A visiting International Monetary Fund (IMF) fact-finding team has stated that high inflation and declining revenue collection are the biggest concerns for Bangladesh.
Comparing Bangladesh’s revenue-to-GDP ratio to that of South Sudan, it has emphasised the need to focus on reforms to increase revenue collection.
The IMF team made the observations during its four meetings at the finance ministry today (24 September). During these meetings, the IMF officials inquired about the current state of the economy and plans for the future.
Several additional secretaries from the Finance Division who took part in these meetings told TBS that the IMF team came to Bangladesh to understand the economic situation following the student-led mass uprising and change of administration.
The IMF officials strongly recommended reforming the banking, financial and revenue sectors besides noting that controlling inflation and increasing revenue collection in proportion to GDP are the biggest concerns for the interim government.
An additional secretary, requesting not to be named, said the finance ministry officials sought the IMF’s assistance to determine whether inflation is rising due to problems on the supply side or if it is a result of issues with demand-side management.
He said the ministry officials said extortion is considered one of the main causes of inflation. “Following the Ukraine-Russia war, the value of the taka has depreciated by 25%. Based on that, the prices of goods could increase by a maximum of 30%. However, in the past two years, the prices of many items have doubled. We have sought the IMF’s assistance on how to control this by bringing about changes in market management,” said the additional secretary.
Another official said they told the IMF team that due to the unstable situation in July and August, revenue collection has decreased significantly. The IMF officials inquired about how revenue collection will be increased by building business confidence in the future, he said.
The IMF inquired whether the budget deficit for the current fiscal year will remain within the targeted limits. Finance Division officials were unable to provide a specific answer to this question. However, they indicated that the amount of the budget deficit is expected to decrease.
In this regard, an official from the Finance Division said the budget deficit amount depends not only on revenue earnings but also on how many projects will be excluded from the Annual Development Programme (ADP). “The finance ministry does not yet have information on how many projects the Ministry of Planning will exclude, which is why it was not possible to provide a clear answer to the IMF,” he said.
The IMF officials inquired about the Finance Division’s plans for paying outstanding subsidies and its intention to raise the prices of fertilisers and fuel in order to reduce subsidies in the future.
The IMF also inquired about the reasons for the government’s spending being significantly lower in the first two months of the current fiscal year compared to the same period in previous years.
In response, officials from the Finance Division stated that in the context of the student movement and the fall of the Hasina government, there has been a decrease in spending on the ADP during these two months, as well as a significant reduction in the government’s operating costs. Additionally, the government’s purchases of goods and services have also decreased during the period.
IMF’s additional loan to be used in reforms
After the opening meeting with the visiting team in the morning, Financial Adviser Salehuddin Ahmed told reporters that the additional loan taken from the IMF would be used for various reforms in the economic sector, including preventing money laundering and reforming the banking and revenue sectors.
However, he noted that the exact amount of the loan being requested from the IMF has not yet been determined. Salehuddin stated that the amount of assistance provided by the World Bank, the ADB, and other lending agencies will be assessed before informing the IMF of the assistance amount needed.
The finance adviser said resources are needed to implement various reforms and measures in the economic sector. “We will gather domestic resources as much as possible; however, in some cases, foreign assistance will be necessary. One of the areas where foreign assistance will be needed is budget support.”
Additionally, the government has taken measures regarding reforms, he said, adding that the government has implemented actions in the banking sector as well as other areas. The finance adviser, however, said some time will be needed for these measures to take effect.
Salehuddin said discussions were held regarding the extent of the resource gap. He mentioned that further detailed discussions will take place. The discussions also covered policies and key objectives, he added.
“The IMF will engage in discussions with the Bangladesh Bank as well. They will provide guidance on what needs to be done for the foreign exchange market and banking sector reforms. The IMF will also discuss these matters with the National Board of Revenue (NBR),” he said.
The finance adviser further said they will attend the World Bank’s annual general meeting in October, where discussions will be held with the IMF policymakers. There will also be talks regarding the current loan programme, he said. “Additionally, we have made some requests for the future.”
In response to a question from journalists about what has been requested from the IMF, Salehuddin said technical assistance has been sought for banking sector reforms, money laundering prevention, tax management, and reforms in income tax and VAT.
The finance adviser noted that assistance has been requested not only from the IMF but also from other organisations. He said the IMF will be informed which organisation will provide what kind of assistance and what specific help is needed from them.
