The International Monetary Fund (IMF) has cut economic growth to 6.3% for this fiscal year from 6.8% as foretasted in October last year.
The projection is much lower than the government’s target of 7% for the current fiscal year.
In FY16, real GDP growth is projected at 6.3%, supported by higher public sector wages and public investment, according to IMF’s midterm review, which was released yesterday after the meeting of its executive board that concluded 2015 Article IV Consultation with Bangladesh.
IMF said tax revenue performance has been weak, with revenues increasing more slowly than GDP. Also, private domestic demand, particularly private investment, has been subdued, partly contributing to a slowdown in credit to the private sector, it added.
“Various economic activity indicators suggest a slower-than-expected start to the current fiscal year,” said the IMF said.
Despite global headwinds and episodes of domestic unrest, Bangladesh has had a strong macroeconomic performance in the two years since the last Article IV consultation, supported by prudent policies under the recently-completed Extended Credit Facility (ECF) arrangement with the IMF.
The IMF said Bangladesh’s growth is projected to accelerate gradually to 7% over the medium term, as public investment is further ramped up and constraints on investment ease, with private investment also supporting a recovery in private-sector credit.
“Provided calm prevails, prudent policies remain in place, and structural reforms are implemented as envisaged, the medium-term economic outlook should be positive and marked by continued stability and high growth,” it said.
Inflation is forecast to remain broadly stable in the current financial year and edge up slightly next fiscal year, due to temporary effects from higher public sector wages and the introduction of new VAT.
“Growth has been robust, external reserves have risen, inflation has abated, and social indicators have improved,” it said.
However, it encouraged the government to continue sterilised foreign exchange intervention and consider adopting a basket of trading partners’ currencies to guide foreign exchange intervention policy going forward.
