Bangladesh bounces back from COVID faster than regional peers, growth set to accelerate (IMF)

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Led by Rahul Anand, assistant to the director of the IMF Institute for Capacity Development, the IMF team visited Dhaka from December 5 to 19 before releasing a statement on Sunday on its view of the economic situation in the country.

“Despite the multiple waves of the COVID-19 pandemic, swift and decisive actions by authorities, supported by the external environment, resulted in a much faster rebound than regional peers in Bangladesh,” the team wrote in a communicated.

As the impact of the pandemic wears off, growth is expected to reach 6.6% in the current fiscal year and reach 7.1% in fiscal 23 as more of the population is vaccinated, he said.

However, the statement also warned that the uncertainty of this outlook remains high.

The team also noted concerns about inflation, which is expected to exceed targets due to non-food price inflation and rising fuel prices.

“With the economy rebounding, the central bank should closely monitor inflationary pressures and stand ready to normalize,” he said.

According to IMF projections, Bangladesh’s budget deficit will increase to 6.1% of GDP in FY22 due to pandemic-related spending. The current account deficit will also widen due to the import of capital goods, raw materials and raw materials.

Despite this, public debt should remain sustainable in the long term.

There is a need to support the recovery from the pandemic while addressing Bangladesh’s current vulnerabilities, the statement said.

“Subsequently, the priorities should shift to creating more fiscal space, reducing fiscal risks, preserving the stability of the financial system and modernizing policy frameworks. “

The key to maintaining competitiveness in the aftermath of the pandemic is to implement structural policies that focus on accelerating growth, attracting private investment and improving productivity, while building resilience. critical climate, he said.

These include decisive reforms to support private sector-led growth, better governance and export diversification.

Other recommendations from the team included removing caps on lending and borrowing rates, which “should be phased out to strengthen market-based pricing, improve credit allocation and money transmission.”

He also encouraged greater flexibility in exchange rates while preserving foreign exchange reserves to help cushion external shocks.

Financial policies related to COVID-19 must also be phased out in an “orderly” manner to reduce the exacerbation of vulnerabilities in the sector, the statement said.

“In the absence of reforms, financial sector risks could weigh on medium-term growth prospects.”

The IMF team described Bangladesh’s economic growth and social development since independence as “impressive”.

However, to achieve upper middle-income status by 2031, the country must build on that success while tackling its structural problems and modernizing its policy, he said.

The IMF has extended its support to help Bangladesh achieve this goal.

“The IMF stands ready to support government reform efforts through policy advice and capacity building, especially in monetary and fiscal policy, financial sector supervision and regulation, and macroeconomic statistics.

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