IMF reaches staff-level agreement with Bangladesh on second review of loan programme
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An International Monetary Fund (IMF) mission team led by Chris Papageorgiou reached a staff-level agreement with the Bangladesh authorities on the policies needed to complete the second review under the ECF/EFF/RSF arrangements, says a IMF press release.
The staff-level agreement is subject to approval by the Executive Board, which is expected in the coming weeks. Completion of the second review will make available US$932 million, equivalent of 66 per cent of quota under the ECF/EFF and $220 million under the RSF.
“The authorities have made significant progress on structural reforms under the IMF-supported program, including the implementation of a formula-based fuel price adjustment mechanism for petroleum products. Nonetheless, larger-than-expected spillovers from tightening of global financial conditions, and still elevated international commodity and food prices, coupled with domestic vulnerabilities, has led to persistently high inflation and declining foreign exchange (FX) reserves. This has exacerbated pressures on the economy and heightened the complexity of macroeconomic challenges,” it said.
“Against this backdrop, we welcome Bangladesh Bank’s bold actions to realign the exchange rate and simultaneously adopt a crawling peg regime with a band as a transitional step toward greater exchange rate flexibility to restore external resilience. Following the liberalization of retail interest rates, additional tightening of monetary policy should help alleviate any inflationary pressures resulting from the exchange rate reform. Fiscal policy should support these monetary tightening efforts through revenue-based consolidation. If external and inflationary pressures intensify, the authorities should stand ready to tighten policies further,” said the global lender.
“The macroeconomic outlook is expected to gradually stabilize as policy actions start to take hold. Real GDP growth is projected to moderate to 5.4 per cent in FY24 owing to the ongoing import compression and policy tightening,” added the IMF.