Time to end Covid-19 policies: IMF

Bangladesh needs to end the easy policy measures it ushered in to soften the blow of the global coronavirus pandemic, closely monitoring the bank asset quality and inflation, and stand ready to normalise its monetary policy, said the International Monetary Fund.

The Washington-based multilateral agency made the observation at the conclusion of its 2021 article IV consultation with Bangladesh.

During an Article IV consultation, an IMF team of economists visits a country to assess economic and financial developments and discuss the country's economic and financial policies with government and central bank officials.

The team had called in to Bangladesh in December last year and placed their report on the visit before the IMF executive board last week.

"The authorities reacted quickly and decisively to address the economic fallout of the pandemic," the IMF said.

Entering the crisis with macroeconomic stability, the authorities announced support packages equivalent to 6 percent of GDP with space from curtailing non-priority current spending and suspending low-priority capital projects.

The prompt and decisive policy response to the pandemic has facilitated a faster recovery.

But the time has come to end the Covid-19 policies -- although in an orderly manner.

The pandemic has increased the existing vulnerabilities in the banking sector that could impair medium-term growth, the IMF said.

The caps on interest rates need to be phased out to improve credit allocation.

The multilateral agency stressed the need to strengthen banking regulation and supervision, improve corporate governance and reform legal systems to stem the flow of high default loans, particularly in the state-owned commercial banks.

They urged the authorities to implement the recommendations of the 2021 safeguards assessment and to further strengthen the AML/CFT framework.

The IMF welcomed the completion of the audits related to COVID-19 spending and urged the authorities to publish them without further delay.

Noting that reserves coverage is adequate, they emphasised the need to safeguard reserves and cautioned against using them for non-monetary purposes.

Growth is expected to pick up to 6.6 percent this fiscal year supported by a robust rebound in exports, continued implementation of the stimulus packages and accommodative monetary and fiscal policies.

On the other hand, inflation is projected to rise to 5.9 percent in fiscal 2021-22 driven by higher international commodity prices, it said.

The mission noted the risks, including the uncertain path of the pandemic, low vaccination rates and vulnerabilities to climate change.

The IMG emphasised that continuing with sound macroeconomic policies, modernising policy frameworks and addressing structural impediments will be key to successfully graduate from the least-developed country status.

To lift growth potential, structural policies should focus on diversifying exports, increasing FDI, enhancing productivity, investing in human capital and addressing corruption.