A senior International Monetary Fund (IMF) official said Thursday that Bangladesh's economy continued to expand despite devastating floods and higher oil prices, but the country should tighten macroeconomic policies to get donors' support and further prosper.
"Bangladesh's economy continues to expand. Despite the impact of higher oil prices and devastating floods, growth was strong at 5.5 per cent in fiscal 2004-05," Thomas Rumbaugh, Adviser in the Asia and Pacific Department of the IMF told a press conference in Dhaka.
He also expected that the economic growth would reach six per cent by the end of the current fiscal.
Resident Representative of the IMF in Bangladesh Jonathan C Dunn also attended the press conference.
Rumbaugh during his November 13-24 visit held discussions with Bangladesh authorities on the fourth review under the Poverty Reduction and Growth Facility (PRGF) arrangement.
The three-year PRGF arrangement was approved in June 2003 with a total lending commitment of about US $493 million in seven equal half-yearly installments. The IMF has already released three installments while the fourth one is due to be disbursed in December this year.
Rumbaugh said the fourth review would be considered by the IMF Executive Board in early 2006 if Bangladesh continued to tighten macroeconomic policies to reduce inflationary pressures, and took measures to accelerate reforms in the nationalised commercial banks (NCBs) and in the National Board of Revenue (NBR).
He, however, said the IMF would continue to support Bangladesh's efforts to attain its economic potential and achieve the Millennium Development Goals (MDGs).
"The growth rate of Bangladesh has been robust but that should not undercut the challenges," he said.
He said Bangladesh is faced with considerable macroeconomic challenges. "Policy adjustments will also be needed to protect the balance of payments position," he added.
The IMF official suggested that the government should take further measures to improve the investment climate for enhancing Bangladesh's competitiveness.
He said that in the face of the phaseout of Multi-Fibre Agreement (MFA) quotas, regulatory requirements had been reduced to improve the competitiveness of the country's export sector.
"Further measures to improve the investment climate will be important for enhancing Bangladesh's competitiveness," he said.
These include addressing infrastructure bottlenecks; improving customs administration and other aspects of trade facilitation; further reducing regulatory requirements; curbing corruption and mitigating security concerns, he added.
Rumbaugh said the losses in the state-owned enterprises (SOEs), especially in the energy sector for increasing oil prices in the global markets, and high money and credit growth contributing to inflationary pressure remained as the major challenges of Bangladesh.
The IMF executive laid emphasis on maintaining tight monetary policy to curb the inflationary pressures.
Answering a question on monitory policy, he said the central bank of Bangladesh has already taken measures such as revising the cash reserve requirement (CRR) and statutory liquidity ratio (SLR) twice in the last six months in this connection.
"The impact of higher oil prices has been manageable so far as better-than-expected garment exports and continued strong remittances have helped finance oil imports," he said.
He also suggested for further adjustments of the oil prices in line with the global markets for reducing the government expenditures.
"We have already discussed the issue with the government…." the IMF adviser said.
Rumbaugh said the fourth review of the PRGF was delayed due to government holidays and busy schedule for the SAARC Summit in Dhaka.
The funds made available in the context of the IMF's Trade Integration Mechanism (TIM) are to help Bangladesh overcome the impact of the removal of the MFA quotas at the end of 2004.
The IMF stressed the need for stronger efforts in structural reforms, mainly in the tax administration and the NCBs.
"A number of policy measures will also need to address the significant losses being incurred by the SOEs, particularly in the energy sector," he noted.
He also said the divestment of state-run Rupali Bank, now under courts jurisdiction, needs to move forward, alongwith actions for restructuring and eventual divestment of the other NCBs.
"While enhanced controls over the NCBs have slowly improved their financial condition, further restructuring efforts are needed," he observed.
The management support teams are now in place at Agrani, Janata and Sonali Banks to improve their financial health.
Rumbaugh met Finance and Planning Minister M Saifur Rahman, Bangladesh Bank Governor Salehuddin Ahmed and senior government officials during the 12-day review.
Agencies add: The Bangladesh economy is growing fast and its macroeconomic remain stable, despite the adverse impact of high oil prices and other inflationary challenges, the International Monetary Fund (IMF) official said at the press briefing.
Its advisor for Asia Pacific Department and a team leader Thomas Rumbaugh told reporters that the economy had been able to withstand well the initial impact of the elimination of the Multi-Fibre Arrangement (MFA) which was feared to erode export earnings of the country's ready-made garments.
He said Bangladesh is maintaining a growth momentum, even under inflationary pressure from a higher price-level in the domestic market and soaring oil prices in the global market.
Growing remittances from expatriate Bangladeshi nationals and export earnings are helping the government to address the impact of high oil prices, he added.
He said the impact of oil prices has been well managed so far. He further said the country's inflationary build up should not be viewed isolated but as part of a global phenomenon -- and Bangladesh is not an exception, he observed.
"The whole world is adjusting with the high oil prices," he said in this connection.
The National Board of Revenue (NBR) should further strengthen its tax administration, he said while commending its actions for setting up LTU (large tax unit) for income tax and vat and the central intelligence cell.
Replying to a question, he said the government borrowing is well in line with the budget and under limit.
He said despite the robust economic growth that the country is witnessing, there is no room to undercut the challenges, particularly in the export sector and managing the macroeconomy and inflation in particular.
Responding to a question about why the IMF has been pressing the government for a restrictive monetary policy at a time when the economy was on an expansionary path that requires investment and import funding, Rumbaugh said it was a cautionary advice to contain credit expansion and to address the problem of excess liquidity in the hand of banks.
Rumbaugh suggested for adjustments of the oil price to reduce the differences with the countries elsewhere, noting the need for a further hike in the oil price to help reduce revenue losses of the government.
"The government, which is in the best position, will decide the best time for oil price adjustment," he said, replying to a query.
On the second challenge, the IMF executive stressed the need for maintaining tight monetary policy that the central bank was pursuing to contain the money supply.
The IMF review, however, does not foresee any problem with the government borrowing and spending.
The government has reaffirmed its commitment not to exceed the budgetary provision, Rumbaugh added.
The IMF advisor observed that the inflation, led by rising food prices, picked up in recent months, and the impact of higher oil prices has been manageable so far, as better-than-expected garment exports and continued strong remittances had helped to finance the higher oil imports.
He called for limiting strictly non-concessional loans for external debts manageable. "Policy adjustments will also be needed to protect the balance of payment position," he added.
The IMF stressed the need for stronger efforts in structural reforms, mainly the tax administration and the NCBs.