Bangladesh Economy: IMF sees three key risk factors

The IMF has identified risk factors in Bangladesh economy, including political unrest related to national elections, the Rohingya situation and further deepening of crises in the state owned banks.

Slow progress in resolving the Rohingya crisis would create a fiscal pressure on the country, it said in a report yesterday.

The report, based on a discussion of the board of International Monetary Fund on May 30, said the international community should continue their support to Bangladesh regarding the Rohingya situation.

The precise impact of the crisis on the budget will depend on the comprehensiveness of relief efforts and the extent to which donor support continues, it said.

In the outgoing fiscal year, the government was confident that the situation could be addressed with external financing and additional spending pressures could be met without exceeding the budget deficit target, the report observed.

In the mid and long term, the economic, social, and environmental impacts of the crisis can be huge if repatriation does not proceed as swiftly as planned. Moreover, donor support can wane, it added.

Refugees are now based in an already densely populated area, where the poverty rate is well above the national average and where there is considerable pressure on natural resources. These factors could lead to rising social tensions between the Rohingya refugees and host communities, underscoring the need for investments in key social services, economic infrastructure, and environmental rehabilitation, the IMF said.

In Thursday's budget speech, the finance minister did not say anything about the Rohingyas. In his post-budget press conference the next day, the finance minister said over Tk 400 crore was put aside for the Rohingyas.

But the amount may not need to be spent as there is hope of getting grants from development partners, he said.

A finance ministry official earlier said the government earmarked Tk 414 crore in the Annual Development Programme for moving one lakh Rohingyas to Noakhali's Bhashan Char. The total project cost would be Tk 2,312 crore.

In 2017-18, Tk 1,898 crore was allocated for the project.

In the coming fiscal year, ministries of health, relief and disaster management will continue to spend from their own budget. The ministries have spent around Tk 70 crore in the outgoing fiscal year, said a finance ministry official.

The IMF also warned of political turmoil before and after the next election, raising security concern and adversely affecting confidence, investment and growth.

Balance of payments (BOP) pressures could emerge from lost export production and inflation could go up, the IMF said.

The banking sector, especially the ill-health of the state owned commercial banks may create a risk for the economy next year, the IMF said.

The government allocated around Tk 2,000 crore in the coming year for recapitalisation of the state owned banks.

The IMF said recapitalisation should be tied to reforms to improve the long-term viability of state banks. The reforms should improve governance, ensure stricter controls over lending activities and aggressive recovery of bad loans.

The IMF said the recent amendment to the Bank Company Act had raised governance concerns as it increased the number of family members allowed to sit on private bank boards from two to four. The tenure of directors has also been extended from six to nine years. Additional banking licenses under consideration could further challenge banking supervision and regulation.