Govt measures bringing inflation down in Bangladesh, but more needs to be done: IMF

Agency :
The measures taken by the government are bringing down inflation in Bangladesh, the International Monetary Fund (Fund) said.

“Now, what we have seen is they [Bangladesh government] have taken measures to tighten the monetary policy to bring inflation down.

And inflation is coming down, but further actions needed to ensure that inflation is durably coming down and comes back to target sooner than later,” IMF Asia and Pacific Department (APD) Director Krishna Srinivasan said during a briefing on the Regional Economic Outlook for Asia and the Pacific in Tokyo on Wednesday.

The IMF official’s remarks came as a response to a question regarding the latest monetary policy taken by the Bangladesh Bank.
He further said Bangladesh has an IMF-supported programme in the context of back-to-back shocks.

“Like many other countries, Bangladesh too had to endure shocks, starting from Covid to the Russia’s war in Ukraine and subsequent shocks. In that context, Bangladesh sought access to a Fund supporter programme. And as part of that programme, there are many pillars, and one pillar, of course, is to bring down inflation,” he said.

“The other pillar is to make sure that you have fiscal sustainability while protecting the poor and the vulnerable. You also had governance reforms, and you had reforms which were aimed at protecting the poor and the vulnerable through our conditionality,” Srinivasan further said in reply to a question.

Responding to the question what else the government could have done to pay the arrears instead of issuing bonds worth billions to clear bank debt against arrears at an interest rate of 7.5%, which is further raising the government’s debt total, the IMF official said: “So there it would be important to see what are the choices you have.

The government, as part of the IMF-supported programme, is embarking on significant fiscal tightening to ensure that, you know, revenue mobilisation remains robust, expenditures are more targeted and so on.”

“So fiscal consolidation in that context can have as an offset, but the question is how much more consolidation can it do? And that’s where it’s important.

In the context of what we have been talking about is in the context of interest rates being high, that countries have to go beyond what they’ve been doing in terms of fiscal consolidation and further tightening may be needed,” he said.

“Again, this is something which the country team working on Bangladesh will be assessing in the months forward to provide a more definitive answer,” Srinivasan said.

The Bangladesh government decided to issue special bonds, worth around Tk26,000 crore, with a maximum interest rate of 7.5%, to clear arrears to independent power producers (IPPs) and fertiliser importers that have remained unpaid for months.

The bonds, a debt instrument, will be used as loan repayments to 40 banks on behalf of power producers and fertiliser suppliers.
Fertiliser importers have arrears of Tk12,000 crore while IPPs have arrears of Tk14,000 crore.