IMF seeks flexible exchange rate, trims growth forecast

The International Monetary Fund (IMF) has once again recommended the introduction of a flexible currency exchange rate in Bangladesh. 

At a virtual press briefing on Tuesday, Krishna Srinivasan, director at the IMF’s Asia and Pacific Department (APD), noted that there is a deficit in the financial account of Bangladesh and it should introduce a flexible or market-based exchange rate to address the deficit. 

The press briefing marked the publication of the lending agency's regional economic outlook for Asia and the Pacific. 

Bangladesh reported a surplus of $4.7 billion in the current account during the first nine months of the ongoing fiscal year, but there is a deficit of $8.3 billion in the financial account. 

Srinivasan hoped that Bangladesh would benefit in terms of financial account if it takes an initiative to introduce a flexible exchange rate.

Acknowledging the global economic challenges posed by the Covid-19 pandemic and the Russia-Ukraine war, Srinivasan stressed the need for revenue reforms as well as exchange rate flexibility for economic recovery. 

Bangladesh is now in a $4.7 billion loan agreement with the IMF. Two installments of the loan have so far been disbursed, while the next tranche is scheduled for the next month. 

In this regard, the IMF director said Bangladesh strives to maintain macroeconomic stability and to address long-term structural issues, particularly those related to climate change. The country sought assistance from the IMF in the process and the latter responded positively. Hence, Bangladesh is now doing better from the macroeconomic context. 

The IMF projected that the gross domestic product (GDP) growth in Bangladesh to slow mildly to 5.7 per cent this year, from 6 per cent in 2023. However, it remains optimistic for the fiscal year 2024-25, with an estimated growth rate of 6.6 per cent.

Also, Srinivasan attributed the low foreign exchange reserves in Bangladesh and the pressure on the local currency to the inadequate financial account.