Political uncertainties over polls may put priority reforms in Bangladesh on tenterhooks and thus undermine its macro-financial stability and economic growth, the IMF predicts in releasing funds and setting hard terms for next.
The International Monetary Fund (IMF) has stated this in its latest Staff Report for the 2023 Article IV Consultation, released Friday, in the Risk Assessment Matrix for Bangladesh's economic future, with reference to repercussions from election ambiance.
As such, the multilateral financier recommends for the government to "restore and preserve public confidence in policymaking and communicate clearly on the benefits of structural reforms, while protecting the most vulnerable from possible adverse impacts".
While identifying other domestic-level risks, the agency has said a failure to effectively address the problems in the banking system, including the high non-performing loans (NPLs) and low capital adequacy in state-owned commercial banks, may hamper banking sector's ability to finance business investment, add to the fiscal burden, and undermine growth.
"Expedite reforms to address structural weaknesses in governance, regulation, supervision, and legal systems. Implement time-bound NPL strategy in line with the BB's programme commitments," the IMF recommends in the report.
The Washington-based Fund also alerts to possible impacts of fall in international support in resolving the Rohingya crisis.
As the repatriation of the refugees takes time and donor support weakens, it notes, social and environmental costs, security concerns and fiscal pressures could intensify in the days ahead.
"Increase fiscal space to address the difficult situation of the refugees, while maintaining fiscal sustainability," the IMF says in its words of advice, adding that a continuous support of the international community will be essential.
At the same time, the IMF staff report also has mentioned the possible impacts of global risks on Bangladesh's economy.
The escalation of Russia's war in Ukraine or other regional conflicts and resulting economic sanctions will further disrupt trade. The disruption to wheat exports from Ukraine and fuel supply from Russia could increase import prices and reduce food availability, with adverse effects on GDP growth and the current-account balance.
"Provide targeted policy support to the vulnerable within the available fiscal space, allow exchange-rate flexibility, and tighten monetary policy in case of second-round effects," suggests the IMF.
The lender further says a succession of supply disruptions and demand fluctuations causes recurrent commodity-price volatility, and external and fiscal pressures.
This may result in increase in current-account deficit, higher fiscal burden, pressures on exchange rate and reserves, the IMF forecasts and suggests providing targeted support to the poor, adopting an automatic fuel-pricing mechanism, allowing exchange-rate flexibility to preserve reserves adequacy, and tightening monetary policy.
It forewarns that an abrupt global growth slowdown in Bangladesh's major export markets could lower growth abroad and adversely affect exports and remittances, with significant effects on GDP growth and external accounts.
The IMF recommends allowing greater exchange-rate flexibility and accelerating structural reforms to expand trade and foreign direct investments by navigating the headwinds from within and without.
Tighter global financial conditions could intensify financial-account reversal and put pressure on exchange rate and reserves. So the IMF suggests allowing exchange-rate flexibility, tightening monetary policy, and closely monitoring financial-stability risks.
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