The International Monetary Fund, a U.S.-based multinational lender, has suggested the central bank phase out 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 bank lending rate cap came into effect from April 2020 and the central bank tagged the lending rate with inflation in August 2021.
The global lender made suggestions on Saturday based on a visit by its team to the 2021 Article IV consultation with Bangladesh.
Under the consultation, a team of IMF economists visits a country to assess economic and financial developments and discuss the country’s economic and financial policies with government and central bank officials.
The team also projected Bangladesh’s gross domestic product growth of 6.6% for the fiscal year 2021-2022.
At the end of the visit, IMF Mission Chief for Bangladesh Rahul Anand said: “Despite being hit by multiple waves of the Covid pandemic, swift and decisive actions by the authorities , supported by the external environment, led to a much faster rebound than that of Bangladesh. regional peers.
“Growth is expected to reach 6.6% in FY22 as the impact of Covid-19 subsides and policies remain accommodative,” Rahul said in an IMF statement released during the 15 visit. days in Bangladesh.
The US-based lender’s estimate was 0.6 percentage points lower than the government’s budget projection of 7.2% for the current fiscal year.
The country’s GDP growth plunged to 3.51%, its lowest level in 29 years, in fiscal year 2020, according to government data released in August 2021.
He also estimated that the country’s real growth would be 5.47% in FY21.
Prior to the IMF projection, the World Bank projected the country’s GDP growth of 6.4% in FY22.
For FY23, the IMF team projected growth to be 7.1 percent due to the improving external environment and progress in the national immunization program.
Speaking of the financial sector, the IMF mission chief stressed the importance of an orderly exit from coronavirus-related financial policies to reduce the build-up of financial sector vulnerabilities.
To stem the growth of non-performing loans, Rahul stressed the importance of addressing structural weaknesses in corporate governance, regulation, supervision and legal framework.
“Ensuring that classification and provisioning requirements are in line with BASEL standards is an important first step towards resolving NPLs,” he said.
“Recent NSC price changes are welcome, but efforts to reform the NSC regime and develop the bond market remain important for the development of capital markets,” he said.
Reflecting non-food price inflation and recent fuel price hikes, 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 commodities, the current account deficit is expected to widen in FY22.
Public debt will remain sustainable in the long term.
“More decisive reforms are needed to ease Bangladesh’s transition out of LDC status and to maintain its competitiveness in a post-pandemic world. To support private sector-led growth, supported by exports and investments, structural reforms should focus on improving governance, diversifying exports, increasing productivity and building climate resilience. to increase growth potential.
The IMF stands ready to support the government’s reform efforts through policy advice and capacity building, including on monetary and fiscal policies, financial sector supervision and regulation, and macroeconomic statistics.
The team met with the Governor of Bangladesh Bank, the Finance Secretary, the Chairman of the National Board of Revenue and other senior government officials, as well as representatives of companies and banks, trade unions and development partners .