Public Sector Debt Statistics database. No data are published on the assets and liabilities of the general government.

Monetary and Financial Statistics. BB 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. A survey of Other Financial Corporations (OFCs) is not yet available.

Financial Soundness Indicators. Bangladesh has started reporting 10 core and 9 encouraged Financial Soundness Indicators (FSIs) since August 2014.

External Sector Statistics. A quarterly BPM6 compliant time series covering the period 2005 to 2015 inclusive has been published by BB and reflects improved coverage of indicators, as well as of periodicity, and dissemination of balance of payments, international investment position, and external debt statistics. Reporting of data to the IMF’s Coordinated Portfolio Investment Survey was also a major achievement. These were possible with TA support from the Japan Subaccount Project on the Improvement of ESS in the Asia and Pacific region. Despite the important progress made, steps remain to be taken by the BB to further improve the quality of ESS and ensure the continuous timely compilation and dissemination of Bangladesh’s ESS.

Data Standards and Quality

Bangladesh has participated in the General Data Dissemination System (GDDS) since March 2001. The Data Module of the ROSC was published in December 2005. Metadata for the Enhanced General Data Dissemination System (e-GDDS) had not been updated since 2002.

Bangladesh: Table of Common Indicators Required for Surveillance

(As of May 1, 2017)

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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.

Currency and/or maturity composition may not be available for the most recent data.

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


Bangladesh joined the Asian Development Bank in 1973