State of SoB finances, political tensions major risks to BD economy: IMF report

FE Report The International Monetary Fund (IMF) has listed the global commodity price spikes as the main external and further deterioration of the state-owned banks' (SoBs) finances as the major internal risks Bangladesh is facing now. The IMF in its country report released Tuesday also noted the escalation of pre-election tensions and an intensification of the euro area crisis as other risks to macro economic stabilization of the country. The IMF has prepared the report on the basis of the proceedings of its extended credit facility (ECF) review meetings held recently. The Fund has noted with satisfaction the trend in the inflow of remittance which is helping the country build its reserve buffer and boost domestic demand. About balance of payments (BOP), the IMF report said despite slower-than-expected export growth, the BOP reversed to a small surplus in the FY12 from a moderate deficit in the fiscal year (FY)'11. The improvement was due primarily to the narrowing of the current account deficit to an estimated 0.5 percent of GDP in the FY12 compared to 2.0 percent the previous year. It said the import growth was restrained by policy tightening and lower oil prices in the second half of the FY12, as well as by slowing export growth, given the heavy import content of ready-made garments exports. About exchange rate and reserves, the IMF report said since early 2012, the taka/U.S. dollar exchange rate stabilized, in part due to BOP conditions, allowing stepped-up purchases of foreign exchange (FX) by Bangladesh Bank (BB) to rebuild its reserve buffer. The overall budget deficit (excluding grants) is estimated at 4.0 percent of GDP in FY12, excluding fertilizer subsidy overruns to be settled in FY13 (around 0.5 percent of GDP), the IMF report said. Fuel and electricity subsidies were largely contained, as lower international oil prices and administered price increases narrowed losses at energy-related state-owned enterprises (SOEs). The effect of these price adjustments on vulnerable groups was mitigated in part by higher social-related spending, although delays in executing some programmes resulted in a modest miss in the September 2012 target, the IMF said. The Annual Development Programme (ADP) expenditure fell short of programmed levels in the FY12, but closer engagement with spending ministries and development partners has led to the modest improvement in the performance in the FY13. The stock of reserve money remained within the programme ceiling both at end-June and end- September 2012, restrained by net domestic assets of BB and limits on government borrowing from BB-the main operating targets. The main objectives of the government's ECF-supported reform programme remain focused on restoring macroeconomic stability, strengthening the external position, and endangering higher, more inclusive growth, in support of poverty reduction. Under the three-year Extended Credit Facility (ECF) arrangement approved by the IMF's Executive Board in April 2012, performance has been broadly in keeping with commitments, the report said.