IMF lauds Bangladesh's efforts to overcome economic challenges

The International Monetary Fund (IMF) has praised Bangladesh's measures, taken by the interim government, to overcome economic challenges due to the recent turbulence and major floods.

"In response to the challenging circumstances, the authorities' efforts to initiate adjustments, including continued monetary tightening and rationalizing non-priority capital spending, are commendable," IMF Mission Chief for Bangladesh Chris Papageorgiou told BSS.

The IMF mission team led by him visited Dhaka during 24-30 September to discuss recent developments and the authorities' reform priorities.

Papageorgiou said the timely formation of an interim government helped stabilize the political and security conditions, alongside a gradual return to normalcy in the economy.

"Nonetheless, economic activity has slowed markedly, while inflation remains at double-digit levels, owing to the recent turbulence and major floods. The deterioration in the balance of payments, reflecting outflows in trade credit, has put additional pressure on foreign exchange reserves," he mentioned.

However, what the government has taken to improve the economic issues is really praising, he added.

Responding to a question on the past government fiscal target, Papageorgiou informed that the authorities' budget had been perceived as aspirational, with optimistic tax revenue and ambitious capital spending projections.

Historically, the government had to cut back on both recurring expenses and major investments given weak revenue collection, he added.

He mentioned that this was necessary to keep the budget deficit within their target.

"In this context and given continuously high inflation and external pressures, we support the interim government's intention to rationalize capital spending by considering execution capacity and cutting non-priority projects," he added.

Given the country's low tax revenue-to-GDP ratio compared to peers, he said the IMF supports the authorities' goal of setting ambitious revenue targets.

However, these targets must be supported by concrete revenue-generating measures, he noted.

Papageorgiou, however, said Bangladesh's tax-to-GDP ratios have seen little improvement in recent years.

Sustainable revenue mobilization requires a multi-pronged approach, comprising both tax policy and revenue administration measures, he added.

On the tax policy front, he said, key areas for reform include reducing widespread tax exemptions, simplifying the value-added tax (VAT) system, and broadening the tax base as part of an overarching strategy of shifting the tax burden from trade-related taxes toward income tax and VAT.

To improve tax administration, he said priority reforms include digitalization of tax collection processes and better tax compliance risk management.