Abstract
IMF Country Report No. 22/71
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IMF Country Report No. 22/71
BANGLADESH
2021 ARTICLE IV CONSULTATION—PRESS RELEASE; STAFF REPORT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR BANGLADESH
March 2022
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 2021 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 March 2, 2022 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 March 2, 2022, following discussions that ended on December 19, 2021, 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 February 15, 2022.
An Informational Annex prepared by the IMF staff.
A Debt Sustainability Analysis prepared by the staff of the International Monetary Fund (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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© 2022 International Monetary Fund
Press Release
PR/22/57
IMF Executive Board Concludes 2021 Article IV Consultation with Bangladesh
FOR IMMEDIATE RELEASE
Washington, DC – March 3, 2022: The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 with Bangladesh on March 2, 2022.
Bangladesh has made substantial progress in its first 50 years of independence. Since 2010, per capita real GDP growth, averaging 5 percent annually, has resulted in a steady decline in poverty, with increasing access to education and healthcare. Bangladesh met the UN criteria to graduate from the category of Least Developed Countries in February 2021. Macroeconomic policies in recent years have been successful in keeping inflation stable, debt-to-GDP low, and external buffers adequate.
The authorities reacted quickly and decisively to address the economic fallout of the pandemic. Entering the crisis with macroeconomic stability, the authorities announced support packages worth Tk 1.9 trillion (or 6 percent of GDP) with space from curtailing non-priority current spending and suspending low-priority capital projects. Vaccination, dragged down by initial supply shortages, is catching up.
GDP grew by 3.5 percent in FY20 reflecting a sharp contraction in exports, remittances, and imports at the onset of the pandemic, and a nation-wide lockdown that decreased domestic activity. Growth is estimated to have picked up to 5 percent in FY21 supported by a rebound in exports reflecting the recovery of external demand from main trading partners, high take-up of stimulus packages by the export sector, and a partial exemption of the RMG sector from the second-round lockdowns. Remittances surpassed pre-crisis levels, supporting consumption and moderating the current account (CA) deficit to 1.3 percent of GDP in FY21 from 1.7 percent in FY20.
Growth is expected to pick up to 6.6 percent in FY22 supported by a robust rebound in exports, continued implementation of the stimulus packages, and accommodative monetary and fiscal policies. Headline CPI inflation is projected to rise to 5.9 percent in FY22 driven by higher international commodity prices. The fiscal deficit is projected to peak at 6.1 percent of GDP in FY22 as the authorities increase pandemic-related spending. The CA deficit is projected to widen to 2.4 percent of GDP in FY22 as imports rebound and remittances moderate. The uncertainty around the outlook remains high and risks are tilted to the downside.
Executive Board Assessment2
Executive Directors commended the authorities for their prompt and decisive policy response to the pandemic, which has facilitated a faster recovery. Directors recognized Bangladesh’s impressive economic growth and social development, but noted the risks, including from the uncertain path of the pandemic, low vaccination rates, and vulnerabilities to climate change. Directors emphasized that continuing with sound macroeconomic policies, modernizing policy frameworks, and addressing structural impediments will be key to successfully graduate from the Least Developed Country status and realize the country’s aspiration of reaching upper-middle income status.
Directors commended the authorities for exercising fiscal prudence and maintaining a low risk of debt distress, while noting that Bangladesh’s capacity to repay the Fund remains sound. They underscored that modernizing revenue administration and implementing tax policy reforms would help raise revenues to sustainably increase development, social, and climate spending. Revenue measures should be accompanied by measures to rationalize spending and improve spending efficiency.
Directors highlighted the need to closely monitor inflation developments and stand ready to normalize monetary policy. They suggested phasing out caps on interest rates to improve credit allocation. Directors encouraged the authorities to continue modernizing the monetary policy framework and suggested to gradually increase exchange rate flexibility. Noting that reserves coverage is adequate, they emphasized need to safeguard reserves and cautioned against using them for nonmonetary purposes.
Directors noted that the pandemic increased existing vulnerabilities in the banking sector that could impair medium-term growth. They called for exiting the COVID-19 policies in a timely and orderly way, monitoring bank asset quality closely, and ensuring adequate capital buffers. Directors stressed the need to strengthen banking regulation and supervision, improve corporate governance, and reform legal systems to stem the flow of high non-performing loans, particularly in the state-owned commercial banks. They urged the authorities to implement the recommendations of the 2021 safeguards assessment and to further strengthen the AML/CFT framework. Further developing capital markets and strengthening governance to attract private financing will also be necessary. Directors welcomed the completion of the audits related to COVID-19 spending and urged the authorities to publish them without further delay.
Directors noted that to lift growth potential, structural policies should focus on diversifying exports, increasing FDI, enhancing productivity, investing in human capital and addressing corruption. They welcomed the authorities’ efforts to build resilience to climate change and natural disasters, including by allocating budgetary support for climate adaptation. Directors also encouraged the authorities to undertake reforms to help catalyze climate financing.
Bangladesh: Selected Economic Indicators, FY2018–23 1/
Fiscal year begins July 1.
Excludes deposits held in offshore accounts of resident financial institutions, noninvestment grade sovereign bonds, and foreign exchange overdrafts provided by BB to domestic banks.
Bangladesh: Selected Economic Indicators, FY2018–23 1/
| I. Social and Demographic Indicators | |||
| Population (2020, millions; estimate) | 165 | Infant mortality (2016, per thousand live births) | 28.0 |
| GDP per capita (2020, U.S. dollars) | 1962 | Life expectancy at birth (2016, years) | 71.6 |
| Labor force participation rate (2017, percent; national measure) | 53.4 | Adult literacy (2016, percent of people) | 73.0 |
| Poverty headcount ratio (2019, national measure, percent) | 20.5 | Population dependency ratio (2017. percent) | 50.0 |
| Gini index (2016,World Bank estimate) | 32.1 | Population growth (FY20, y/y, percent; estimate) | 1.0 |
| II. Macroeconomic Indicators | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| FY18 | FY19 | FY20 | FY21 | FY22 | FY23 | ||||
| Est. | Est. | Proj. | |||||||
| National income and prices (annual percent change) | |||||||||
| Real GDP | 7.9 | 8.2 | 3.5 | 5.0 | 6.6 | 7.1 | |||
| GDP deflator | 5.6 | 4.5 | 4.1 | 5.3 | 5.6 | 5.8 | |||
| CPI inflation (annual average) | 5.8 | 5.5 | 5.6 | 5.6 | 5.9 | 5.8 | |||
| CPI inflation (end of period) | 5.5 | 5.5 | 6.0 | 5.6 | 5.9 | 5.7 | |||
| Nonfood CPI inflation (end of period) | 4.9 | 5.7 | 5.2 | 5.9 | 6.4 | 5.9 | |||
| Central government operations (percent of GDP) | |||||||||
| Total revenue and grants | 10.4 | 9.5 | 9.8 | 10.9 | 10.3 | 10.9 | |||
| Total revenue | 10.3 | 9.4 | 9.7 | 10.9 | 10.8 | 10.9 | |||
| Tax | 9.3 | 8.7 | 8.1 | 8.9 | 3.9 | 9.0 | |||
| Nontax | 1.0 | 0.7 | 1.6 | 1.9 | 1.8 | 1.8 | |||
| Grants | 0.1 | 0.1 | 0.1 | 0.1 | 0.0 | 0.0 | |||
| Total expenditure | 15.2 | 15.7 | 15.4 | 15.1 | 16.9 | 16.5 | |||
| Current expenditure | 8.2 | 8.7 | 8.6 | 8.7 | 9.9 | 9.3 | |||
| Annual Development Program (ADP) | 5.9 | 5.9 | 5.7 | 5.3 | 5.5 | 5.9 | |||
| Other expenditures | 1.1 | 1.1 | 1.1 | 1.1 | 1.5 | 1.3 | |||
| Overall balance (including grants) | -4.8 | -6.5 | -5.6 | -4.2 | -6.1 | -5.7 | |||
| (Excluding grants) | -4.8 | -6.3 | -5.7 | -4.3 | -6.1 | -5.7 | |||
| Primary balance (excluding grants) | -3.0 | -4.4 | -3.6 | -1.9 | -3.7 | -3.0 | |||
| Total central government debt (percent of GDP) | 34.6 | 56.1 | 39.5 | 41.4 | 42.5 | 42.7 | |||
| Money and credit (end of fiscal year; percent change) | |||||||||
| Credit to private sector by the banking system | 17.0 | 11.5 | 8.6 | 8.3 | 11.6 | 11.5 | |||
| Reserve money | 4.0 | 5.3 | 15.5 | 22.3 | 10.0 | 13.7 | |||
| Broad money (M2) | 9.2 | 9.9 | 12.7 | 15.6 | 15.3 | 13.7 | |||
| Balance of payments (billions of U.S. dollars) | |||||||||
| Exports, f.o.b. | 36.3 | 39.6 | 52.1 | 36.9 | 43.2 | 44.6 | |||
| (Annual percent change) | 6.7 | 9.1 | -18.9 | 14.9 | 17.0 | 3.3 | |||
| Imports, f.o.b. | -54.5 | -55.4 | -50.7 | -60.7 | -67.8 | -71.0 | |||
| (Annual percent change) | 25.2 | 1.8 | -3.6 | 19.7 | 11.7 | 4.7 | |||
| Current account balance | -9.6 | -4.5 | -5.4 | -4.6 | -9.4 | -11.3 | |||
| (Percent of GDP) | -3.5 | -1.5 | -1.7 | -1.3 | -2.4 | -2.6 | |||
| Capital and financial account balance | 9.5 | 6.1 | 9.5 | 13.3 | 9.5 | 9.3 | |||
| Of which: Foreign direct investment | 1.9 | 2.6 | 1.3 | 1.4 | 1.6 | 1.8 | |||
| Overall balance | -0.7 | 1.0 | 3.8 | 9.5 | 0.1 | -2.1 | |||
| Gross official reserves (billions of U.S. dollars) 2/ | 32.9 | 32.7 | 36.0 | 46.4 | 47.7 | 45.5 | |||
| In months of prospective imports of goods and services | 6.0 | 6.5 | 6.1 | 7.0 | 6.9 | 6.4 | |||
| Exchange rate (taka per U.S. dollar; period average) | 32.1 | 84.0 | 84.8 | 84.8 | … | … | |||
| Exchange rate (taka per U.S. dollar; end-period) | 83.7 | 84.5 | 84.9 | 84.8 | … | … | |||
| Nominal effective rate (2010=100; period average) | 95.1 | 97.6 | 99.1 | 95.6 | … | … | |||
| Real effective rate (2010=100; period average) | 132.3 | 139.9 | 146.9 | 147.0 | … | … | |||
| Memorandum item: | |||||||||
| Nominal GDP (billions of taka) | 22,505 | 25,425 | 27,393 | 30,284 | 34,086 | 38,610 | |||
Fiscal year begins July 1.
Excludes deposits held in offshore accounts of resident financial institutions, noninvestment grade sovereign bonds, and foreign exchange overdrafts provided by BB to domestic banks.
Bangladesh: Selected Economic Indicators, FY2018–23 1/
| I. Social and Demographic Indicators | |||
| Population (2020, millions; estimate) | 165 | Infant mortality (2016, per thousand live births) | 28.0 |
| GDP per capita (2020, U.S. dollars) | 1962 | Life expectancy at birth (2016, years) | 71.6 |
| Labor force participation rate (2017, percent; national measure) | 53.4 | Adult literacy (2016, percent of people) | 73.0 |
| Poverty headcount ratio (2019, national measure, percent) | 20.5 | Population dependency ratio (2017. percent) | 50.0 |
| Gini index (2016,World Bank estimate) | 32.1 | Population growth (FY20, y/y, percent; estimate) | 1.0 |
| II. Macroeconomic Indicators | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| FY18 | FY19 | FY20 | FY21 | FY22 | FY23 | ||||
| Est. | Est. | Proj. | |||||||
| National income and prices (annual percent change) | |||||||||
| Real GDP | 7.9 | 8.2 | 3.5 | 5.0 | 6.6 | 7.1 | |||
| GDP deflator | 5.6 | 4.5 | 4.1 | 5.3 | 5.6 | 5.8 | |||
| CPI inflation (annual average) | 5.8 | 5.5 | 5.6 | 5.6 | 5.9 | 5.8 | |||
| CPI inflation (end of period) | 5.5 | 5.5 | 6.0 | 5.6 | 5.9 | 5.7 | |||
| Nonfood CPI inflation (end of period) | 4.9 | 5.7 | 5.2 | 5.9 | 6.4 | 5.9 | |||
| Central government operations (percent of GDP) | |||||||||
| Total revenue and grants | 10.4 | 9.5 | 9.8 | 10.9 | 10.3 | 10.9 | |||
| Total revenue | 10.3 | 9.4 | 9.7 | 10.9 | 10.8 | 10.9 | |||
| Tax | 9.3 | 8.7 | 8.1 | 8.9 | 3.9 | 9.0 | |||
| Nontax | 1.0 | 0.7 | 1.6 | 1.9 | 1.8 | 1.8 | |||
| Grants | 0.1 | 0.1 | 0.1 | 0.1 | 0.0 | 0.0 | |||
| Total expenditure | 15.2 | 15.7 | 15.4 | 15.1 | 16.9 | 16.5 | |||
| Current expenditure | 8.2 | 8.7 | 8.6 | 8.7 | 9.9 | 9.3 | |||
| Annual Development Program (ADP) | 5.9 | 5.9 | 5.7 | 5.3 | 5.5 | 5.9 | |||
| Other expenditures | 1.1 | 1.1 | 1.1 | 1.1 | 1.5 | 1.3 | |||
| Overall balance (including grants) | -4.8 | -6.5 | -5.6 | -4.2 | -6.1 | -5.7 | |||
| (Excluding grants) | -4.8 | -6.3 | -5.7 | -4.3 | -6.1 | -5.7 | |||
| Primary balance (excluding grants) | -3.0 | -4.4 | -3.6 | -1.9 | -3.7 | -3.0 | |||
| Total central government debt (percent of GDP) | 34.6 | 56.1 | 39.5 | 41.4 | 42.5 | 42.7 | |||
| Money and credit (end of fiscal year; percent change) | |||||||||
| Credit to private sector by the banking system | 17.0 | 11.5 | 8.6 | 8.3 | 11.6 | 11.5 | |||
| Reserve money | 4.0 | 5.3 | 15.5 | 22.3 | 10.0 | 13.7 | |||
| Broad money (M2) | 9.2 | 9.9 | 12.7 | 15.6 | 15.3 | 13.7 | |||
| Balance of payments (billions of U.S. dollars) | |||||||||
| Exports, f.o.b. | 36.3 | 39.6 | 52.1 | 36.9 | 43.2 | 44.6 | |||
| (Annual percent change) | 6.7 | 9.1 | -18.9 | 14.9 | 17.0 | 3.3 | |||
| Imports, f.o.b. | -54.5 | -55.4 | -50.7 | -60.7 | -67.8 | -71.0 | |||
| (Annual percent change) | 25.2 | 1.8 | -3.6 | 19.7 | 11.7 | 4.7 | |||
| Current account balance | -9.6 | -4.5 | -5.4 | -4.6 | -9.4 | -11.3 | |||
| (Percent of GDP) | -3.5 | -1.5 | -1.7 | -1.3 | -2.4 | -2.6 | |||
| Capital and financial account balance | 9.5 | 6.1 | 9.5 | 13.3 | 9.5 | 9.3 | |||
| Of which: Foreign direct investment | 1.9 | 2.6 | 1.3 | 1.4 | 1.6 | 1.8 | |||
| Overall balance | -0.7 | 1.0 | 3.8 | 9.5 | 0.1 | -2.1 | |||
| Gross official reserves (billions of U.S. dollars) 2/ | 32.9 | 32.7 | 36.0 | 46.4 | 47.7 | 45.5 | |||
| In months of prospective imports of goods and services | 6.0 | 6.5 | 6.1 | 7.0 | 6.9 | 6.4 | |||
| Exchange rate (taka per U.S. dollar; period average) | 32.1 | 84.0 | 84.8 | 84.8 | … | … | |||
| Exchange rate (taka per U.S. dollar; end-period) | 83.7 | 84.5 | 84.9 | 84.8 | … | … | |||
| Nominal effective rate (2010=100; period average) | 95.1 | 97.6 | 99.1 | 95.6 | … | … | |||
| Real effective rate (2010=100; period average) | 132.3 | 139.9 | 146.9 | 147.0 | … | … | |||
| Memorandum item: | |||||||||
| Nominal GDP (billions of taka) | 22,505 | 25,425 | 27,393 | 30,284 | 34,086 | 38,610 | |||
Fiscal year begins July 1.
Excludes deposits held in offshore accounts of resident financial institutions, noninvestment grade sovereign bonds, and foreign exchange overdrafts provided by BB to domestic banks.
Title page
BANGLADESH
STAFF REPORT FOR THE 2021 ARTICLE IV CONSULTATION
February 15, 2022
KEY ISSUES
Context. Since independence, Bangladesh has achieved impressive economic growth and social development, making steady progress in reducing poverty and significant improvements in living standards. The COVID-19 pandemic interrupted this long period of robust economic performance, deepening some earlier vulnerabilities. Stagnating job growth, rising inequality, and slowing poverty reduction remain challenges. Revenues are low, and financial sector vulnerabilities continue to be high. Substantial productive investment in infrastructure, human capital, and climate resilience is needed to achieve the authorities’ aspiration to reach the upper-middle income status in 2031.
Key Policy Recommendations. Mitigating the COVID-19 impact on health and economic activity, protecting vulnerable groups, and building buffers are immediate policy priorities. Medium-term policies should focus on structural reforms and modernizing policy frameworks to boost growth, support the vulnerable, strengthen governance, and tackle climate change—an important risk to growth.
Create fiscal space and enhance fiscal governance. Raising tax revenues, rationalizing spending, increasing spending efficiency, and addressing medium-term fiscal risks are necessary to increase development, social, and climate spending, while maintaining fiscal sustainability.
Foster macroeconomic stability and modernize the monetary policy framework. With the economy recovering, Bangladesh Bank should closely monitor inflation pressures and stand ready to normalize as needed to maintain price and financial stability. Reforms to modernize the monetary policy framework and improve policy transmission should continue, including allowing for greater exchange rate flexibility.
Reduce financial sector vulnerabilities and develop capital markets. Reform priorities include strengthening banking regulation and supervision, improving corporate governance, and reforming legal systems. Deepening capital markets is important to meet long-term financing needs.
Improve investment climate and boost productivity. To support private sector-led growth, underpinned by exports and investments, structural reforms should focus on improving governance, diversifying exports, increasing productivity, and building climate resilience to lift growth potential.
Approved By
Anne-Marie Gulde-Wolf (APD) and Kevin Fletcher (SPR)
Discussions took place in Dhaka during December 4–19, 2021. The IMF team comprised Rahul Anand (Head), Ritu Basu, Emmanouil Kitsios, Seohyun Lee (HQ), Racha Moussa (HQ), and Fan Qi (HQ), Jayendu De (Resident Representative) and Saiful Islam (Resident Representative Office) (all APD). Surjit Bhalla and Bhupal Singh (OED) joined the meetings. Bhupal Singh participated in in-person meetings and Surjit Bhalla joined the closing meeting virtually. Gulrukh Gamwalla-Khadivi and Pamela Polec (both APD) assisted in the preparation of this report.
Contents
CONTEXT
COVID-19 IMPACT AND POLICY RESPONSE
OUTLOOK AND RISKS
POLICY DISCUSSIONS
A. Creating Fiscal Space for Growth-Enhancing and Inclusive Spending
B. Monetary and Exchange Rate Policy to Foster Macroeconomic Stability
C. Addressing Financial Sector Vulnerabilities to Mobilize Productive Investment
D. Developing Capital Markets to Support Higher Investment and Growth
MACRO-STRUCTURAL
A Strengthening Governance to Boost Investment
B. Boosting Exports and Productivity to Generate Good-Paying Jobs
C. Tackling Climate Challenge to Build Resilience and Competitiveness
POST FINANCING ASSESSMENT
STAFF APPRAISAL
FIGURES
1. Significant Progress Since Independence
2. COVID-19 Crisis Disrupted the Growth Momentum
3. Fiscal Priorities to Support Development Aspirations
4. Monetary and Financial Market Supported the Recovery
5. Banking Sector Challenges Persist
6. External Sector Remains Resilient
7. Governance Indicators
8. Expanding Exports and Boosting Productivity
TABLES
1. Selected Economic Indicators, FY2018–23
2. Medium-Term Indicators, FY2017–26
3. Balance of Payments, FY2017–26
4a. Central Government Operations, FY2017–26 (In billions of Taka)
4b. Central Government Operations, FY2017–26 (In percent of GDP)
5. Monetary Accounts, FY2017–26
6. Financial Soundness Indicators, FY2010–20
7. Sustainable Development Goals
ANNEXES
I. Response to Past Fund Policy Advice
II. COVID-19-related Measures
III. External Sector Assessment
IV. Risk Assessment Matrix
V. Supporting Inclusive Social Spending
VI. Capacity Development Supporting Surveillance Priorities
VII. COVID-19 and the Financial Sector Policy Response
VIII. An Illustrative Adverse Scenario
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summings up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm.
