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IMF Country Report No. 19/299
BANGLADESH
2019 ARTICLE IV CONSULTATION—PRESS RELEASE; STAFF REPORT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR BANGLADESH
September 2019
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 2019 Article IV consultation with Bangladesh, the following documents have been released and are included in this package:
A Press Release summarizing the views of the Executive Board as expressed during its September 9, 2019 consideration of the staff report that concluded the Article IV consultation with Bangladesh.
The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on September 9, 2019, following discussions that ended on June 27, 2019, 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 5, 2019.
An Informational Annex prepared by the IMF staff.
A Debt Sustainability Analysis prepared by the staff of the IMF and the International Development Association (IDA).
A Statement by the Executive Director for Bangladesh.
The documents listed below have been or will be separately released.
Selected Issues
The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.
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© 2019 International Monetary Fund
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BANGLADESH
STAFF REPORT FOR THE 2019 ARTICLE IV CONSULTATION
August 5, 2019
Key Issues
Context. Economic growth in Bangladesh continues to be strong with stable inflation. Sustained growth in the ready-made garment sector with abundant low-cost labor has helped the economy to diversify away from the agricultural sector to a more manufacturing-based economy. Remittance inflows from Bangladeshis overseas continue to play an important role in promoting private consumption and external stability. While the economy still has significant potential with favorable demographics, to ensure sustainability and resilience of growth, the country needs to keep upgrading its macroeconomic policy framework and advance a range of structural measures.
Near-term outlook. Growth is projected to be strong at above mid-7 percent in FY19 and FY20. Average annual inflation is expected at close to the central bank’s 5½ percent target. The current account deficit is projected to be around 2 percent of GDP. Risks to the outlook are tilted downward.
Main policy recommendations:
Bangladesh Bank should monitor inflation developments closely and stand ready to adjust its stance as needed. A gradual increase in exchange rate flexibility would help buffer the economy against external shocks and preserve the level of reserves.
Fiscal policy should continue to keep the public debt ratio broadly stable. To finance needed infrastructure investment, raising tax revenue is indispensable, which requires a coordinated approach in both tax administration and tax policy.
Comprehensive reform is required to address banking sector weaknesses. Measures should include enhanced banking regulation and supervision, SOCB reforms, tighter criteria for loan rescheduling/restructuring, stronger corporate governance in the banking sector, and enhanced legal systems to accelerate loan recovery.
Continuous improvements in public financial management and frameworks to limit vulnerability to corruption will help the authorities’ goal to reach upper middle-income country status.
Improving the business environment will be critical in boosting private investments and promoting export diversification.
The authorities should consider options to create fiscal space for necessary adaptation and mitigation of climate risk, manage the impact of natural disasters, and promote climate-friendly investments.
Approved By
Anne-Marie Gulde-Wolf (APD) and Kevin Fletcher (SPR)
Discussions took place in Dhaka during June 16–27, 2019. The staff team comprised Daisaku Kihara (head), Jiri Jonas, Racha Moussa, Ragnar Gudmundsson (resident representative) and Muhammad Imam Hussain (resident representative office) (all APD). Subir Gokarn (OED) participated in the concluding meetings. Gamwalla-Khadivi and Biying Zhu (both APD) assisted in preparing the report.
Contents
CONTEXT
RECENT DEVELOPMENTS, OUTLOOK, AND RISKS
NEAR-TERM MACROECONOMIC MANAGEMENT
A. Monetary Policy
B. External Development and Exchange Rate Policies
C. Fiscal Policy
MODERNIZING THE POLICY FRAMEWORK TO SUSTAIN STRONG GROWTH AND BUILD RESILIENCE
A. Banking Sector Regulation and Supervision
B. Monetary Policy Framework and Capital Market Development
C. Governance and Fiscal Framework
D. Economic Diversification
E. Climate Change
STAFF APPRAISAL
BOXES
1. Recent Regulatory Measures to Address Banking Sector Problems
2. Acting on Climate Change
FIGURES
1. Structural Transformation
2. Recent Macroeconomic Developments
3. Monetary and Financial Market Developments
4. Banking Sector Conditions
5. External Sector Developments
6. Governance Indicators
TABLES
1. Selected Economic Indicators, FY2015–20
2. Medium-Term Indicators, FY2015–24
3. Balance of Payments, FY2015–24
4. Central Government Operations, FY2015–20
5. Monetary Accounts, FY2015–20
6. Financial Soundness Indicators
7. Sustainable Development Goals
ANNEXES
I. Response to Past Fund Policy Advice
II. Risk Assessment Matrix
III. External Sector Assessment
IV. BOP Sensitivity Analysis
V. Capacity Development in Bangladesh
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BANGLADESH
STAFF REPORT FOR THE 2019 ARTICLE IV CONSULTATION—INFORMATIONAL ANNEX
August 5, 2019
Prepared By
Asia and Pacific Department (In consultation with other departments)
Contents
FUND RELATIONS
RELATIONS WITH OTHER INTERNATIONAL FINANCIAL INSTITUTIONS
STATISTICAL ISSUES
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BANGLADESH
STAFF REPORT FOR THE 2019 ARTICLE IV CONSULTATION— DEBT SUSTAINABILITY ANALYSIS
August 5, 2019
Approved By
Anne-Marie Gulde-Wolf and Kevin Fletcher (IMF) and Marcello Estevão (IDA)
Prepared by
International Monetary Fund
International Development Association
Bangladesh Joint Bank-Fund Debt Sustainability Analysis
Bangladesh Joint Bank-Fund Debt Sustainability Analysis
| Risk of external debt distress | Low |
| Overall risk of debt distress | Low |
| Granularity in the risk rating | Tool not applicable |
| Application of judgment | No |
Bangladesh Joint Bank-Fund Debt Sustainability Analysis
| Risk of external debt distress | Low |
| Overall risk of debt distress | Low |
| Granularity in the risk rating | Tool not applicable |
| Application of judgment | No |
Bangladesh remains at a low risk of debt distress. External and domestic debt indicators are below their respective thresholds under the baseline and stress test scenarios. Future infrastructure projects will be financed with external debt, but favorable debt dynamics keep PPG external debt on a declining path. The authorities should continue to seek concessional financing to the extent possible. In line with Fund TA, staff also advise the reform of the National Savings Certificates’ (NSCs) system so that the domestic debt market has more space to develop.
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Press Release No. 19/337
FOR IMMEDIATE RELEASE
September 18, 2019
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