IMF suggests addressing long-standing structural issues to bolster growth

Krishna Srinivasan

The International Monetary Fund (IMF) has laid emphasis on addressing long-standing structural issues to make Bangladesh's economy more resilient and create a conducive environment to achieve higher growth.

"Policy priorities must focus on containing inflation, softening the impact of these economic disruptions on the vulnerable, and building external resilience through continued exchange rate flexibility," IMF Director for the Asia and Pacific Department (APD) Krishna Srinivasan said in a recent interview with BSS.

While tackling the near-term challenges, he said, it is important to address long-standing structural issues to bolster growth.

"Some key priorities include tackling the long-standing challenge of raising tax revenues, which is key to increasing growth-critical infrastructure spending as well as social, developmental and climate spending to create a conducive environment for sustainable growth," he added.

Srinivasan highlighted Bangladesh's need to focus on modernizing the tax system and improving revenue collection to support the poor and vulnerable.

He mentioned that war in Ukraine has interrupted Bangladesh's robust recovery from Covid-19 pandemic and has created new challenges.

"The world has faced multiple shocks. First, we faced covid-19 pandemic. And now we are facing a war in Ukraine. The war in Ukraine has an impact on cost of living because it has increased prices of all commodities. In case of Bangladesh, the multiple shocks have had a significant impact on balance of payments, inflation, and fiscal position. And, therefore, economic activity has slowed," he added.

He noted that the Bangladesh authorities have taken a comprehensive set of measures to address these challenges.

"Nevertheless, sustained external pressure, stringent demand control measures, and loss in purchasing power from high inflation continue to weigh on the near-term economic outlook." he added.

He highlighted that reducing financial sector vulnerabilities, strengthening oversight, enhancing governance and the regulatory framework, and developing capital markets will help mobilize financing to support growth objectives.

Creating a conducive environment to expand trade and foreign direct investment, developing human capital, and improving governance to enhance the business climate will lift growth potential, he added.

He said these reforms-combined with efforts to boost private investments and export diversification-will help create conditions to make Bangladesh's economy more resilient, and support long-term, inclusive, and sustainable growth as well as help tackle climate change - an important risk for future growth.

He, however, said that despite near-term challenges, Bangladesh's favorable demographics present a significant opportunity.

To harness this potential, he suggested the country must continue reforms to make its economy more resilient and resume progress towards the authorities' ambition of reaching upper middle-income status.