Bangladesh economy is poise to register the third highest growth in the world in 2019 on the back of its robust exports, remittance and manufacturing sector, according to the International Monetary Fund’s latest report, which evaluated the country’s economic progress. The IMF report just released from Washington mentions that Bangladesh has succeeded in fostering a dynamic and fast-growing economy with significant poverty reduction, the report said.
The country’s GDP is projected to grow at 7.8 percent this year, as per the IMF’s World Economic Outlook (WEO) report. The latest projection for the Bangladesh economy is an upgrade from the earlier edition of the WEO that came out in April, where the growth was projected at 7.3 percent.
It said that export growth has picked up recently, based on solid performance of the ready-made garments sector. Remittances inflows have also strengthened. This has led to a narrowing of the current account deficit despite higher imports of capital goods. Macroeconomic performance is set to remain strong in FY2019/20, with growth projected at above mid-7 percent and inflation close to the central bank’s target.
“Monetary policy should be geared toward containing risks to the inflation outlook stemming from higher global oil prices, rapid economic growth, and elevated inflation expectations. Continuous efforts to control the issuance of National Savings Certificates should support deepening of the capital market and reduce budget interest payments, the report mentions.
On fiscal policy the report suggests Bangladesh should keep the public debt ratio stable by strengthening revenue mobilization and containing spending pressures from higher subsidies, accompanied by efforts to improve public investment management. While fiscal pressures from the Rohingya refugee crisis appear to be limited so far, continued financial support from donors remains essential.
The important challenges remain to realize the authorities’ aspiration to reach upper middle-income status and preserve the resilience and sustainability of growth, the report says adding reform priorities include: (i) reducing elevated banking sector vulnerabilities; (ii) creating fiscal space to address social needs, infrastructure requirements, and climate change vulnerabilities; and (iii) diversifying the economy by strengthening the business environment through improved governance.
The financial situation in the banking sector, the IMF report warns that Bangladesh continues to deteriorate despite strong growth. Resolutely addressing the high level of non-performing loans in the banking sector is essential to address financial stability risks and associated fiscal risks.
It suggest that a comprehensive, credible, and time-bound action plan could notably focus on: strengthening banking sector supervision and avoiding regulatory forbearance; a close assessment of banking sector assets; tighter criteria and limited use of rescheduling or restructuring of loans; improving corporate governance; reforming the legal system to strengthen creditor rights; redefining the role and mandate of state-owned commercial banks; and developing bank crisis management and resolution mechanisms.
The implementation of the new VAT law in fiscal 2020 is a step towards modernization of the tax regime, but its revenue impact is uncertain because of multiple rates and implementation challenges, the report added.
It continues that the efforts to increase tax revenues should continue. Tax policy reforms should focus on tax base broadening and ensuring tax compliance. The organizational structure of the National Board of Revenue needs to be modernized to improve its coordination and efficiency. On the expenditure side, a priority remains to improve public investment management through better project appraisal and selection and alignment of public investment priorities with national and sectoral plans.
About the on-going fast economic growth the report said that to preserve and build on the achievements, diversification into more complex products would spur integration into global value chains and make exports more robust to changes in global demand patterns. Improving the business environment and strengthening frameworks to limit vulnerability to corruption would also be fundamental to the realization of development goals.