The US-based multinational lender, the International Monetary Fund, has suggested that the central bank gradually remove the caps on lending and borrowing rates, saying the practice limits policy space.
He also suggested greater exchange rate flexibility as well as safeguarding foreign exchange reserves as this will help cushion external shocks.
The cap on lending rates on banks came into effect from April 2020 and the central bank marked the lending rate with inflation in August 2021.
The global lender made suggestions on Saturday based on a visit by its staff team on the 2021 Article IV consultation with Bangladesh.
As part of the consultation, a team of IMF economists travel to a country to assess economic and financial developments and discuss the country’s economic and financial policies with the government and central bank officials.
The team also forecast Bangladesh’s gross domestic product to grow at 6.6 percent for the 2021-2022 fiscal year.
At the end of the visit, the IMF’s chief of mission for Bangladesh, Rahul Anand, declared: “Despite the multiple waves of the Covid pandemic, the rapid and decisive actions of the authorities, supported by the external environment, resulted in a much faster rebound than that of Bangladesh’s regional peers. ‘
“Growth is expected to reach 6.6% in FY22, as the impact of the decline and Covid-19 policies remains accommodating,” Rahul said in an IMF statement issued on the occasion of the 15 day visit to Bangladesh.
The US-based lender’s estimate was 0.6 percentage points lower than the government’s budget projection of 7.2 percent for the current fiscal year.
The country’s GDP growth plunged to its lowest level in 29 years at 3.51% in fiscal 2020, according to government data released in August 2021.
He also estimated that the country’s real growth would be 5.47 percent in FY21.
Prior to the IMF’s projection, the World Bank forecast the country’s GDP growth at 6.4 percent for FY22.
For fiscal year 23, the IMF team forecast growth to be 7.1 percent due to the improved external environment and progress in the national immunization program.
Speaking on the financial sector, the IMF chief of mission stressed the importance of an orderly exit from financial policies related to the coronavirus to reduce the build-up of vulnerabilities in the financial sector.
To stem the growth of non-performing loans, Rahul stressed the importance of addressing structural weaknesses in corporate governance, regulation, supervision and the legal framework.
“Ensuring that classification and procurement requirements are up to BASEL standards is an important first step towards resolving NPLs,” he said.
“The recent NSC price changes are welcome, but efforts to reform the NSC system and develop the bond market remain important for the development of capital markets,” he said.
Reflecting inflation in non-food prices and recent increases in fuel prices, inflation is expected to be slightly above the authorities’ target, the team leader said.
With the expected recovery in imports of capital goods, industrial raw materials and raw materials, the current account deficit is expected to widen during FY22.
Public debt will remain sustainable over the long term.
“More decisive reforms are needed to ease Bangladesh’s transition from LDC status and to maintain its competitiveness in a post-pandemic world. To support private sector-led growth supported by exports and investment, structural reforms should focus on improving governance, export diversification, increasing productivity and building climate resilience. to increase growth potential.
The IMF stands ready to support government reform efforts through policy advice and capacity building, particularly in monetary and fiscal policy, financial sector supervision and regulation, and macroeconomic statistics.
The team met with the Governor of the Bank of Bangladesh, the Secretary of Finance, the Chairman of the National Revenue Council and other senior government officials, as well as representatives of businesses and banks, trade unions and partners in the development.