Economic growth will rise to 7pc over medium term: IMF
Sunday, 5 October 2008
FE Report
Economic growth of Bangladesh is projected to increase to around 7.0 per cent over the medium term, mainly driven by improvements in agriculture and expansion in domestic services and construction, supported by strong regional growth momentum, according to the International Monetary Fund (IMF).
"Though growth could slow in the near term while inflationary pressures and other current challenges are addressed, it is projected to increase to around 7.0 per cent over the medium term," said the IMF's executive board as it concluded the Article IV consultation with Bangladesh.
"Despite the long-term challenge of climate change, the medium-term outlook is favourable. Economic growth is expected to increase as key structural reforms take root and the country capitalises on accelerating growth across the region," it added.
The executive board commended the authorities for their efforts to maintain macro-economic stability in a year of multiple natural disasters and elevated food and fuel prices, which have put severe pressure on incomes, particularly of the urban and landless rural poor.
Lauding the authorities on the recent progress in fiscal stability, it said a significant improvement in revenue collections has helped offset increasing energy and fertiliser subsidies and larger outlays on social safety nets, adding that the July increase in administered prices was a bold step, which prevented a deterioration in state-owned enterprise finances. However, more remains to be done to place state-owned enterprises on a secure footing and to increase poverty-reducing spending.
The IMF stressed that attaining the macro-economic targets of the FY09 budget would be important in controlling inflation. Directors supported the budget's mildly expansionary stance, particularly in the light of recent fiscal prudence and the need to address the social impact of higher food prices. Given current inflationary pressures, it encouraged the authorities to use any excess revenue collections to reduce domestic financing.
It has considered that preventing an increase in inflation is the immediate priority, as the poor and vulnerable are hit hardest by inflation. With fiscal policy focusing on addressing the social impact of higher commodity prices, most directors of the IMF saw the need to tighten monetary policy to keep inflation expectations in check, and they welcomed the recent action by the central bank in this connection.
The IMF has agreed that macroeconomic policies are consistent with external stability. The external current account is expected to stay broadly in balance as continued growth in exports and remittances offset growth in imports. The current exchange rate policy has allowed the real exchange rate of taka to remain in line with medium-term fundamentals. It broadly agreed, however, that more flexibility in the rate would support monetary policy objectives and encourage deepening of the foreign exchange market. They urged the authorities to adopt a timetable to remove the remaining exchange restriction.
Economic growth of Bangladesh is projected to increase to around 7.0 per cent over the medium term, mainly driven by improvements in agriculture and expansion in domestic services and construction, supported by strong regional growth momentum, according to the International Monetary Fund (IMF).
"Though growth could slow in the near term while inflationary pressures and other current challenges are addressed, it is projected to increase to around 7.0 per cent over the medium term," said the IMF's executive board as it concluded the Article IV consultation with Bangladesh.
"Despite the long-term challenge of climate change, the medium-term outlook is favourable. Economic growth is expected to increase as key structural reforms take root and the country capitalises on accelerating growth across the region," it added.
The executive board commended the authorities for their efforts to maintain macro-economic stability in a year of multiple natural disasters and elevated food and fuel prices, which have put severe pressure on incomes, particularly of the urban and landless rural poor.
Lauding the authorities on the recent progress in fiscal stability, it said a significant improvement in revenue collections has helped offset increasing energy and fertiliser subsidies and larger outlays on social safety nets, adding that the July increase in administered prices was a bold step, which prevented a deterioration in state-owned enterprise finances. However, more remains to be done to place state-owned enterprises on a secure footing and to increase poverty-reducing spending.
The IMF stressed that attaining the macro-economic targets of the FY09 budget would be important in controlling inflation. Directors supported the budget's mildly expansionary stance, particularly in the light of recent fiscal prudence and the need to address the social impact of higher food prices. Given current inflationary pressures, it encouraged the authorities to use any excess revenue collections to reduce domestic financing.
It has considered that preventing an increase in inflation is the immediate priority, as the poor and vulnerable are hit hardest by inflation. With fiscal policy focusing on addressing the social impact of higher commodity prices, most directors of the IMF saw the need to tighten monetary policy to keep inflation expectations in check, and they welcomed the recent action by the central bank in this connection.
The IMF has agreed that macroeconomic policies are consistent with external stability. The external current account is expected to stay broadly in balance as continued growth in exports and remittances offset growth in imports. The current exchange rate policy has allowed the real exchange rate of taka to remain in line with medium-term fundamentals. It broadly agreed, however, that more flexibility in the rate would support monetary policy objectives and encourage deepening of the foreign exchange market. They urged the authorities to adopt a timetable to remove the remaining exchange restriction.