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Statement by Adarsh Kishore, Executive Director for Bangladesh and Ranjit Bannerji, Senior Advisor to Executive Director April 2, 2008

Author(s):
International Monetary Fund
Published Date:
April 2008
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1. My authorities would like to record their appreciation to the IMF staff for putting together an objective and balanced report to support our request for Emergency Natural Disaster Assistance. On November 15, 2007, super-cyclone Sidr struck Bangladesh on the heels of two debilitating floods, leaving a trail of death, destruction and dislocation. My authorities have requested a purchase of an amount equivalent to SDR 133.3 million under the Fund’s policy on ENDA with a subsidy on the rate of charge for such purchase through their letter of March 14. The request was made only after a clearer understanding of the resource gap following completion of a joint government-donor assessment of the damage, securing the commitment of donor support against the assessed damages, and analyzing the revenue position and determining feasible reallocation of resources within the budget to address the challenges the country is facing.

Impact of Super Cyclone Sidr:

2. At least 4,400 people died and 55,000 were injured, and a staggering 8.7 million people were displaced and had their livelihoods disrupted due to damage to their homes, infrastructure and crops in the field. Many deaths were averted thanks to an effective cyclone early warning system in place in the coastal areas, but livestock, infrastructure and other assets could not be protected from the tidal surge that visited along with the cyclone. The severity of destruction was more in evidence in the coastal area, home to the poorest segments of the society.

3. The joint assessment conducted by the Government, World Bank and other donors, determined the loss of assets and damage caused by the twin-floods and the cyclone at US$2.7 billion or 3.7 percent of the GDP. The damage was concentrated mainly in the housing, agriculture, fisheries and transport sectors with the private sector sustaining most of the damages.

Response:

4. The relief and reconstruction planned by the Government during FY08 is estimated to cost US$850 million. Out of this, external funding of about US$ 450 million has been secured from development partners in a blend of US$ 220 million in grants which is extra budgetary and another US$ 225 million as direct budget support from the World Bank and AsDB. The gap of another US$ 220 million has to be met from improved revenue collection and reallocation of funds from within the budget.

5. While the last PRGF arrangement ended in June 2007, the Government’s resolve on maintaining reforms has remained firm. Looking forward, the government will continue to work to promote economic growth, generate employment, reduce poverty and put the country on a higher growth trajectory. The disaster-related shocks referred to above, however, have been made worse by the external shocks of spiraling food, fertilizer and oil prices. The shocks have together negatively impacted food production, restoration of communication systems and infrastructure, and general inflation.

6. My authorities have quickly allocated 430,000 tons of food to expand the Vulnerable Group Feeding Programme and Open Market Sales of rice for immediate relief. They have allocated Taka 40 billion as against budgeted Taka 22.5 billion for fertilizer and direct diesel subsidy, enough to cater to 80 percent of augmented demand. Taka 40 billion obtained by pruning lower priority Annual Development Plan (ADP) projects has been diverted to augment social safety nets and fund subsidies amounting to Taka 68 billion. Despite the increased outlay, the overall budget deficit is expected to be close to the originally projected budget deficit for the year. This will be made possible through the remarkable rise in revenue collection (25 percent in tax and 34 percent in non-tax revenue), the high flow of concessional foreign assistance directed at supporting flood and cyclone recovery efforts, and the reallocation of resources away from low priority ADP projects.

BOP Pressures:

7. As anticipated, rice (and other food) imports have jumped sharply, with the cost of combined private and public sector rice imports through January 2008 rising almost nine fold—to US$455 million—compared to the same period in the previous fiscal year. Total rice imports arising because of the disasters are now expected to exceed the earlier estimated 1.25 million metric tons due to government’s decision to expand further its open market sales of rice so that it may ensure food security for the country’s most vulnerable groups. Balance of payment pressure has also risen further due to recent increases in oil and other commodity prices. Of specific concern is the sharp rise in international rice prices in recent months. The assistance my authorities are requesting from the Fund under the ENDA policy will help to ensure that the reserve position is protected in the face of looming large food imports during the remainder of this fiscal year.

Conclusion:

8. In sum, my authorities would like to express their appreciation to the IMF for its assistance as Bangladesh faces economic dislocation arising from the natural disasters. My authorities approve the publication of the staff report and their letter of intent following the conclusion of this Executive Board meeting.

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