IMF suggests intense efforts to curb inflation Lending agency calls for tighter monetary policy, control on bank borrowing
The International Monetary Fund yesterday asked Bangladesh to tighten monetary policy to contain inflation that soared to a 13-year high of 11.42 percent in October.
The IMF presented a six-point proposal to the government to help the country address challenges to the economy.
In a press briefing at her office in Dhaka, Eteri Kvintradze, resident representative of IMF, cautioned that increased government borrowing would fuel inflation in the future.
Kvintradze praised Bangladesh Bank for prudently increasing statutory liquidity ratio (SLR) and cash reserve requirement (CRR), reducing the major monetary tools, in an effort to keep inflation in check.
There should not be any move to undermine the authority of the regulatory body, she said, indicating pressure on Bangladesh Bank to reduce SLR and CRR to unlock funds into stocks.
Kvintradze urged the government to consolidate gains in revenue mobilisation by continued improvement in tax administration and new business-friendly VAT and income tax laws.
The IMF's six-point recommendations also include safeguarding reserves by continued exchange rate flexibility and interventions only to smooth short-term volatility, and addressing financial sector vulnerabilities by strengthening and enforcing bank supervisory framework and market oversight and ensuring sound governance.
On the growth outlook, the IMF official said the country's gross domestic product growth is strong but behind the regional average. Exports also performed very well and Bangladesh took a further market share in the global readymade garment sector, she said.
Despite rapid export growth, pressure is intensifying on the country's balance of payments, she said.
"The trade deficit is widening, as surging imports outpaced record exports driven by high global commodity prices, rising oil demand and rapid credit expansion,” she said.
“Slower remittance growth and lower aid inflows added further pressures.”
The overall balance of payments was in a deficit for the first time in a decade, leading to foreign reserve losses in 2010-11. "As a result, the taka has come under pressure, with a moderate depreciation vis-à-vis the US dollar,” Kvintradze said.
The IMF official said the weaker-than-expected growth in advanced economies could weigh on RMG exports and possibly remittances.
On the domestic side, it said further loosening in macro-policies and weakening of policy anchors could prove destabilising.
The lender also pointed to opportunities. "The global engine of growth will be in Asia for the next few years. The long-term growth prospects hinge on generating sufficient resources to relieve infrastructure bottlenecks and ensuring competitive business environment focused on labour-intensive activities."
Expanding the export base and accelerating regional integration could also be significant contributing factors to stronger growth performance, said the IMF.
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