Bangladesh: Requests for an Arrangement Under the Extended Fund Facility, Request for Arrangement Under the Extended Credit Facility, and Request for an Arrangement Under the Resilience and Sustainability Facility-Press Release; Staff Report; and Statement by the Executive Director for Bangladesh

1. Amid multiple external shocks, macroeconomic challenges have intensified in Bangladesh. A robust economic recovery from the COVID-19 pandemic was interrupted by Russia's war in Ukraine. Rising global commodity prices, supply disruptions, and slowing external demand have led to a sharp widening of the current account (CA) deficit, depreciation of the Taka, and a large decline in foreign exchange (FX) reserves. While there is not a full-blown crisis, rising inflation, slowing economic activity, and strict austerity measures to deal with the shock are compressing demand, hurting the poor most.

Abstract

1. Amid multiple external shocks, macroeconomic challenges have intensified in Bangladesh. A robust economic recovery from the COVID-19 pandemic was interrupted by Russia's war in Ukraine. Rising global commodity prices, supply disruptions, and slowing external demand have led to a sharp widening of the current account (CA) deficit, depreciation of the Taka, and a large decline in foreign exchange (FX) reserves. While there is not a full-blown crisis, rising inflation, slowing economic activity, and strict austerity measures to deal with the shock are compressing demand, hurting the poor most.

Context

1. Amid multiple external shocks, macroeconomic challenges have intensified in Bangladesh. A robust economic recovery from the COVID-19 pandemic was interrupted by Russia's war in Ukraine. Rising global commodity prices, supply disruptions, and slowing external demand have led to a sharp widening of the current account (CA) deficit, depreciation of the Taka, and a large decline in foreign exchange (FX) reserves. While there is not a full-blown crisis, rising inflation, slowing economic activity, and strict austerity measures to deal with the shock are compressing demand, hurting the poor most.

2. Even as Bangladesh tackles these immediate challenges, addressing long-standing structural issues remains critical, with climate change as an added concern. While on track to graduate from the Least Developed Country (LDC) status by 2026, Bangladesh aspires to reach upper middle-income status by 2031. However, substantial gaps remain in social and development spending, tax revenue mobilization, the scale and diversification of exports, foreign direct investment (FDI) inflows, and vibrancy of the investment climate.1 Multipronged structural reforms, as outlined in Bangladesh's 8th five-year plan (FYP), are needed to close these gaps, deal with the challenges of the gradual loss of preferential trade treatments and concessional financing and improve governance. The authorities recognize these challenges and the need to tackle climate change issues, which expose the economy to large risks that could threaten macroeconomic stability.

3. The authorities have requested a 42-month Fund-supported program to restore macroeconomic stability. Bangladesh would risk falling into a subpar equilibrium of low growth, low investment, and weak human development, if left to restore macroeconomic stability on its own. With strong ownership by the authorities, the arrangements under the Extended Credit Facility (ECF) and Extended Fund Facility (EFF) are designed to advance reforms for inclusive, green and sustainable growth, while protecting macroeconomic stability, easing demand management measures and rebuilding buffers.

4. To help address the large climate financing needs, the authorities have also requested a concurrent program under the Resilience and Sustainability Facility (RSF). Bangladesh is highly vulnerable to climate change. Access under the RSF will underpin an ambitious reform plan to address the significant adaptation challenges facing Bangladesh, while helping catalyze additional official and private finance and enhancing climate mitigation efforts.

Recent Developments, Outlook, and Risks

A. Recent Developments

5. The Bangladesh economy is facing several serious macroeconomic challenges.2 Russia's war in Ukraine has led to (i) headline inflation rising to a decade high of 9.5 percent year-on-year in August 2022; (ii) the CA deficit sharply widening to 4.1 percent of GDP in FY22 from 1.1 percent of GDP in FY21; (iii) the Taka depreciating by 23 percent year-to-date; and (iv) gross FX reserves3 (BPM6 definition) declining to US$25.7 billion, as of end-November 2022, from their peak of US$40.7 billion in August 2021 (Text chart). Despite these abrupt changes, the overall external position remained broadly in line with the level implied by fundamentals and desirable policies in FY22 (Annex I).

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Bangladesh: External Sector Developments in 2022

Citation: IMF Staff Country Reports 2023, 066; 10.5089/9798400232206.002.A001

6. The authorities have responded with stringent demand management measures. Bangladesh Bank (BB) increased the repo rate by 100 basis points cumulatively during May and December 2022 to 5.75 percent and has signaled further tightening bias for FY23. Unsterilized FX sales have reduced liquidity in the system, with short-term and long-term government yields rising sharply. While greater exchange rate flexibility was allowed to reduce FX pressures, disorderly market conditions have resulted in an arrangement characterized by multiple exchange rates for different market participants. The prices of fuel, fertilizer, gas and electricity were raised. In addition, the government has imposed transitory restrictions on some non-essential imports,4 slowed the implementation of import-intensive development projects, closed diesel-fueled power plants, introduced rolling blackouts, reduced in-office hours, shortened the school week, and introduced other measures to curtail energy demand. While these measures have suppressed import demand, exchange rate pressures remain high and FX reserves continue to decline, albeit at a slower pace. These demand control measures could prolong the ongoing hardships and will likely hurt both near-term growth and medium-term economic potential.

B. Outlook and Risks

7. Global headwinds are expected to weigh on the near-term outlook and inflation is set to remain elevated (Table 25). In FY23, real GDP growth is projected to slow to 5.5 percent due to demand management measures. Average headline inflation in FY23 is expected to increase to 8.9 percent, driven by rising domestic food and fuel prices and the pass-through of large Taka depreciation. High inflation, while adding to economic uncertainty, will reduce consumer spending. Meanwhile, export growth is forecast to slow, albeit from a high base in FY22, in line with slowing demand from Europe and the United States which together account for nearly 80 percent of total external demand.

8. Fiscal and external imbalances are likely to persist with emerging financing gaps. The overall fiscal deficit is expected to widen to 5.6 percent of GDP in FY23 due to lower tax revenues and elevated expenditures, including subsidies. Given strict import controls, the CA deficit is expected to improve to 3.2 percent of GDP in FY23. Considering Bangladesh's large financing needs for pursuing development goals and concurrent necessity of maintaining adequate FX reserves, a financing gap of about US$9.1 billion is expected to emerge over FY23 and FY26 (Table 9).

9. Bangladesh remains at a low risk of external and overall debt distress. Despite increased external borrowing in the near term, favorable debt dynamics in the medium term keep the public and publicly guaranteed external debt-to-GDP ratio on a declining path, and the overall public debt-to-GDP ratio is expected to stabilize at around 42 percent of GDP.5 All external debt and debt service indicators remain below relevant thresholds under the baseline, but the space to absorb shocks is limited as the present value of the debt-to-exports ratio would temporarily breach its respective threshold in an extreme scenario.

10. There are considerable uncertainties surrounding the outlook and risks are tilted to the downside. Main external risks include intensifying spillovers from Russia's war in Ukraine, further commodity price shocks, larger-than-expected slowdown in Bangladesh's major trading partners, and local COVID-19 outbreaks. Domestically, elevated non-performing loans (NPLs) could dampen growth prospects, while slow progress on the Rohingya crisis could lead to donor fatigue. The risk of natural disasters is a continuous threat. On the upside, swift implementation of priority reforms could improve growth potential and strengthen climate resilience (Annex II).

Key Elements of the ECF/EFF Arrangement

In the near-term, the ECF/EFF program aims at restoring macroeconomic stability, relaxing financing constraints to prevent disruptive adjustment, and rebuilding FX reserves to further cushion the impact of external shocks. Over the medium term, the ECF/EFF will support a much needed scale-up in social and development spending and boost Bangladesh's growth potential. Reforms under the ECF/EFF will focus on (i) creating fiscal space for priority spending while stabilizing debt; (ii) strengthening the financial sector to mobilize productive investment; (iii) boosting productivity and exports to generate good quality jobs; (iv) enhancing the investment climate to meet large financing needs; and (v) modernizing monetary, fiscal and financial systems to prepare for LDC graduation.

A. Program Objectives

11. Restoring macroeconomic stability and preventing disruptive adjustment are key objectives of the ECF/EFF arrangement (Text Chart). High dependence on imports, elevated commodity prices, economic slowdown in major trading partners, tighter global financial conditions and heightened global uncertainties will keep the Balance of Payments (BoP) under pressure for some time. Recent measures to restore external balance are unsustainable, as they would severely suppress domestic demand to curtail imports, thus leading to disruptive macroeconomic adjustments. These measures are disproportionately affecting the poor and the vulnerable and, if they remain in place, would drag medium-term growth prospects— with a risk of inflicting lasting economic scars. Under the baseline scenario, net international reserves (NIR) would likely fall to an unsustainable level of around 2.5–2.6 months of import coverage. The ECF/EFF arrangement, along with its catalytic role in mobilizing other financing, will help rebuild reserves, while supporting a relaxation of strict demand and import management measures. Over the medium term, the program will enable a much needed fiscally sustainable scale-up in social and development spending. The ECF/EFF disbursements and associated reforms are expected to increase the NIR to around 4 months of prospective imports between FY23 and FY26, and debt would stabilize at 42 percent of GDP.

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Bangladesh: Net International Reserves 1/

(Months of Prospective Imports)

Citation: IMF Staff Country Reports 2023, 066; 10.5089/9798400232206.002.A001

Source: IMF Staff Estimates.1/ Net international reserves are gross reserves minus the central bank FX liabilities.

12. The ECF/EFF program is also expected to help accelerate overdue macroeconomic reforms. The program adjustments—including tax revenue measures, public sector management, and financial sector reforms—will increase the resource envelope to meet critical spending needs, while avoiding crowding out private investment. The proposed policy mix will be anchored by the NIR and primary deficit paths that are compatible with long-term debt sustainability. Over the medium-term, reform efforts will help raise investment and sustain high growth, enabling a successful graduation from LDC status (Box 1).6

Supporting Inclusive, Sustainable, and Green Growth in Bangladesh

Despite remarkable progress in reducing poverty, Bangladesh faces significant challenges to further enhance human development, living standards, and vulnerability reduction. Strong growth performance over the past decade has contributed to a remarkable reduction in poverty. However, a large part of the population still lives in extreme poverty and remains highly vulnerable to covariate shocks such as COVID-19. Government spending to address such covariate risks remain low and lagging that of peers. While the coverage of social assistance programs has increased over time, the level of total spending and the adequacy of benefits have been subdued and the bulk of the population is underserved. The low level of government revenue has further constrained public expenditure on important developmental objectives.

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Bangladesh: Health, Education, and Infrastructure Spending

Citation: IMF Staff Country Reports 2023, 066; 10.5089/9798400232206.002.A001

Source: IMF FAD Expenditure Assessment Tool (EAT), World Health Organization.

Substantial investment in human capital and infrastructure will be needed to achieve Bangladesh's aspiration to reach upper-middle income status and meet the Sustainable and Development Goals (SDGs). Bangladesh needs an additional US$928.5 billion in financing to implement the SDGs between 2017 and 2030, of which the public sector is expected to contribute about a third. Alongside, Bangladesh will require additional financing of 3–4 percent of GDP annually for its climate-related investments.

A well-designed policy mix will enhance the budget envelope for social spending and public investment to support Bangladesh's development objectives. Given subdued private investment dynamism, closing the financing gaps for sustainable development and climate investment on government borrowing alone (about 14 percent of GDP per year) would set Bangladesh's public debt on a rapid rise and increase vulnerability to a wide range of shocks. In staff's view, a modest increase in the fiscal envelope for additional development spending, supported by concessional borrowing, domestic revenue mobilization, and other mutually reinforcing reform measures will yield a tangible improvement in economic and social outcomes toward the medium term, without exacerbating domestic and external imbalances. Reform efforts should prioritize measures to (i) strengthen domestic revenue mobilization and public administration and spending efficiency, (ii) rekindle financial sector reforms, (iii) jumpstart private investment, and (iv) attract FDI inflows. These public actions will, in addition, help support the private sector development, further mutually reinforcing the reform impacts. With strong and credible implementation of reforms, gross investment including private and public investments is expected to rise by about 4 percent of GDP during the program period without jeopardizing external stability.

Table 1.

Bangladesh: Sequencing of Reforms Under the ECF/EFF and RSF, FY23–FY26

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Note: Green highlights consider reform measures under the RSF.

13. Strong ownership, sustained support from development partners (DPs), and appropriate prioritization and sequencing of reforms are crucial. The authorities have demonstrated strong commitment by proactively taking several measures that would have been prior actions (¶6). The authorities' reform agenda under the program is laid out in the authorities' Letter of Intent (LOI) and Memorandum of Economic and Financial Policies (MEFP), which are consistent with Bangladesh's 8th FYP. The program will prioritize the implementation of the most urgent and critical reforms, gradually increasing the pace of reforms during the program period (Table 1). Wherever possible, the program will also exploit synergies and seek complementarity with other DPs' priorities. During the first year, the ECF/EFF arrangement will be underpinned by the quantitative performance criteria (QPC), indicative targets (IT), and macro-critical structural benchmarks (SBs) (Table 11). The implementation of reforms will be supported by IMF capacity development (Table 13).

B. Fiscal Policy

14. Fiscal policy reforms will be geared toward creating fiscal space to increase social spending and investment sustainably. Bangladesh's tax-to-GDP ratio is one of the lowest in the world, constraining critical spending. Extensive exemptions, complicated tax codes, and weaknesses in revenue administration have resulted in low tax productivity across all major taxes. Meanwhile, reliance on national saving certificates (NSCs) has resulted in high government borrowing costs. Key objectives include enhancing revenue mobilization, reducing issuance of NSCs, containing subsidies, and increasing spending efficiency with fiscal institutional reforms. The program envisages tax revenue mobilization efforts of additional 0.5 percent of GDP annually in FY24 and FY25 and 0.7 percent of GDP in FY26, contributing to higher social spending and public investment (Text Chart).7 As a result, the overall fiscal deficit is expected to improve from 5.6 percent of GDP in FY23 to 5 percent of GDP by program-end, underpinned by a primary deficit of around 3.3 percent, which is consistent with public debt remaining below 45 percent of GDP through FY43 (MEFP, ¶8).

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Bangladesh: Tax Revenue

(Percent of GDP)

Citation: IMF Staff Country Reports 2023, 066; 10.5089/9798400232206.002.A001

Source: IMF Staff Projections.

15. Raising revenues will require a multipronged approach. The program includes a series of carefully sequenced reforms, which comprise both tax policy and revenue administration measures and will be anchored in a medium-term revenue strategy (expected to be finalized by mid-2024).

  • Tax policy reforms. Key areas for policy reform include rationalizing tax expenditures, simplifying the tax rate structure and broadening the tax base, as part of an overarching strategy of shifting the tax burden from trade-related taxes toward income and value-added taxes (MEFP ¶9). The authorities have committed to identify and adopt in the FY24 budget tax revenue measures amounting to 0.5 percent of GDP (SB for end-June 2023). Subsequent budgets for FY25 and FY26 would incorporate additional revenue measures of 0.5 and 0.7 percent of GDP respectively, which will be identified in part with the help of IMF technical assistance (TA) on estimating tax expenditures.

  • Tax administration reforms. There is significant scope for increasing tax compliance and broadening the tax base to sustainably raise tax revenues. To this end, key reforms include (i) establishing compliance risk management units (CRMUs) within the National Board of Revenue (NBR) (SB for end-December 2023) and implementing a compliance improvement plan; (ii) strengthening information sharing between the income tax, VAT, and customs wings of NBR, including to support risk-based audits; (iii) progressively expanding and integrating automation in tax administration; (iv) increasing at-source tax collection; and (v) adopting a modernized Customs Act.

16. Rationalization of energy subsidies will free fiscal resources for social and development spending. While recent price hikes have brought petroleum prices broadly in line with international prices, gas and electricity subsidies are expected to rise to 0.9 percent of GDP in FY23 (Box 2). Over the program period, the introduction of a periodic formula-based fuel price adjustment mechanism will help ensure no structural subsidies for petroleum products (SB for end-December 2023). The authorities will further explore options to gradually reduce gas and electricity subsidies, while strengthening social safety nets (MEFP, ¶11 and ¶15). The recent increase in electricity prices is a welcome step. Reform priorities in social protection include improving targeting, broadening coverage both in rural and urban areas, adopting the government-to-person (G2P) systems, and expanding social insurance. The program will leverage the ongoing programs to strengthen and expand social protection by other DPs. The government's efforts to enhance social safety nets and increase development spending will be anchored by ITs on social and development capital spending under the program.

17. Reforms to the NSCs system are expected to lower interest payments over time. The authorities have taken steps to realign incentives by introducing tiered interest rates, capping issuances, and increasing the tax on earned interest. Moreover, the new Public Debt Act, passed into law in September 2022, criminalizes the provision of false information by NSC investments. Supported by IMF TA, the authorities will build on recent reforms to the NSC system (MEFP, ¶14) and develop a formal plan to reduce net NSC issuance to below 1/4 of total net domestic financing by FY2026 (SB for end-December 2023), to be gradually implemented over the program period.

18. Improved debt and cash management will support optimal use of budget resources. The recently updated Medium-Term Debt Strategy (MTDS) envisages a shift away from expensive domestic financing toward concessional external financing and eventually long-term market financing. With the help of IMF TA, the MTDS will be updated annually and complemented with the timely publication of a quarterly debt bulletin and, once capacity has been sufficiently built, an annual debt portfolio report (MEFP, ¶13). Cash management will be strengthened with the continued expansion of coverage of the treasury single account (TSA), which will be supported by a policy note to guide decisions on integration of bank accounts currently outside the TSA and sequencing of TSA enhancements (SB for end-December 2023). Moreover, progressively greater use of electronic funds transfer (EFT) and development of Integrated Budget and Accounting System (iBAS++) functionalities will reduce leakages and improve commitment controls (MEFP, ¶16).

19. Efficient public investment management will help channel spending toward priority projects. With IMF TA support, the authorities plan to roll out Sector Strategy Papers and Multi-Year Public Investment Program tools to 10 priority spending sectors during the program.8 These efforts will ensure more strategic project selection and aid the eventual production of a consolidated medium-term budget framework that incorporates capital spending under the Annual Development Program (MEFP, ¶12).

20. Enhanced fiscal transparency and fiscal risk management will enhance governance and contribute to raise investor confidence. Under the program, the authorities are committed to publishing fiscal reports and statements on a timelier basis, improving data compliance in line with international accounting and auditing standards, and implementing risk-based internal audits. Ongoing work to collect data of state-owned enterprises (SOEs) will inform a fiscal risk statement, to accompany the budget starting in FY25, and form the basis of an annual SOE sector report, to initially cover the 50 largest SOEs in 2025 (MEFP, ¶17).

C. Monetary and Exchange Rate Policies

21. Monetary and exchange rate policies should focus on containing inflation and stemming reserve losses. Pass through from recent Taka depreciation and increase in fuel prices have added to inflationary pressures. The monetary policy stance will be guided by the inflation outlook (MEFP, ¶18) and will be anchored by an IT (ceiling) on the level of reserve money under the program, as a main operating target of BB. BB stands ready to continue calibrated tightening to counter possible second-round effects from supply-side shocks, re-anchor inflation expectations,9 and stabilize demand for FX liquidity, while carefully safeguarding economic growth amid already curtailed domestic demand. A modest buildup in NIR, as a QPC (floor), is targeted in the first year of the program, with further increases programmed over the medium term, to cover 4 months of prospective imports (MEFP, ¶21). Greater exchange rate flexibility will help accumulate reserves, strengthen external buffers, and build resilience (MEFP, ¶20).

22. Continued progress toward modernizing monetary policy framework and operations is vital. The current eclectic monetary policy regime10 may not be effective in meeting the challenges of a more diversified and open economy after the LDC graduation. BB will continue modernizing its monetary policy framework and operations (MEFP, ¶19) to help promote macroeconomic stability, support financial development, and enhance monetary policy transmission. With support from IMF TA, the authorities are building their capacity to modernize monetary policy formulation and move away from reserve money to interest rate as an operational target by the end of the program period. As first steps, BB will adopt an interest rate corridor system with automatic standing lending and deposit facilities (SB for end-July 2023) and improve liquidity forecasting and management. The authorities have started relaxing lending interest rate restrictions and are committed to removing all caps over the program period. BB will also strengthen its communication and transparency to better signal the monetary policy stance. The authorities are taking steps to implement the recommendations of the 2022 IMF's Safeguards Assessment, which will further strengthen BB's autonomy and governance (MEFP, ¶22).

23. Further strengthening the exchange rate and FX reserve management framework would help build external resilience. The authorities are committed to unifying the multiple exchange rates that resulted from disorderly FX market conditions and will continue to allow the interbank transactions at market-determined rates (MEFP, ¶20). BB will also use the market-determined exchange rate for all official FX transactions on behalf of the government (SB for end-June 2023) and will reverse the temporary increases in margins for opening letters of credit on non-essential imports. BB will strengthen reserves management and will start compiling and reporting the official Gross International Reserves (GIR) as per the Balance of Payments and International Investment Position Manual (BPM6) (SB for end-June 2023). Monetary and exchange rate policy reforms under the program will be properly sequenced to exploit synergies.

D. Financial Sector Policies

24. An orderly exit from the pandemic support measures is needed to reduce the buildup of financial sector vulnerabilities. While COVID-19 policy support helped in the near term, it has added to the existing financial sector vulnerabilities (Table 6). The COVID-19 financial support policies are set to expire in December 2022. As the unwinding of these policies may lead to a gradual realization in the losses in the banking system, asset classifications, in particular restructured loans, should accurately reflect current balance sheet risks and distressed assets be adequately provisioned. To avoid cliff effects, BB will continue to support individuals and businesses that are most at risks under its regular financial support scheme (MEFP, ¶23).

25. A holistic and time bound non-performing loan (NPL) resolution strategy would help address bank balance sheet weaknesses (MEFP, ¶24 and ¶25).

  • Identifying distressed assets. The classification for NPLs should be aligned with international best practices. Restarting reporting banks' rescheduled loans in the annual financial stability report along with NPLs will be a good start (SB for end-June 2023). Some elements of Basel III have been adopted, but with extensive exceptions. Going forward, fully adopting the Basel III standards for measurement of banks' financial statement and provision framework and the adoption of the International Financial Reporting Standard 9 (IFRS 9) will help understand the actual extent of the problem.

  • Formulating the NPL resolution strategy. BB has committed to develop bank-specific NPL resolution and capital restoration strategies and establish effective monitoring and enforcement framework, underpinned by memorandums of understanding (MOUs), to oversee concrete actions adopted by banks. These MOUs will target a reduction of the average NPL ratios to below 10 percent for state-owned commercial banks (SoCBs) and below 5 percent for private commercial banks (PCBs), while increasing capital adequacy ratios and provisioning coverages of SoCBs and PCBs to statutory minimum by 2026.

26. Further strengthening monitoring and supervision of the banking sector is needed to enhance financial sector resilience. Structural weaknesses in supervision, regulation, and governance, coupled with high NPLs and low capital in SoCBs, could be a drag on medium-term growth prospects.11 BB will complete the pilot risk-based supervision action plan (SB for end-June 2023) and prioritize actions to provide adequate and timely supervisory data and a forward-looking analysis of bank balance sheet risks in line with the IMF TA recommendations. Extending the current pilot on risk-based supervision to the wider banking sector and implementing it in a timely manner is critical, just as incorporating specific procedures for Islamic banking operations in the assessment tool and the inspection manual. Developing a macroprudential strategy and conducting scenario-based macroprudential stress test would help manage systemic risk (MEFP ¶26).

27. Stronger governance and regulatory framework will strengthen the financial sector and support medium-term growth objectives. Existing policies for nomination and appointment of directors of SoCBs are being examined by an independent committee, which will suggest policy recommendations to strengthen the corporate governance of SoCBs (MEFP, ¶25). The authorities also plan to submit to the Parliament the Bank Company (Amendment) Act 2020 and the Finance Companies Act 2020, drafted in line with best practices (SB for end-September 2023). The Bankruptcy (Amendment) Act 2020 and the Money Loan Court (Amendment) Act 2003 will be subsequently submitted to the Parliament by June 2024, and the Negotiable Instrument (Amendment) Act 2020 by June 2025 (MEFP, ¶27). These reforms will help modernize the financial sector, improve the legal environment of credit and business activities, enhance the insolvency regime, and facilitate recovery of loans.

28. Development of the domestic capital market will help mobilize long-term financing to support growth objectives. Expanding the mandate of the credit information bureau (CIB) and allowing it to share data with private borrowers will strengthen credit infrastructure and collateral valuation framework (MEFP, ¶26). Gradually reforming NSCs (¶17) and replacing them with marketable wholesale instruments, implementing the MTDS and developing secondary market for government securities will be important (MEFP, ¶28). A roadmap for bond market will be developed through a joint TA between the IMF and the World Bank on Local Currency Bond Market Diagnostic (LCBM).

E. Macro-Structural Policies

29. Creating an enabling environment will help further expand trade and attract FDI. Bangladesh's trade and FDI remain low by most measures. Reducing relatively high non-tariff barriers (NTBs) and domestic protection, improving trade-related energy and transportation infrastructure, addressing regulatory barriers, and ensuring financing to the private sector are key to increasing export competitiveness, expanding international trade, and attracting FDI (MEFP, ¶29). In coordination with DPs, the authorities are working on designing near-to-medium term trade development and FDI reform priorities.

30. Human capital development is crucial to boosting labor productivity and long-term growth potential. Reform efforts to improve education outcomes and address the gaps in educational and vocational training are key to building skills and reducing informality. Upskilling of female workers is also vital to improve productivity as well as to promote gender equity. The program will leverage the efforts of the United Nations and other DPs who are providing technical and financial support to make progress on gender equality, financial deepening, and human capital development as part of Bangladesh's Sustainable Development Goals (SDGs). Deepening financial inclusion, particularly among women, remains important (MEFP, ¶30).

31. Improving governance and reducing vulnerability to corruption would help enhance the business climate, thus boosting investment. Enhancing fiscal governance and transparency (¶20) as well as improving the efficiency of the financial sector (¶28) remain crucial for attracting investment. Further digitalization of public services and safeguarding the independence of the Anti-Corruption Commission and the Comptroller Auditor General would help promote transparency and reduce corruption.12 This is especially critical, given the new risks of corruption from climate finance and infrastructure projects. Enhancing information collection would help with fully identifying the ultimate beneficial ownership in the financial sector. Moving toward international best practice for risk-based supervision would help further strengthen the AML/CFT framework and mitigate substantial money laundering (ML) risks, including from cross-border activity and trade-based ML (MEFP, ¶31). A detailed roadmap for this purpose will be developed under an IMF TA.

32. Enhancing data quality and availability will support policy making. With IMF TA, the historical rebased GDP data were published recently and the work on compiling the national account and government finance statistics on a quarterly basis are underway (Annex IV and Table 13). The authorities are committed to publish the new consumer price index using the updated index weights and Household Income and Expenditure (HIES) survey (MEFP, ¶37), and plan to publish the national accounts on a quarterly basis when ready (SB for end-December 2023). Similarly, with the IMF support, the financial soundness indicators using a standard approach and with expanded coverage will be published.

Key Elements of the RSF Arrangement

The RSF will complement reforms under the ECF/EFF by supporting the authorities' efforts in tackling climate change challenges to build resilience and catalyze additional official and private finance.

A. Program Objectives

33. The RSF will improve the climate investment potential (Annex III). With current annual climate-related government spending under 1 percent of GDP against the needed 3 to 4 percent of GDP of financing over the next 15 years, Bangladesh has a significant financing need to meet climate change challenges13 (see Table 2 in Annex III for details). Similar to SDGs financing gaps, any climate financing gap will be met by not executing spending in this area. RSF resource will expand the fiscal space to help finance priorities identified in the Bangladesh Delta Plan (BDP2100) and the National Adaptation Plan (NAP), by crowding in other financing, substituting for more expensive domestic financing, improving public debt dynamics, and reducing BoP pressures from import-intensive climate investment. The RSF arrangement is also expected to further strengthen financing prospects by catalyzing additional policy- and project-based lending through DPs. For instance, the WB and the ADB are considering new budget support programs to help with the implementation of various climate-related reforms. The authorities plan to mobilize an additional US$8 billion through public green bonds under BDP2100 and private green financing under the Mujib Climate Prosperity Plan (MCPP). The RSF reforms will not only help strengthen the institutional setup to enable large-scale climate investments, but also support the authorities' plan to mobilize additional private climate financing as well as enhance financial sector assessment of climate risks.

B. Climate Change Policies

34. Bangladesh is among the most vulnerable countries to climate change and natural disasters (Text Chart). The projected damage from tropical cyclones in Bangladesh is estimated at between 1.5 and 6 percent of GDP.14 Slow on-set climate change is forecast to result in total economic costs of 2 percent of annual GDP by 2050 under a business-as-usual scenario and up to 9.4 percent in 2100.15 These climate-related events could disrupt economic activity and cause substantial long-term damage to the economy, putting pressures on the currency, reserves, and public debt, with the effects disproportionately felt by the poor and vulnerable groups (Annex III).

uA001fig4

Bangladesh: Climate Change

Citation: IMF Staff Country Reports 2023, 066; 10.5089/9798400232206.002.A001

Sources: Global Climate Risks; INFORM Global Risks Index; and WRI Climate Data Explorer.1/ Including land-use change and forestry.

35. Bangladesh has made significant progress toward its national climate mitigation and adaptation objectives and has put in place a range of policy tools.

  • Mitigation. Despite its small contribution to global emissions, Bangladesh's updated Nationally Determined Contribution (NDC) makes a robust commitment to reduce greenhouse gas (GHG) emissions by 6.7 percent (with its own efforts), and up to 21.9 percent (with international support) below business-as-usual in 2030. The NDC is being implemented through green transition priorities such as scaling up renewable energy (RE)16, promoting electric vehicles and clean public transport, enhancing energy efficiency in buildings and industrial facilities, and measures to reduce emissions from the agriculture, land-use.17 About 80 percent of Bangladesh's energy supply comes from fossil fuel, but over two-third of this is natural gas.18 At COP26, the authorities announced the cancellation of 10 coal-fired power plant projects approximating US$12 billion in foreign investment and set the target of generating at least 40 percent of total electricity from RE sources by 2041. A new integrated energy and power sector master plan is being prepared to support this goal. Plans to import RE-based electricity from neighboring countries are being finalized and will further help shift electricity generation away from fossil fuel sources. The recent increases in natural gas and fuel prices are also welcome first steps toward market-based and transparent energy pricing (Box 2). The authorities are committed not to increase untargeted subsidies on natural gas-generated energy and electricity as a percentage of GDP during the program period and will consider different options of gradually reducing them.

  • Adaptation. The cabinet, on 31st October 2022, approved the NAP that outlines the adaptation investment requirement and sets out a comprehensive action roadmap across relevant sectors, supported by the BDP 2100 and the MCPP. The implementation of the National Plan for Disaster Management contributes significantly to Bangladesh's climate adaptation agenda. Since 2014, the authorities have put in place a range of climate-related policy tools, notably the Climate Fiscal Framework (CFF), climate change budget tagging, sustainable finance policy for banks and financial institutions and green taxonomy (Annex III).

Fossil Fuel Subsidies in Bangladesh

To further enhance climate mitigation, Bangladesh has ramped up its reform efforts toward transparent market-based pricing of fossil fuels. Reflecting elevated global commodity prices, subsidies for gas and electricity are expected to reach about 0.9 percent of GDP in FY2023 compared to 0.4 percent of GDP in FY2021 (see Box Table 1). To alleviate budget pressures, the authorities in August 2022 raised prices for petrol and octane by close to 50 percent, and prices for diesel and kerosene by 36 percent on top of a 23 percent increases in November 2021, helping keep domestic fuel prices broadly aligned with international prices. Natural gas tariffs were also hiked by 23 percent on average in June 2022 and bulk electricity tariffs were raised by 20 percent in November 2022. Going forward, the authorities plan to regularly adjust petroleum product prices via a formula-based pricing mechanism (SB for end-December 2023, ¶16 and RM2 for end-December 2023) and thereby lock in zero structural subsidies for petroleum products. These actions are expected to help ease budget pressures for energy subsidies and encourage more efficient fuel consumption going forward. In addition, barring further global price shocks, the authorities have committed to not increase these subsidies during the program and explore options to gradually reduce them further, while scaling up social protection schemes (MEFP, ¶33).

Box Table 1.

Bangladesh: Energy-Related Budget Subsidies

(Percent of GDP)

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Sources: Bangladesh authorities; and IMF staff calculations.

36. Additional efforts to strengthen institutions and enhance climate-spending efficiency would help meet climate objectives and mobilize climate finance, particularly from private sources. Guided by the World Bank's Country Climate and Development Report (CCDR) and the IMF's Climate Public Investment Management Assessment (C-PIMA)19, RSF reforms aim at (i) prioritizing and allocating financing for BDP2100, (ii) scaling up climate-smart investment across sectors, (iii) creating an enabling environment and strengthening the institutional framework through better public financial management (PFM) and public investment management (PIM) practices, and (iv) leveraging different financing instruments. Building on the authorities' reform priorities, the RSF reform measures focus on critical areas exploiting synergies and complementing the operations of the World Bank and other DPs (Text Chart). These reforms will help address Bangladesh-specific needs such as boosting the resilience of coastal economy and infrastructure and complementing with nature-based solutions, mitigating the risks and impacts of floods and tropical cyclones, reducing the infrastructure deficit and promoting resilient infrastructure, as well as supporting climate mitigation policy. IMF capacity development (CD), in conjunction with CD provided by other DPs, will support the implementation of these reforms.

37. Policies should prioritize climate-responsive PIM reforms to make infrastructure investment green and resilient. Efficient, green and resilient public investment has multiple benefits, as it creates jobs, spurs growth and stimulates private sector investment and other innovative financing. The authorities will integrate climate considerations in the appraisal and selection of capital projects to improve the prioritization and allocation of resources for the BDP 2100 and scaling up of climate-smart investment as envisaged in the NAP (RM6 for end-December 2024 and RM9 for end-June 2025). The authorities will establish a public asset register module of iBAS++ and will incorporate information on climate-related risks/damages and vulnerability of new public assets to the module (RM10 for end-December 2025). To help leverage private sector climate finance and ensure that public private partnership (PPP) vehicle supports national climate goals, they further plan to update the PPP policy and framework to reflect climate risks and opportunities and develop accompanying guidelines for PPP project proponents and developers (RM8 for end-June 2025 and MEFP, ¶34).

uA001fig5

Bangladesh: Proposed RSF Reform Priorities and Measures

Citation: IMF Staff Country Reports 2023, 066; 10.5089/9798400232206.002.A001

Source: IMF Staff.

38. Further improving climate-related fiscal management is a key for an integrated government strategy to combat climate change. The implementation of the CFF is key to the success of Bangladesh's climate strategies and will lay the foundation for sound and transparent climate-sensitive PFM processes. In this context, the authorities will adopt a sustainable public procurement policy paper and an associated action plan to integrate climate and green dimensions into the public procurement process (RM1 for end-September 2023). The Ministry of Finance (MoF) will also develop and implement methodologies for the analysis of macro-fiscal risks from climate change and publish such information in the Medium-Term Macroeconomic Policy Statement (MTMPS) (RM5 for end-June 2024). To protect the most vulnerable, the authorities will develop a national disaster risk financing strategy that integrates social assistance measures (RM4 for end-June 2024 and MEFP, ¶35).

39. Better management of climate-related risks will enhance financial sector resilience and help scale up climate finance. Financial institutions play an important role in mobilizing private climate finance but face significant physical and transition risks.20 To this end, BB will develop and adopt guidelines for banks and financial institutions on reporting and disclosure of climate-related risks in line with the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD) (RM3 for end-December 2023).21 To strengthen financial sector resilience, BB will conduct and publish climate stress testing for the overall financial system and update the Guidelines on Stress Testing for banks and financial institutions to include climate change considerations (RM8 for end-December 2024).22 To further promote the mobilization of climate finance and extend the framework to include climate adaptation, BB will update the green bond policy paper, particularly the annex on green taxonomy to be fully aligned with the NAP's strategic investment priorities (RM11 for end-December 2025 and MEFP, ¶36).

Program Modalities

40. Access. Bangladesh is eligible to access the RSF.23 Staff recommends a 42-month blended ECF/EFF arrangement,24 concurrent with an RSF arrangement.

  • ECF/EFF. Given the current outlook and on the strength of envisaged reforms, the proposed total access is SDR 2,468.46 million (231.4 percent of quota) under the ECF/EFF (of which, SDR 822.82 million or 77.1 percent of quota under the ECF and SDR 1,645.64 million or 154.3 percent of quota under the EFF). Semi-annual program reviews and seven equal disbursements are envisaged for ECF/EFF, beginning with the program approval (Table 7A).

  • RSF. Staff proposes access at SDR 1,000 million (93.8 percent of quota, the maximum nominal limit) under the RSF. The proposed high RSF access is based on the strength and ambition of proposed reforms, Bangladesh's large BoP needs associated with the implementation of reforms, its strong track record of climate-related policy reforms (¶35 and Annex III), and sound capacity to repay the Fund. RSF disbursements are envisaged as in Table 7B.

Staff supports the authorities' request for the use of Fund resources (the total of each RSF disbursement and part of ECF/EFF disbursement) for budget support to expand the government's resource envelop to help finance climate priorities and boost social and capital spending, while planned reforms take hold.

41. Financing assurances. The ECF/EFF program is fully financed, without RSF disbursements, with firm commitments of financing for the first 12 months and with good prospects of financing for the remainder of its duration (see Table 9 for details).

42. Capacity to repay (Table 10). Bangladesh's capacity to repay the Fund is adequate and the authorities' track record of servicing IMF debt is strong. Total Fund Credit Outstanding is mostly below or at the bottom of the interquartile range for PRGT borrowing countries, peaking in 2026 at SDR 3.6 billion, equivalent to 0.8 percent of GDP (6.0 percent of exports of goods and services or about 10 percent of gross FX reserves). Total obligations to the Fund peak at 0.1 percent of GDP (0.5 percent of exports of goods and services or 1.0 percent of gross FX reserves) in 2024. The risk of debt distress is assessed to be low and the debt outlook is expected to remain sustainable.

43. Safeguards assessment. An updated safeguards assessment was completed in January 2022. The assessment found capacity challenges that impact internal audit and financial reporting. The BB also needs to strengthen currency operations and IT environment. BB is establishing sound procedures for the compilation and reporting of official reserve assets (SB for end-June 2023). In addition, BB is making progress on implementing the safeguards recommendations and will also engage an international audit firm to conduct external audits, as done under the previous Fund-supported program during 2012–2015.

44. Risks. The main risks to the program are limited scope to relax fiscal or monetary policy in the event of adverse real shocks, given narrow fiscal space, high inflation, and reserve losses. Weaknesses in implementation capacity, political opposition to some proposed reforms, and political risk due to national elections tentatively planned for December 2023 are other risks. These risks will be mitigated by continued engagement and conditionality under the program, as well as contingency fiscal measures such as reprioritization of non-critical spending.

45. Other issue. During the mission, staff learned of a multiple currency practice subject to Fund jurisdiction under Article VIII that arises as a result of an internal governmental exchange rate used for (i.e. transactions by BB on behalf of the government) that differs by more than 2 percent from the prevailing market exchange rate. The measure is not maintained primarily for BoP reasons. The authorities request—and staff support—that the Executive Board approves this measure, as (i) the Bangladesh authorities have committed to a credible strategy to unify the governmental FX rate with the prevailing market FX rate within a reasonable period and is thus temporary (ii) the measure does not materially impede Bangladesh's BoP adjustment, and (iii) does not harm the interests of other members or discriminate among members.

Staff Appraisal

46. Multiple external shocks have weighed significantly on the Bangladesh economy. The spillovers from Russia's war in Ukraine has interrupted the pandemic recovery and intensified external pressures, making macroeconomic management more challenging. Global headwinds are likely to keep balance of payments under pressure in the coming years. Uncertainties surrounding the outlook remain large and risks are tilted to the downside. The authorities acknowledged that measures adopted to restore macroeconomic stability are temporary and need to be unwound to safeguard both near-term growth and medium-term economic potential.

47. While addressing immediate challenges, the authorities need to expedite their ambitious reform agenda to achieve a more resilient, inclusive, and sustainable growth. The economic reform priorities should focus on increasing fiscal space to scale up social and development spending, modernizing the fiscal and monetary policy frameworks, strengthening the financial sector, improving governance, and creating enabling environments for a sustainable and private sector-led growth. Tackling climate change challenges remains important for long-term macroeconomic stability.

48. The ECF/EFF and RSF arrangements support the authorities' priorities. The ECF/EFF arrangement will help restore macroeconomic stability and rebuild buffers, while advancing long overdue economic reforms. Access under the RSF would underpin reforms to address the significant adaptation challenges facing Bangladesh, while helping catalyze additional financing and enhancing climate mitigation efforts.

49. Fiscal discipline has kept Bangladesh at a low risk of debt distress, but higher revenues and enhanced fiscal management are needed to meet social and development objectives. The implementation of the domestic revenue mobilization strategy that relies on both tax policy and revenue administration reforms is expected to sustainably expand the budget envelope for Bangladesh's large development needs, without jeopardizing its prudent fiscal and debt strategy. Fiscal reforms to strengthen the management of public finance, investment, and debt is expected to yield better spending efficiency, governance, and transparency.

50. Monetary and exchange rate policies should focus on containing inflation and rebuilding reserves. The monetary policy stance should be guided by the inflation outlook. Greater exchange rate flexibility should be allowed to help strengthen external buffers. Efforts to modernize monetary policy framework and operations should continue, including to adopt an interest rate corridor, phase out interest rate caps, and improve monetary policy communication.

51. Strengthening the financial sector and developing capital markets are needed to support the authorities' long-term goals. Further reforms to strengthen corporate governance, improve supervision and regulation, and enhance the legal framework remain important to modernize the financial sector and improve credit and business activities. Capital market development is needed to meet long-term financing needs of the economy.

52. Expanding trade and FDI and boosting labor productivity are crucial to increase long-term growth potential. Reform priorities include improving the investment climate, reducing tariff and non-tariff barriers, improving trade-related infrastructure, as well as building skills and reducing informality.

53. Building resilience to climate change and natural disasters will help mitigate macroeconomic and fiscal risks. Additional efforts to strengthen institutions and enhance climate spending efficiency would help meet the authorities' climate objectives. Better management of climate-related risks will enhance financial sector resilience and help mobilize climate finance.

54. Based on the protracted balance of payment needs, substantial climate-related financing requirements, and strong policy commitments, staff supports the authorities' request for a 42-month arrangement under the ECF/EFF and RSF. IMF-supported program will help mitigate the adverse impact of the crisis on the people, support the authorities' aspirations to become an upper-middle income country, and build resilience to climate change shocks that could threaten macroeconomic stability.

Figure 1.
Figure 1.

Bangladesh: Recent Developments: Pressure from External Shock

Citation: IMF Staff Country Reports 2023, 066; 10.5089/9798400232206.002.A001

Sources: Bangladesh Bureau of Statistics; Bangladesh Bank; Haver Analytics, Inc.; CEIC Data Company Limitted; and IMF staff calculations.
Figure 2.
Figure 2.

Bangladesh: Fiscal Developments

Citation: IMF Staff Country Reports 2023, 066; 10.5089/9798400232206.002.A001

Sources: Bangladesh Ministry of Finance; World Economic Outlook; IMF FAD Expenditure Assessment Tool (EAT); and IMF staff estimates.
Figure 3.
Figure 3.

Bangladesh: Monetary and Financial Market Developments

Citation: IMF Staff Country Reports 2023, 066; 10.5089/9798400232206.002.A001

Sources: Bangladesh Bureau of Statistics; Bangladesh Bank; Haver Analytics, Inc.; CEIC Data Company Limitted; and IMF staff calculations.
Figure 4.
Figure 4.

Bangladesh: Banking Sector Developments

Citation: IMF Staff Country Reports 2023, 066; 10.5089/9798400232206.002.A001

Source: Bangladesh Bank.
Figure 5.
Figure 5.

Bangladesh: External Sector Developments

Citation: IMF Staff Country Reports 2023, 066; 10.5089/9798400232206.002.A001

Sources: Bangladesh Authorities; Bangladesh Bank; Haver Analytics, Inc.; FRED; Bloomberg LP; INS; and IMF staff estimates.
Table 2.

Bangladesh: Selected Economic Indicators, FY2019–27 1/

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Sources: Bangladesh authorities; and IMF staff estimates and projections.1/ Fiscal yearbegins on July 1 and ends on June 30.2/ Includes central government's gross debt, including debt owed to the IMF, plus domestic bank borrowing by nonfinancial public sector and public enterprises' external borrowing supported by government guarantees, including short-term oil-related suppliers' credits.3/ Program financing (+ purchases, - repurchases) is included under the Financial Account, with consistent sign conversion.
Table 3a.

Bangladesh: Balance of Payments, FY2019–27 1/

(In millions of U.S. dollars, unless otherwise indicated)

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Sources: Bangladesh authorities; and IMF staff estimates and projections.1/ Fiscal year begins July 1 and ends on June 30.2/ Imports are based on customs data.3/ Excludes official capital grants reported in the capital account.4/ Of identified amounts some are pending approval and some are to be disbursed in 2020 after June.5/ Gross and net international reserves are per BPM6 definition and exclude valuation adjustments. Net international reserves are reported at market exchange rates, and is calculated as the gross reserves minus FX liabilities.
Table 3b.

Bangladesh: Balance of Payments, FY2019–27 1/

(In percent of GDP)

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Sources: Bangladesh authorities; and IMF staff estimates and projections.1/ Fiscal year begins July 1 and ends on June 30.2/ Imports are based on customs data.3/ Excludes official capital grants reported in the capital account.
Table 4a.

Bangladesh: Central Government Operations, FY2019–27 1/

(In billions of taka, unless otherwise indicated)

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Sources: Bangladesh authorities; and IMF staff estimates and projections.

Fiscal year begins July 1 and ends June 30. Cash basis, unless otherwise specified.

Comprise budget allocations for safety net programs and other social-related spending, pensions and gratuities, and direct subsidies for food and to the agriculture and export sectors. Other subsidy-related costs (i.e., lending to large energy-related state-owned enterprises (SOEs)) are included in net lending.

Excludes net financing of autonomous and semi-autonomous government bodies, and government lending funds. Includes special bonds issued to the commercial banks for the noncash issued to the state-owned securitization of past subsidy-related loans made to Bangladesh Petroleum Corporation, consistent with the earlier treatment in the fiscal accounts of similar operations.

Includes food account surplus (+)/deficit (-) and extraordinary expenditures.

Includes National Savings Certificates, net purchase of Treausry securities by nonbank entities, and financing through the General Provident Fund.

Table 4b.

Bangladesh: Central Government Operations, FY2019–27 1/

(In percent of GDP, unless otherwise indicated)

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Sources: Bangladesh authorities; and IMF staff estimates and projections.1/ Fiscal year begins July 1 and ends June 30. Cash basis. unless otherwise specified.2/ Comprise budget allocations for safety net programs and other social-related spending, pensions and gratuities, and direct subsidies for food and to the agriculture and export sectors. Other subsidy-related costs (i.e., lending to large energy-related state-owned enterprises (SOEs)) are included in net lending.3/ Excludes net financing of autonomous and semi-autonomous government bodies, and government lending funds. Includes special bonds issued to the commercial banks for the noncash issued to the state-owned securitization of past subsidy-related loans made to Bangladesh Petroleum Corporation, consistent with the earlier treatment in the fiscal accounts of similar operations.4/ Includes food account surplus (+)/deficit (-) and extraordinary expenditures.5/ Includes National Savings Certificates, net purchase of Treausry securities by nonbank entities, and financing through the General Provident Fund.
Table 5.

Bangladesh: Monetary Accounts, FY2019–27 1/

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Sources: Bangladesh authorities; and IMF staff estimates and projections1/ Fiscal year in Bangladesh begins July 1 and ends June 30.2/ Includes special bonds issued to the commercial banks for the noncash issued to the state-owned securitization of past subsidy-related loans made to Bangladesh Petroleum Corporation. Excludes government lending fund and net credit to autonomous and semi-autonomous government bodies. Excluded items are included in “Other items. net.”3/ Liabilities arising from banks' foreign currency clearing accounts at BB and nonbank deposits at BB are included in “Other items, net.”
Table 6.

Bangladesh: Financial Soundness Indicators, FY2015-21 1/

(In percent)

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Source: Bangladesh Bank.

Fiscal year in Bangladesh begins July 1 and ends June 30.

Table 7a.

Bangladesh: Proposed Schedule of Disbursement and Timing of ECF/EFF Arrangement Reviews

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Source: IMF.
Table 7b.

Bangladesh: Proposed Schedule of Disbursement and Timing of RSF Arrangement Reviews

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Source: IMF.
Table 8.

Bangladesh: Quantitative Performance Criteria (PC) and Indicative Targets (IT), First Two Reviews 1/2/

(In billions of Taka, unless otherwise indicated)

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Sources: Bangladesh's authorities; and IMF staff estimates/projections.

Fiscal year starts in July and ends in June.

The quantitative targets, indicative targets and program exchange rates are defined in the Technical Memorandum of Understanding (TMU).

Program starting point assumes Board approval in January 2023.

Net international reserves are gross reserves (based on BPM6 definition) minus the central bank FX liabilities and reserves earmarked for quasi-fiscal activities.

Including grants

This quantitative target is applied on a continuous basis.

Social spending that is domestically financed.

Capital investment from annual development program that is domestically financed.

Quarterly target is projected in line with historical quarterly outturns and seasonality patterns reflecting backloaded disbursements.

Table 9.

Bangladesh: External Financing Requirements and Sources, FY2023–26 1/

(In millions of U.S. dollars, unless otherwise indicated)

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Sources: Bangladesh's authorities; and IMF staff projections.

Fiscal year in Bangladesh begins July 1 and ends June 30.

Of the prospective financing amounts some are pending approval.

Includes Japan International Cooperation Agency and Asian Infrastructure Investment Bank.

Table 10.

Bangladesh: Indicators of Fund Credit, 2022–46 1/

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Source: IMF staff projections.

Fiscal year in Bangladesh begins July 1 and ends June 30.

Table 11.

Bangladesh: Proposed Structural Benchmarks: 12-Months After Board Approval

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Table 12.

Bangladesh: Proposed Reform Measures Under RSF

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Green Book refers to the Ministry of Planning, 2022, “Guidelines for formulation, processing, approval and revision of development projects in the public sector.”

Table 13.

Bangladesh: Capacity Development Activities to Support Program Priorities

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Annex I. External Sector Assessment1,2

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The EBA-lite methodology estimated Bangladesh's current account norm of -3.4 percent of GDP.