[stop-imf] Bangladesh: IMF suggests tighter monetary policy

[Robert Weissman]

http://www.thedailystar.net/2006/03/10/d6031001129.htm

The Daily Star
March 10, 2006

IMF suggests tighter monetary policy
/Says fuel price rise is inevitable/
Unb, Dhaka

International Monetary Fund (IMF) has suggested further tightening of
Bangladesh Bank's monetary policy to ease inflationary pressure.

"This is the key challenge for the authorities in Bangladesh," Thomas
Rumbaugh, IMF adviser for the Asia and Pacific, told a press briefing at
the IMF Resident Mission in Dhaka yesterday.

The IMF official said this replying to a question whether their
prescription to contain inflation would be possible if the government
raises the fuel prices further and the import cost increases due to the
soaring dollar prices.

He insisted on increasing the interest rates further as a means of tight
monetary policy. "Some further increases in interest rates may be
required to bring inflation in line with other countries," he said.

The briefing was organised at the end of an 8-day mission of an IMF team
led by Thomas that reviewed the recent economic developments and the
implementation of policies supported by the Poverty Reduction and Growth
Facility (PRGF) arrangement.

"It's inevitable that the government will have to adjust the oil
prices," Thomas said, adding that the price hike will have onetime
impact on the inflation, not a permanent one.

"That's why Bangladesh Bank needs to keep very prudent monetary policy
so that the inflation does not go up," he said.

During their visit to Bangladesh, the mission members met Finance and
Planning Minister M Saifur Rahman, Finance Secretary Siddiqur Rahman
Chowdhury, Bangladesh Bank Governor Dr Salehuddin Ahmed and senior
government officials.

"Growth momentum in Bangladesh's economy has been maintained during this
fiscal year,"Thomas told the briefing on their observations.

He expected that the GDP growth would be about 6 percent but observed
that inflation, though declined slightly, at 6.5 percent was still
higher than desirable.

Thomas added that the external current account was better than expected
in the first half of FY06 with strong growth in exports and some slowing
in non-oil imports.

"Despite these positive developments, considerable macroeconomic
challenges remain there," he said, suggesting that Bangladesh Bank
should continue the tightened policy during the days to come.

Apart from further raising the interest rates and the prices of fuel
oil, the IMF also suggested increasing revenue collection as a matter of
priority as the government is preparing the budget of FY07.

On petroleum prices, it observed that the present policy entails
considerable and growing economic costs, mainly benefiting higher income
consumers, reducing economic efficiency, and only delaying the
inevitable adjustments as losses continue to mount on the BPC and the
NCBs financial position deteriorates.

Replying to a question, Thomas said there are some liquidity problems in
the foreign exchange market while the market needs some improvements in
terms of efficiency.

In response to another query, he said it would be possible to register
faster GDP growth even if there are some difficulties in agriculture as
the industry and services sectors are showing robust growth.

The 3-year PRGF arrangement was approved in June 2003 with a total
lending commitment of $493 million, being disbursed in seven
instalments, which were later augmented by about $75 million under IMF's
Trade Integration Mechanism (TIM).

Five instalments worth $409 million have so far been released with the
latest one ($97 million) in February. Discussions on the release of the
sixth instalment will take place in May this year if the government
continues to implement policies, particularly on the NCBs and the NBR.