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Favours tighter monetary policy to stabilise exchange rate
IMF criticises sloth in NCB restructuring
AZM Anas

          The International Monetary Fund (IMF) has hit out at the government for its inordinate foot-dragging in the bank restructuring programme, with the divestment process of Rupali Bank facing roadblocks.
"The divestment of Rupali Bank was interrupted by a court challenge, and the implementation of fundamental restructuring in the other nationalised commercial banks (NCBs) has been slower than expected," the IMF said in its latest report.
The global financial institution said that it would require "more determined efforts" to make the bank restructuring programme successful.
Some measures have been taken recently to re-invigorate these reforms, "but more determined efforts will be needed to make the bank restructuring programme successful," the report said.
In a recent letter to the IMF head, the finance and planning minister pledged that the government would remove all legal obstacles by the end of this month to accelerate the process of Rupali Bank privatisation.
The IMF report on "Bangladesh: fourth review under the three-year arrangement under the poverty reduction and growth facility (PRGF) and request for waiver of performance criteria", was posted Thursday on its web site.
Although the IMF had tagged the disbursement of the fourth tranche of its PRGF loan with the privatisation of the state-run bank, the multilateral lending agency has already released US$97.3 million under the facility.
Despite delays in the implementation of structural reforms, the report noted, Bangladesh has achieved macroeconomic objectives under the PRGF-supported programme and made progress towards achieving many of the MDGs.
"Prudent macroeconomic policies have largely been maintained despite a difficult political environment and external shocks in the form of higher oil prices and the phase-out of the Multi-Fibre Arrangements (MFA) on garment exports," the report pointed out.
Several quantitative and structural performance criteria have been missed for the fourth PRGF review.
The nonobservance of these performance criteria largely reflects delays in securing the disbursement of external programme assistance and difficulties in achieving the necessary internal consensus for advancing key structural reforms, according to the report.
In view of the remedial measures implemented by the government, including steps to bring the financial programme back in line with PRGF objectives, the IMF officials support the requests for waiver of performance criteria.
The report pointed out that since early last year, the external position has come under some pressure, owing to the surge in oil prices, strong import growth, and accommodative monetary policy.
In response, the government agencies have tightened monetary policy by raising interest rates and increasing reserve requirements.
Referring to the recent price hike of fuel, including petrol and diesel, the IMF said the measure has reduced but not eliminated the quasi-fiscal losses being incurred in the energy sector.
While initially attempting to slow the depreciation of the exchange rate by selling foreign exchange, subsequently the central bank has allowed the exchange rate to move more freely in response to market forces.
A further tightening of monetary policy would counter inflationary pressures and help stabilise the exchange rate, the bank suggested.
The overall fiscal position has remained within budget and programme targets despite shortfalls in revenue. The government intends to push forward with tax administration reforms and strengthen collection efforts.
The IMF predicted that the overall deficit for the current fiscal is expected to be 4.0 percent of the GDP with domestic financing limited to 2.0 percent of GDP, in line with programme targets.
The IMF report was prepared by its staff team following discussions in late 2005, with the government officials on economic developments and policies.


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