IMF recommends calibrated monetary tightening, exchange rate flexibility
The multilateral lender made the recommendation in its statement issued after its executive board approved the second tranche of $689 million of $4.7 billion loans under the Extended Credit Facility (ECF) and Extended Fund Facility (EFF) as well as Resilience and Sustainability Facility (RSF) arrangement for Bangladesh yesterday.
The International Monetary Fund (IMF) has advised Bangladesh to continue to focus on containing inflation and rebuilding external resilience.
The Washington-based lender suggested a calibrated monetary policy tightening, supported by a neutral fiscal stance, and greater exchange rate flexibility to alleviate foreign exchange pressures and rebuild buffers.
The multilateral lender made the recommendation in its statement issued after its executive board approved the second tranche of $689 million of $4.7 billion loans under the Extended Credit Facility (ECF) and Extended Fund Facility (EFF) as well as Resilience and Sustainability Facility (RSF) arrangement for Bangladesh yesterday.
This brings total disbursements under the ECF/EFF thus far to about $936.6 million and about US$221.5 million, totalling $1158 million, according to the statement.
The board said the Bangladesh"s performance is broadly on track despite the difficult environment and it welcomed the recent implementation of corrective actions and the efforts to push key reforms forward, including with support from Fund capacity development.
"Bangladesh's economy is navigating multi-faceted economic challenges. Despite a difficult external environment, program performance has been broadly on track, reflecting the authorities' strong commitment, " said Antoinette Sayeh, deputy managing director and acting chair of IMF.
"The Fund-supported program is helping restore macroeconomic stability and protect the vulnerable, while accelerating macro-critical structural reforms to bolster growth potential and delivering on the climate agenda."
She said near-term policies should continue to focus on containing inflation and rebuilding external resilience.
"This requires a calibrated monetary policy tightening, supported by a neutral fiscal stance, and greater exchange rate flexibility to alleviate foreign exchange pressures and rebuild buffers."
Ongoing reforms to modernize the monetary policy framework will improve policy transmission and foster macroeconomic stability. Gradually transitioning to a more flexible exchange rate regime and strengthening FX reserve management would enhance external resilience, Sayeh said.
"Raising tax revenues and rationalizing expenditures will allow increasing social, developmental, and climate-related spending. Continued efforts to enhance public financial and investment management are needed to increase spending efficiency and mitigate fiscal risks."
The IMF said financial reforms should focus on addressing vulnerabilities in the financial sector, by strengthening banking regulation, supervision, and governance.
Deepening capital markets will help mobilize financing to support growth objectives, it added.
"Further trade liberalisation and enhancements to the investment climate will help bolster export diversification and foreign direct investment."
The Fund said raising productivity, including through education and upskilling, along with increasing female labor participation, is pivotal to boost growth potential.
"Building resilience to climate change and natural disasters is a priority for achieving high, inclusive, and green growth. In this context, strengthening institutions, improving climate spending efficiency, and mobilising climate financing remain crucial."