IMF makes 6.5-7.0pc medium term growth projection

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FE Report
The growth of Bangladesh's gross domestic product (GDP) is expected to remain around 6.5-7.0 per cent over the medium term, the International Monetary Fund (IMF) said.
The growth will be led by an expected higher agriculture production again in FY08 and buoyant garment exports and remittance flows as well as the possibility of higher aid and private flows, which will help sustain investment, including that in power infrastructure.
"Productivity gains are expected to result from infrastructure development and increased emphasis on labour skills training. Inflation is expected to be contained at around 6.5 per cent in FY07, although further pass-through of international oil price increases could temporarily boost prices before inflation begins to decline," said the IMF in a statement.
It said a number of risks could lead to slower growth or a weaker external position. Political stability will be an important factor in sustaining investor confidence; the destructive political rivalry of the last three decades, together with weak accountability and rule of law, has squandered a good portion of available resources, it added.
"Although exchange and trade reforms have helped improve resilience to external shocks, the external position is highly dependent on garment exports, which may be vulnerable to intensified competition and shifting sentiments in global markets, although a mild slowdown in major economies would likely have a limited impact on demand for the lower-value-added apparel comprising the bulk of exports," the IMF said.
"The future outlook will depend to a large extent on the transitional government's (TG) ability to bring about credible elections while maintaining broad public support," the lending agency said.
It said providing economic opportunities to the vast poor population will remain an immense challenge for some time to come. Although strong growth has helped reduce poverty, Bangladesh still lags behind its Asian neighbours in terms of its business climate and on key economic and social indicators due to deficiencies in social services and infrastructure, it added.
The IMF commended the authorities' adherence to overall fiscal discipline, but noted that the quality of fiscal performance continued to be weak.
"The overall fiscal deficit and domestic financing have been contained to below 4.0 per cent and 2.0 per cent of GDP respectively, but as noted above, revenue shortfalls persisted. In addition, a deterioration of SOE finances and mounting arrears between state entities have undermined the public sector's financial position, and structural rigidities have persistently hampered implementation of the development budget," it added.
The lending agency saw a need for further monetary tightening in the face of strong inflows and rising inflation. In recent months, ample liquidity (arising from strong exports and remittances) has emerged as the main challenge for monetary policy, it added.
In the face of rapid credit expansion, the IMF said, money market rates have remained unchanged since mid-2006, and banks' excess reserves have risen above levels envisaged in the programme. Although currency growth has declined in the last three months, monetary aggregates continue to exceed programme targets.