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Bangladesh

Author(s):
International Monetary Fund
Published Date:
April 2012
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BACKGROUND

1. Over the past 18 months, macroeconomic pressures have intensified in Bangladesh, resulting in a marked deterioration in its external position. These pressures stem mainly from large oil and capital imports associated with new fuel-intensive power stations, an oil price-driven terms-of-trade shock, and expansionary fiscal and monetary policies. As a result, the balance of payments (BOP) slipped into a deficit in FY11 (July 2010-June 2011) for the first time in a decade. Much of the foreign reserve buffer built during 2009-10 was used up in 2011, against the backdrop of limited exchange rate flexibility. A now-weaker global outlook and firming in oil prices weigh on the near-term BOP prospects, while ongoing efforts to address power shortages and infrastructure deficit are expected to add to pressures.

2. The government of Bangladesh is seeking a three-year ECF arrangement, in support of a comprehensive reform program. It centers on restoring macroeconomic stability, building an adequate reserve buffer, and laying a foundation for higher, more inclusive growth. Achieving these objectives will require prudent fiscal and monetary policies, deep-seated structural reforms, and exceptional financing in the transitional period. Notably, Bangladesh will need to make a decisive break from its low tax revenue-low capital spending-low investment nexus (Figure 1). Program commitments have been laid out in the government’s Letter of Intent and Memorandum of Economic and Financial Policies (MEFP) (Appendix I). During the first year of the ECF arrangement, the main program components center on upfront macroeconomic stabilization, supported by exchange and interest rate flexibility and tax, public financial management (PFM), and financial sector reforms.

Figure 1.Bangladesh: ECF Program Focus and Objectives 1/

Sources: Bangladesh authorities, World Economic Outlook; and IMF staff estimates.

1/ For Bangladesh, fiscal year (July 1-June 30).

2/ See the SFYP, FY11-15.

3/ Includes ADP and non-ADP capital spending.

RECENT DEVELOPMENTS AND OUTLOOK

3. Recent economic developments in Bangladesh have been broadly in line with those envisaged in the 2011 Article IV consultation staff report (see Country Report No. 11/314). The near-term macroeconomic outlook remains challenging, with risks posed by external, fiscal, and inflation pressures (Figures 2-6). With oil prices firming and global growth decelerating in the first half of FY12, the immediate balance of risks is to the downside.

Figure 2.Bangladesh: Response to External Pressures

Sources: Bangladesh authorities; Bloomberg; CEIC Data Company Ltd; and IMF staff estimates.

1/ Observations for March 2012 are through March 22.

2/ Excludes the stock of FXODs and Bangladesh Bank’s nonreserve foreign assets. The observation for March 2012 is as of March 21.

3/ The observation for March 2012 is the average for March 1-20.

4/ The observations for March 2012 are the averages for March 1-22.

5/ Wedge between the weighted-average interbank exchange rate and the market rate (proxied by commercial banks’ rates), in percent.

Figure 3.Bangladesh: Real and External Sector Developments

Sources: Data provided by the Bangladesh authorities; CEIC Data Company Ltd.; and IMF staff estimates.

1/ Energy-related CPI components proxied by gross rent, fuel and lighting, and transport and communications.

2/ ACU: Asian Clearing Union; GIR in March 2012 is as of March 22.

Figure 4.Bangladesh: Exports, Imports, and Remittances Performances

Sources: Data provided by the Bangladesh authorities; CEIC Data Company Ltd.; Eurostat; U.S. Department of Commerce; Office of Textiles and Apparel; and IMF staff estimates.

Figure 5.Bangladesh: Fiscal Developments

Sources: Data provided by the Bangladesh authorities; CEIC Data Company Ltd.; and IMF staff estimates.

Figure 6.Bangladesh: Monetary and Financial Market Developments

Sources: Data provided by the Bangladesh authorities; Bangladesh National Petroleum Corporation; Bloomberg; and IMF staff estimates.

1/ March 2012 is as of March 22.

2/ Monthly averages in Dhaka General Index; Grameen Phone is not correctly reflected in the DSE index from November 2009.

  • Growth and inflation. Real GDP growth is expected to moderate to 5.5 percent in FY12 from 6.7 percent in the previous year (Table 1). Weaker net exports and slower investment growth are the main factors. Private consumption growth is also expected to be affected by relatively high inflation. Headline inflation was 10.4 percent (y/y) in January 2012, driven mainly by administered energy price hikes and relatively loose macro-policies. It is expected to rise to around 12 percent by end-FY12, owing to seasonal factors and further electricity tariff hikes, then moderate to 10 percent by December 2012 as policy tightening takes hold.
  • Balance of payments. The BOP is expected to remain in deficit in FY12 (Table 3). Developments are being driven mainly by the current account, which is expected to register a deficit of around 1.1 percent of GDP in FY12, compared to a surplus of 0.2 percent of GDP in the previous year. The trade deficit widened significantly in the first half of FY12. Export growth slowed sharply from its record pace in FY11. Non-oil import growth also slowed, given the taka’s recent depreciation and tightening credit conditions. However, oil import demand continued to expand rapidly. On the positive side, remittances growth has picked up, reflecting firming manpower exports as well as a weaker exchange rate.
  • Foreign reserves. Foreign reserves were at US$9.3 billion at end-February 2012—down by more than US$1.2 billion from their October 2010 peak. Despite greater exchange rate flexibility and other adjustment measures, reserves are expected to further decline to US$9.2 billion at end-June 2012 (2.3 months of import cover), with oil imports looming large.
Table 1.Bangladesh: Selected Economic Indicators, FY2010-15 1/
FY10FY11FY12FY13FY14FY15
Est.Proj.LatestProjections
National income and prices (percent change)
Real GDP6.16.75.56.26.67.0
GDP deflator6.56.310.69.07.06.3
CPI inflation (annual average)7.38.811.211.0Feb. 20129.16.96.2
CPI inflation (end of period)8.710.211.710.4Feb. 20128.26.55.9
Nonfood CPI inflation (end of period)5.25.713.613.2Feb. 20127.05.74.7
Investment and savings (percent of GDP)
Gross investment24.424.724.925.126.427.6
Private19.419.519.319.519.820.2
Public5.05.35.65.66.67.4
National savings27.725.023.824.126.127.5
Private25.622.820.520.121.622.3
Public2.02.23.44.04.55.1
Central government operations (percent of GDP)
Total revenue and grants11.512.013.15.6Jul.-Dec.201113.814.415.2
Total revenue10.911.812.55.6Jul.-Dec.201113.213.914.7
Tax9.010.110.54.5Jul.-Dec.201111.011.612.3
Nontax1.91.72.01.2Jul.-Dec.20112.22.32.4
Grants0.60.30.60.0Jul.-Dec.20110.60.60.6
Total expenditure14.616.217.07.5Jul.-Dec.201117.517.718.2
Current expenditure9.59.89.84.2Jul.-Dec.20119.99.910.1
Annual Development Program (ADP)3.74.24.21.1Jul.-Dec.20114.65.36.0
Other expenditures 2/1.42.23.02.2Jul.-Dec.20113.02.52.1
Overall balance (including grants)-3.1-4.1-3.9-1.9Jul.-Dec.2011-3.6-3.3-3.0
(Excluding grants)-3.7-4.4-4.5-1.9Jul.-Dec.2011-4.3-3.8-3.5
Primary balance (excluding grants)-1.6-2.4-2.3-1.0Jul.-Dec.2011-2.1-1.9-1.6
Financing (net)3.14.13.91.9Jul.-Dec.20113.63.33.0
Of which : External (net)0.90.40.50.3Jul.-Dec.20111.11.41.4
Total central government debt (percent of GDP)41.442.943.943.041.840.1
Money and credit (end of fiscal year; percent change)
Net domestic assets of the banking system19.624.520.219.9Jan.201216.0
Credit to private sector by the banking system24.225.815.918.9Jan.201214.9
Reserve money18.121.013.011.2Jan.201213.9
Broad money (M2)22.421.415.517.9Jan.201215.4
Balance of payments (in billions of U.S. dollars)
Exports, f.o.b.16.223.025.415.9Jul.2011-Feb.201229.434.539.6
(Annual percent change)4.241.710.313.0Jul.2011-Feb.201215.717.315.0
Imports, f.o.b.-21.4-30.3-34.7-19.0Jul.2011-Jan.2012-39.5-44.3-49.7
(Annual percent change)5.441.814.315.5Jul.2011-Jan.201213.912.112.4
Current account balance 3/3.20.3-1.20.5Jul.2011-Jan.2012-1.2-0.4-0.1
(Percent of GDP)3.20.2-1.10.0Jul.2011-Jan.2012-1.0-0.3-0.1
Capital and financial account balance0.4-0.30.42.22.62.8
Overall balance2.9-1.0-0.8-0.8Jul.2011-Jan.20121.02.22.6
Gross official reserves (in billions of U.S. dollars) 4/10.110.09.29.3end-Feb.201210.212.715.5
In months of imports of goods and services3.42.92.42.5end-Feb.20122.32.62.9
Exchange rate (taka per U.S. dollar; period average)69.271.278.3Jul.1,2011-
Mar.22,2012
Exchange rate (taka per U.S. dollar; end-period)69.574.281.8Mar.22,2012
Nominal effective rate (2000=100; period average)87.082.9
Real effective rate (2000=100; period average)108.2108.8
Terms of trade (percent change)-4.6-6.7
Memorandum item:
Nominal GDP (in billions of taka)6,9437,8759,19210,64212,140 13,809
Sources: Bangladesh authorities; and IMF staff estimates and projections.

Fiscal year begins July 1.

Includes non-ADP capital spending, net lending, food account surplus (-)/deficit (+), and extraordinary expenditures.

Latest data reported in FY12 is unadjusted for misclassification of current and capital account flows (see Table 3).

Excludes deposits held in offshore accounts of resident financial institutions, noninvestment grade sovereign bonds, and foreign exchange overdrafts provided by Bangladesh Bank to domestic banks.

Sources: Bangladesh authorities; and IMF staff estimates and projections.

Fiscal year begins July 1.

Includes non-ADP capital spending, net lending, food account surplus (-)/deficit (+), and extraordinary expenditures.

Latest data reported in FY12 is unadjusted for misclassification of current and capital account flows (see Table 3).

Excludes deposits held in offshore accounts of resident financial institutions, noninvestment grade sovereign bonds, and foreign exchange overdrafts provided by Bangladesh Bank to domestic banks.

Table 2.Bangladesh: Medium-Term Outlook, FY2010-15 1/
FY10FY11FY12FY13FY14FY15
Est.Projections
(In percent of GDP)
Gross national savings27.725.023.824.126.127.5
Public national savings2.02.23.44.04.55.1
Private national savings25.622.820.520.121.622.3
Gross investment24.424.724.925.126.427.6
Public investment5.05.35.65.66.67.4
Private investment19.419.519.319.519.820.2
Net exports of goods and services-6.6-8.5-10.3-11.0-10.5-10.4
Exports of goods and services18.422.723.926.027.929.2
Of which: Exports of goods16.220.822.024.226.227.7
Imports of goods and services25.031.234.237.038.339.6
Of which: Imports of goods21.327.430.132.533.734.7
Current account balance3.20.2-1.1-1.0-0.3-0.1
Gross domestic savings20.119.614.614.015.917.2
Public domestic savings1.42.02.73.44.04.6
Private domestic savings18.717.611.910.711.912.6
Consumption79.980.485.486.084.182.8
Public consumption 2/5.45.55.25.35.55.6
Private consumption74.574.980.280.778.677.2
(Annual percentage change)
Real GDP6.16.75.56.26.67.0
Real GNI6.55.66.97.16.77.1
Real public consumption8.98.2-1.09.210.09.2
Real private consumption5.15.19.86.32.43.6
Real public investment15.113.88.25.227.320.5
Real private investment6.28.81.56.79.210.2
ICOR (investment to GDP ratio/real GDP growth)4.03.74.54.04.03.9
Source: IMF staff estimates and projections.

Fiscal year begins July 1.

Current government expenditure, excluding interest payments.

Source: IMF staff estimates and projections.

Fiscal year begins July 1.

Current government expenditure, excluding interest payments.

Table 3.Bangladesh: Balance of Payments, FY2010-161/(In millions of U.S. dollars, unless otherwise indicated)
FY10FY11FY12FY13FY14FY15FY16
Est.Projections
Current account balance3,250264-1,228-1,204-397-140455
Trade balance-5,152-7,324-9,292-10,115-9,804-10,108-10,077
Exports (f.o.b.)16,23623,00825,37929,37534,46539,63444,906
Of which: RMG sector12,49717,91419,81322,78526,88730,92034,939
Imports (f.o.b.)-21,388-30,332-34,671-39,490-44,269-49,743-54,984
Of which: Crude oil and petroleum products-2,556-4,109-6,046-8,010-8,356-9,025-9,756
Services-1,727-3,134-3,785-4,665-5,509-6,453-7,354
Income-1,484-1,354-1,510-1,602-1,742-1,882-2,047
Transfers11,61312,07513,35915,17916,65718,30419,933
Official current transfers 2/12512711711098106114
Private transfers11,48811,94813,24215,06816,55918,19819,818
Of which: Workers’ remittances10,98711,65012,93214,74216,21617,83819,440
Capital and financial account balance 3/353-2944391,9562,4282,5872,522
Capital account488600598646633684735
Financial account-135-894-1601,3101,7951,9041,788
Foreign direct investment9137688451,0481,2971,5431,837
Portfolio investment-117-28556986107134
Medium- and long-term loans9333125281,0791,5921,8601,474
Disbursements1,6041,0511,3282,0002,6712,8442,470
Amortization-671-739-800-921-1,079-984-996
Other capital-1,864-1,946-1,587-885-1,180-1,607-1,657
Short-term oil import credit (net)675318125000-500-750
Trade credits (net) 3/-558-1,205-911-507-311-1290
Commercial banks (net)-315-1601000000
Other items (net)-1,058-1,112-1,588-878-870-978-907
Errors and omissions-738-93600000
Overall balance2,865-967-7897522,0302,4472,977
Prospective official financing02002002000
Financing items-2,865967789-952-2,230-2,647-2,977
Change in gross international reserves (GIR), net of valuation changes (increase -)-2,8271,023844-1,034-2,432-2,871-2,935
Net use of IMF resources-38-57-5582201224-42
Of which: IMF disbursements (+)01432842842840
Valuation changes (increase -)267-68500000
Change in GIR (increase -)-2,560339844-1,034-2,432-2,871-2,935
Memorandum items:
Current account balance (percent of GDP)3.20.2-1.1-1.0-0.3-0.10.3
Exports (annual percent change)4.241.710.315.717.315.013.3
Imports (annual percent change)5.441.814.313.912.112.410.5
Of which: Crude oil and petroleum products (annual change)-1.060.847.132.54.38.08.1
Remittances (annual percent change)13.46.011.014.010.010.09.0
Medium- and long-term external public debt20,90722,25622,57423,65025,35827,32228,753
(Percent of GDP)20.820.119.619.519.319.118.4
Net aid flows (percent of GDP)1.50.91.11.82.12.11.5
Gross official reserves 4/10,14010,0359,19010,22412,65615,52718,462
(In months of imports of goods and services)3.42.92.42.32.62.93.1
Gross official reserves (excluding Asian Clearing Union liabilities) 4/9,5369,1978,3539,38711,81814,68917,624
(In months of imports of goods and services)3.22.72.12.12.42.72.9
Net international reserves 4/7,2496,7265,9376,8899,11911,76614,743
Sources: Bangladesh authorities; and IMF staff estimates and projections.

Fiscal year begins July 1.

Excludes official capital grants reported in the capital account.

IMF technical assistance has found weaknesses in the methodology for compiling trade credits, which are largely the difference between exports reported on a customs and payments basis. Based on preliminary estimates by Bangladesh Bank, it is assumed that 3 percent of exports reported on a customs basis are service fees related to exports. This change effectively moves some of the previously recorded financial account outflows to current account service payments, but with no impact on the overall BOP balance.

Excludes deposits held in offshore accounts of resident financial institutions, noninvestment grade sovereign bonds, and foreign exchange overdrafts provided by Bangladesh Bank to domestic banks.

Sources: Bangladesh authorities; and IMF staff estimates and projections.

Fiscal year begins July 1.

Excludes official capital grants reported in the capital account.

IMF technical assistance has found weaknesses in the methodology for compiling trade credits, which are largely the difference between exports reported on a customs and payments basis. Based on preliminary estimates by Bangladesh Bank, it is assumed that 3 percent of exports reported on a customs basis are service fees related to exports. This change effectively moves some of the previously recorded financial account outflows to current account service payments, but with no impact on the overall BOP balance.

Excludes deposits held in offshore accounts of resident financial institutions, noninvestment grade sovereign bonds, and foreign exchange overdrafts provided by Bangladesh Bank to domestic banks.

4. The authorities have taken significant measures in recent months to mitigate pressures. Foremost, they have sought to contain subsidy costs by adjusting fuel and electricity prices, given distortive effects across the economy (Box 1). As a result, government domestic borrowing, which spiked in the first half of FY12, has retracted modestly. However, the total subsidy bill remains large, risking further crowding out of social and development spending. Bangladesh Bank (BB) has tightened monetary policy, raising its repo rate by a cumulative 325 bps since August 2010 to 7.75 percent and imposing a penalty rate (at 300 bps higher) for most discretionary liquidity support.1 Treasury bill and bond rates have also been allowed to rise significantly across maturities and bank lending rates have been further liberalized. The central bank has taken other prudential measures to reduce credit growth and refrained since late 2011 from foreign exchange intervention to protect reserves, allowing the exchange rate to absorb more external pressures.

5. The medium-term outlook hinges on policy adjustments needed to strengthen the external position and create conditions for higher growth. Under the program baseline, GDP growth is expected to rise to 7 percent by FY15 (Table 2) on structural reforms aimed at raising investment levels (supported by expanded savings) and reducing the power and infrastructure constraints in a sustainable manner. Higher growth also hinges on increasing skill levels and creating new jobs, taking full advantage of Bangladesh’s favorable demographics and proximity to major regional markets. Inflation is expected to be brought down to the single digits by FY13 through appropriately restrained fiscal and monetary policies and, over time, by a further easing of supply constraints. The current account is projected to be broadly in balance by FY15, as remittances continue to grow moderately and export growth outpaces import growth on account of a rebound in global economic activity and the supply-side response to improved infrastructure, accompanied by greater export-oriented foreign direct investment (FDI). Reserves are programmed to reach nearly three months of import cover by FY15. This level would strengthen the buffer against external shocks and align with current metrics on reserve adequacy (Box 2).

POLICY SETTING AND COMMITMENTS

6. The ECF-supported program encompasses four main reform pillars viewed necessary to ensure macroeconomic stability, external viability, and sustained growth. In the design of the first year of the ECF-supported program, macro-policy tightening has been weighed against the uncertain global environment, with the balance of risks pointing to the need to contain demand-side pressures despite the anticipated growth slowdown. Reform objectives are broadly consistent with Bangladesh’s Sixth Five Year Plan (SFYP) (FY11-15) and are also expected to be embodied in the government’s annual budget and BB’s semi-annual monetary policy statements. During the first year, the ECF arrangement is underpinned by quantitative performance criteria (PC) and indicative targets (IT) (MEFP Table 1) and macro-critical prior actions and structural benchmarks (MEFP Table 2).

7. The main risks to the program are:

  • Limited scope to relax fiscal or monetary policy in the event of adverse real shocks, given heightened inflation and reserve losses. On this count, a sharper-than-expected slowdown in the euro area is a major external risk, given sizable readymade garment exports to this region.
  • Prolonged delays in adjusting fuel, electricity, and fertilizer prices and/or unanticipated increases in import-related costs, possibly from an oil price shock, exerting greater pressure on the fiscal and external positions.
  • Over the medium term, a less stable political environment in the run up to elections in early 2014, slowing adjustment and reforms and/or weakening support for the program.

In addition, weak implementation capacity and governance issues could slow the pace of reform. These issues prevented decisive progress in a few areas under the last PRGF arrangement (2003-07), notably in tax reform and administration. To mitigate these risks, the program envisages extensive policy dialogue and technical assistance (TA), anchored by resident/regional advisers and supported by development partners (DPs), as outlined in the MEFP.

A. Reform Pillar #1—Fiscal Policy and Reforms

8. Main issues. Despite recent gains in tax revenue mobilization, fiscal pressures have emerged, stemming mainly from rising fuel, electricity, and fertilizer subsidies. The below-cost provision of fuel and electricity against the backdrop of a rapid expansion in oil-dependent power generation has placed a major burden on the FY12 budget and had other distortive effects. As a result, government domestic borrowing surged in the first half of FY12. In view of this, the authorities have taken a range of measures concentrated on containing subsidy-related costs and reducing nonessential spending to limit the overall fiscal deficit (excluding grants) to 4.5 percent of GDP in FY12 (Table 4). On-budget subsidy-related losses of the Bangladesh Power Development Board (BPDB) and Bangladesh Petroleum Corporation (BPC) have been restricted to Tk 150 billion (1.6 percent of GDP) (a prior action).2 Overall, the programmed deficit in FY12 is modestly lower than originally budgeted, but it will still necessitate a programmed increase in domestic bank financing, mainly in view of slow uptake in nonbank financing and shortfalls in external budget support.

Table 4a.Bangladesh: Central Government Operations, FY2010-151/
FY10FY11FY12FY13FY14FY15
BudgetEst.BudgetRev.Projections
(In billions of taka)
Total revenue and grants7999779481,2331,2061,4731,7532,103
Total revenue7579289271,1841,1491,4071,6862,027
Tax revenue6257607959589631,1731,4071,696
National Board of Revenue (NBR) taxes5987267639199241,1271,3551,637
Of which: VAT and supplementary duties339400426505505612729871
Taxes on income and profits162210220276282351435534
Customs and excise duties89112112131129156182221
Non-NBR taxes2735323939455259
Nontax revenue132168132226186234279331
Foreign grants4248214957666776
Total expenditure1,0131,3221,2741,6361,5621,8602,1512,513
Current expenditure6597687738798981,0501,2051,396
Pay and allowances161204199216210243287327
Goods and services86104101118113141175209
Interest payments148147156180203231238261
Subsidies and transfers 2/261298314346362422501595
Block allocations415318101345
Annual Development Program (ADP)256385331460390489639830
Non-ADP capital spending861337819711592147168
Net lending9327394152225157116
Other expenditures 3/242067333
Overall balance (including grants)-214-345-326-403-356-387-398-410
(Excluding grants)-256-393-347-452-413-453-465-486
Net financing214345326403356387398410
External651082813142112165199
Disbursements11116081187106193265294
Amortization-46-51-53-56-64-81-100-95
Domestic87237260272314275233211
Banks 4/-54157205190279201172142
Of which: Bangladesh Bank-778011415881
Nonbanks14180558335746169
Cash float and discrepancy6203800000
(In percent of GDP)
Total revenue and grants11.512.512.013.413.113.814.415.2
Total revenue10.911.911.812.912.513.213.914.7
Tax revenue9.09.710.110.410.511.011.612.3
NBR taxes8.69.39.710.010.110.611.211.9
Of which: VAT and supplementary duties4.95.15.45.55.55.86.06.3
Taxes on income and profits2.32.72.83.03.13.33.63.9
Customs and excise duties1.31.41.41.41.41.51.51.6
Non-NBR taxes0.40.40.40.40.40.40.40.4
Nontax revenue1.92.21.72.52.02.22.32.4
Foreign grants0.60.60.30.50.60.60.60.6
Total expenditure14.616.916.217.817.017.517.718.2
Current expenditure9.59.89.89.69.89.99.910.1
Pay and allowances2.32.62.52.42.32.32.42.4
Goods and services1.21.31.31.31.21.31.41.5
Interest payments2.11.92.02.02.22.22.01.9
Subsidies and transfers 2/3.83.84.03.83.94.04.14.3
Block allocations0.10.20.00.20.10.10.00.0
ADP3.74.94.25.04.24.65.36.0
Non-ADP capital spending1.21.71.02.11.30.91.21.2
Net lending0.10.40.91.01.72.11.30.8
Other expenditures 3/0.00.10.30.10.10.00.00.0
Overall balance (including grants)-3.1-4.4-4.1-4.4-3.9-3.6-3.3-3.0
(Excluding grants)-3.7-5.0-4.4-4.9-4.5-4.3-3.8-3.5
Primary balance (including grants)-0.9-2.5-2.2-2.4-1.7-1.5-1.3-1.1
(Excluding grants)-1.6-3.2-2.4-3.0-2.3-2.1-1.9-1.6
Net financing3.14.44.14.43.93.63.33.0
External0.91.40.41.40.51.11.41.4
Disbursements1.62.01.02.01.21.82.22.1
Amortization-0.7-0.7-0.7-0.6-0.7-0.8-0.8-0.7
Domestic1.33.03.33.03.42.61.91.5
Banks 4/-0.82.02.62.13.01.91.41.0
Of which: Bangladesh Bank-1.11.01.41.70.8
Nonbanks2.01.00.70.90.40.70.50.5
Cash float and discrepancy0.90.00.50.00.00.00.00.0
Memorandum items:
Subsidy costs (percent of GDP) 5/1.32.22.93.12.31.9
Nominal GDP (in billions of taka)6,9437,8037,8759,1929,19210,64212,14013,809
Sources: Bangladesh authorities; and IMF staff estimates and projections.

Fiscal year begins July 1. Cash basis, unless otherwise specified.

Comprise budget allocations for safety net programs and other social-related spending, pensions and gratuities, and direct subsidies for food and to the agriculture and export sectors. Other subsidy-related costs (i.e. lending to large energy-related SOEs) are included in net lending.

Includes food account surplus (-)/deficit (+) and extraordinary expenditures.

Includes Tk 27 billion in special bonds issued to SOCBs for the noncash securitization of past subsidy-related loans made to Bangladesh Petroleum Corporation, consistent with the earlier treatment in the fiscal accounts of similar operations.

Comprise food and agriculture and export sector subsidies, as well as subsidy-based lending to large energy-related SOEs.

Sources: Bangladesh authorities; and IMF staff estimates and projections.

Fiscal year begins July 1. Cash basis, unless otherwise specified.

Comprise budget allocations for safety net programs and other social-related spending, pensions and gratuities, and direct subsidies for food and to the agriculture and export sectors. Other subsidy-related costs (i.e. lending to large energy-related SOEs) are included in net lending.

Includes food account surplus (-)/deficit (+) and extraordinary expenditures.

Includes Tk 27 billion in special bonds issued to SOCBs for the noncash securitization of past subsidy-related loans made to Bangladesh Petroleum Corporation, consistent with the earlier treatment in the fiscal accounts of similar operations.

Comprise food and agriculture and export sector subsidies, as well as subsidy-based lending to large energy-related SOEs.

Table 4b.Bangladesh: Central Government Operations, GFSM 2001 Classification, FY2009-131/(In billions of taka)
FY09FY10FY11FY12FY13
Est.Proj.
1. Central government accounts
Revenue6677999481,2061,473
Taxes5296257959631,173
Grants2142215766
Other revenue117132132186234
Expenditure6436718651,0571,278
Compensation of employees139161199210243
Purchases of goods and services8286101113141
Interest154148156203231
Subsidies 2/8881161271336
Grants140142170188248
Other payments4053797279
Gross operating balance2412983149195
Net acquisition of nonfinancial assets250342409505582
Fixed assets194256331390489
Nonproduced assets56867811592
Net lending (+)/net borrowing (-) 3/-226-214-326-356-387
Net financial transactions-185-152-288-356-387
Net acquisition of financial assets (+ increase)26194700
Domestic26194700
Deposits26194700
Net incurrence of liabilities (+ increase)211170336356387
Domestic185106308314275
Debt securities and loans and advances185106282314275
Other accounts payable002600
Foreign26652842112
Statistical discrepancy (net borrowing less net financial transaction)-41-62-3800
2. Financial balance sheet
Net financial worth
Stock of financial assets183202249249249
Domestic183202249249249
Foreign00000
Stock of liabilities2,7932,8643,3293,9094,395
Domestic1,3051,4101,6771,9912,267
Debt securities and loans and advances1,3051,4101,6771,9912,266
Foreign1,4881,4531,6521,9192,128
Sources: Bangladesh authorities; and IMF staff estimates and projections.

Fiscal year begins July 1.

Includes transfers to Bangladesh Petroleum Corporation and Bangladesh Power Development Board, previously included in net lending.

Includes statistical discrepancy.

Sources: Bangladesh authorities; and IMF staff estimates and projections.

Fiscal year begins July 1.

Includes transfers to Bangladesh Petroleum Corporation and Bangladesh Power Development Board, previously included in net lending.

Includes statistical discrepancy.

9. Program objectives. The program seeks moderate fiscal consolidation over the medium term, with the overall fiscal deficit (excluding grants) expected to narrow by 1 percentage point to 3.5 percent of GDP by FY15. During the program period, off-budget financing of quasifiscal losses of large energy- and fertilizer-related state-owned enterprises (SOEs) will be phased out, in effect doubling the amount of programmed fiscal adjustment.3 These targets will be met mainly by increasing tax revenue to around 12.5 percent of GDP by FY15 and containing subsidy costs through greater pass-through of energy and fertilizer costs to end-users, with appropriate safeguards for vulnerable groups put in place. Achieving these objectives is expected to create sufficient fiscal space to ramp up Annual Development Program (ADP) spending as a share of GDP to 6 percent by mid-decade from an average of around 4 percent in recent years. Complementary efforts will also be needed to improve aid utilization.4 Fiscal performance under the ECF-supported program will be anchored by a PC (ceiling) on net credit to the central government by the banking system and an IT (floor) on tax revenue. Underpinning these targets will be a range of structural fiscal reforms, as discussed below.

10. Contingencies. Despite a limited fiscal buffer, the authorities could redouble efforts to increase externally-funded ADP spending to counter a negative real shock (e.g., a prolonged euro area recession). Faster-than-envisaged adjustment in energy prices could also be necessary in the face of an adverse oil price shock, to contain subsidy-related costs in the budget. In each case, a reprioritization of spending could help bolster safety nets.

11. Policy reforms. To achieve these objectives, the program aims to:

  • Accelerate tax policy and revenue administration reforms (MEFP, ¶8-9). In support of the program’s tax revenue targets, extensive efforts are under way in the National Board of Revenue (NBR) to strengthen revenue administration and broaden the tax base by automating systems, registering taxpayers, and improving voluntary compliance. Over the near- to medium-term, this work is expected to be guided by a tax modernization plan under preparation with donor assistance. As a centerpiece of this plan, a new value-added tax (VAT) law was approved by Cabinet in March 2012 (prior action) and is due to be submitted to Parliament by June 2012 (program benchmark). As a follow-up measure, a VAT implementation plan and timetable and new organizational structure for the NBR are to be approved by September 2012 (program benchmark). The authorities also continue their work on a direct tax law, with a draft expected to be finalized in FY13. The law would be anchored by a new income tax code with a view to limiting exemptions and concessions and rationalizing rates and thresholds. As a precursor, tax concessions and exemptions equivalent to 0.5 percent of GDP will be removed in the FY13 Finance Bill to be submitted to Parliament in June 2012 (program benchmark). An alternative dispute resolution mechanism, officially launched in March 2012, is expected to become fully operational in FY13. Finally, the issuance of taxpayer identification numbers will be automated by December 2012, with links established to the national identification and business identification systems (program benchmark).
  • Contain subsidy-related costs (MEFP, ¶0-11). Concerted actions will be taken to contain subsidy-related losses of key SOEs and ensure adequate budgetary resources for more critical spending needs. Meeting fiscal targets in FY13 will hinge on further energy price adjustments. An automatic adjustment mechanism for retail petroleum prices is expected to be adopted by December 2012 to ensure full pass-through of changes in international prices (program benchmark). Reflecting the authorities’ commitment to limit quasi-fiscal borrowing by SOEs to cover losses, the program also has an IT (ceiling) on net lending by state-owned commercial banks (SOCBs) to large energy- and fertilizer-related SOEs.
  • Strengthen public financial management (MEFP, ¶12). Under the program, PFM reform is expected to be guided by the World Bank-coordinated Strengthening Public Expenditure Management Program, which seeks to bolster strategic planning, budget management, and public financial systems, supported by TA and training. In the near term, the authorities aim to improve cash and debt management by commencing regular preparation of bi-weekly projections of the Treasury Single Account balance by June 2012. New budget management wings/branches in all line ministries and uniform budget implementation and reporting standards are to be put in place by June 2012 (program benchmark). The authorities are also committed to completing a Fiscal Report on Standards and Codes in FY13 to increase budget transparency.
  • Improve ADP implementation and public-private partnerships (PPPs) mechanisms (MEFP, ¶13 and ¶15) To boost aid utilization, the authorities are foremost committed to building project appraisal capacity, streamlining land acquisition procedures, and strengthening government-donor interface, including through the local consultative group of DPs. The government also set up an inter-ministerial committee in FY11 to prioritize large projects. Given large aid commitments, restrictions on substituting taka funding for shortfalls in the externally-funded ADP budget were introduced in January 2012 (prior action), also to help achieve fiscal targets in FY12. Operational and institutional guidelines are also being established for PPPs, with TA from the Asian Development Bank (AsDB). Earlier steps were taken to ensure technical and viability gap funding provided by the government was consistent with the medium-term budget framework through the formation of a cell in the Ministry of Finance (MoF) to assess fiscal implications of proposed PPP projects.
  • Safeguard social spending and safety nets (MEFP, ¶14). Efforts will be made to ensure adequate budgetary provisions for social spending during the program period. Performance will be monitored through an IT (floor) in this area. Regarding social safety nets (SSNs), Bangladesh has a number of operating schemes, although some of them are weakly administered and/or poorly targeted (Annex I). Under the program, resources are expected to be freed up from energy subsidies currently in place and through better designed SSN programs to compensate households most vulnerable to rising fuel and food prices, building on World Bank TA and the work of non-governmental organizations and other DPs in this area.
  • Strengthen debt management (MEFP, ¶16-17). Maintaining a sustainable fiscal stance will be critical to ensuring sound debt management. The Joint IMF-World Bank Debt Sustainability Analysis in the 2011 Article IV consultation staff report concluded that Bangladesh faced a low risk of external debt distress, which is consistent with the current outlook. At the same time, it recognized the need to continue contracting external borrowing on highly concessional terms, which remains a cornerstone of the government’s debt management strategy (DMS). Under the program, standard PCs (ceilings) exist on new nonconcessional borrowing (short and medium-to-long term) and external payment arrears. The authorities are taking steps to mobilize more nonbank financing by benchmarking yields on National Savings Certificates to market-based returns. In addition, they are weighing carefully the benefits of a possible sovereign issue to ensure that any such borrowing is consistent with their DMS and preferably tied to high-return infrastructure projects.

B. Reform Pillar #2—Monetary and Exchange Rate Policy Reforms

12. Main issues. Accommodative monetary policy coupled with expansionary fiscal policy, alongside inadequate exchange rate flexibility, has contributed to recent inflationary pressures and reserve losses. Tightening measures now appear to be taking hold, with private credit growth at 19 percent (y/y) in January 2012 compared to an all-time high of 29 percent in March 2011 (Table 5). At the same time, greater fiscal discipline will be necessary to avoid undermining central bank liquidity management, forcing heavy devolvement of Treasury instruments, and putting undue pressure on bank lending rates.

Table 5.Bangladesh: Monetary Accounts, December 2010-December 2012
201020112012
Dec.JuneSep.Dec.Mar.JuneSep.Dec.
Est.Projections
Bangladesh Bank balance sheet(End of period; in billions of taka)
Net foreign assets 1/569526533518467464481488
Net domestic assets 1/251371371407483550556573
Net credit to central government183307352399411465484504
Credit to other nonfinancial public sector11111111
Credit to deposit money banks659677101101101101101
Other items, net 1/3-33-58-94-30-18-30-33
Of which: Repos with commercial banks59825159901029087
Reserve money8208979049259501,0141,0371,061
Currency579605625639650678715721
Reserves 2/239290277284300336322340
(Contribution to reserve money growth)
Net foreign assets6.3-0.3-3.8-6.2-7.6-6.9-5.7-3.2
Net domestic assets20.921.321.519.023.119.920.417.9
Of which: Net credit to central government11.315.419.426.426.617.714.611.4
Reserve money (year-on-year percentage change)25.921.017.712.715.513.014.714.7
Monetary survey(End of period; in billions of taka)
Net foreign assets 1/685696701665617627644650
Bangladesh Bank569526533518467464481488
Commercial banks116170168147150163163163
Net domestic assets 1/3,3063,7073,8304,0874,2174,4574,5904,839
Domestic credit3,7744,3024,4624,7724,9035,1455,2875,556
Net credit to central government4757017708679029801,0291,079
Credit to other nonfinancial public sector148146138140170161161161
Credit to nonbank financial institutions4248505352535455
Credit to private sector3,1093,4073,5043,7123,7793,9504,0434,261
Other items, net 1/-469-595-632-685-686-687-697-717
Broad money (M2)3,9914,4034,5314,7524,8345,0845,2335,489
(Year-on-year percent change)
Net foreign assets10.67.02.1-2.9-8.7-10.0-8.1-2.2
Net domestic assets24.224.523.523.620.820.219.818.4
Domestic credit24.128.227.126.422.519.618.516.4
Of which: Net credit to central government4.741.359.882.460.739.733.724.4
Credit to private sector27.625.822.019.416.615.915.414.8
Broad money (M2)21.721.419.619.116.015.515.515.5
Memorandum items:
Required domestic cash reserves (in billions of taka)226252258273275289296311
Excess domestic cash reserves (in billions of taka)1338191125472629
Broad money multiplier4.94.95.05.15.15.05.05.2
Broad money velocity1.91.81.81.81.81.81.81.8
Exchange rate, end of period (taka/U.S. dollar)70.774.275.281.974.274.274.274.2
Sources: Data provided by the Bangladesh authorities; and IMF staff estimates and projections.

Projections are based on June 30, 2011 constant exchange rates.

Liabilities arising from banks’ foreign currency clearing accounts and nonbank deposits are excluded.

Sources: Data provided by the Bangladesh authorities; and IMF staff estimates and projections.

Projections are based on June 30, 2011 constant exchange rates.

Liabilities arising from banks’ foreign currency clearing accounts and nonbank deposits are excluded.

13. Program objectives. Monetary and exchange rate policy will be aimed at reducing aggregate demand pressures, stabilizing inflation expectations, and stemming reserves losses, while at the same time providing adequate room for private sector credit growth. The monetary stance will be anchored by a PC (ceiling) on net domestic assets of BB—its main operating target—complemented by an IT (ceiling) on reserve money as a nominal anchor. To achieve program targets, BB has agreed to further tighten monetary policy, as necessary, and at the same time improve overall liquidity management. A modest buildup in net international reserves (NIR) of BB, as a PC (floor), will also be targeted in the first year of the ECF arrangement, with further increases programmed over the medium term to strengthen external buffers.

14. Contingencies. Adverse real and oil price shocks could add to reserve losses. If so, the exchange rate movements would need to continue absorbing external pressures. Further monetary tightening would have to be weighed against the strength of the fiscal impulse, in response to the shock, and underlying trends in non-food, non-energy inflation.

15. Policy reforms.

  • Strengthen liquidity management and monetary transmission mechanisms (MEFP, ¶19). Bangladesh Bank is taking steps to improve liquidity management by ensuring policy rates and Treasury yields are aligned with market conditions. In this context, it remains committed to allowing banks to set interest rates, as demonstrated by BB’s removal of most remaining lending rate caps in January 2012 (prior action).5 To address possible systemic liquidity shortages, a lender of last resort policy and contingency plan are expected to be finalized by May 2012.
  • Allow greater exchange rate flexibility and improve market operations (MEFP, ¶20). To boost turnover in the foreign exchange markets to alleviate pressures on reserves, BB will allow interbank transactions at market-determined rates and limit its intervention to smoothing short-term volatility, consistent with meeting NIR targets. Bangladesh Bank ceased issuing foreign exchange overdrafts in December 2011 and will reduce their outstanding balances to zero by June 2012 (program benchmark), in keeping with sound reserve management.
  • Improve central bank operations (MEFP, ¶21). The program includes steps to strengthen BB’s financial operations, as identified in the IMF safeguards assessment concluded in July 2011, updating the 2005 assessment.6 In particular, the government floated a tender in March 2012 for an internationally-affiliated firm to conduct an external audit on BB’s end-June 2012 accounts (prior action). In addition, BB has begun implementing a fully automated accounting system to ensure timely and comprehensive financial reporting.

C. Reform Pillar #3—Financial Sector Reforms

16. Main issues. Rapid growth in the banking sector and equity markets has strained supervisory capacity and heightened systemic risks. While financial soundness indicators (FSIs) have improved in recent years (Table 6), banking system stability could be undermined by systemic risks emanating from rising liquidity pressures, limited prudential oversight, and weak bank governance and risk management controls, most notably at the SOCBs. Over the past few years, these institutions have been subject to more outside interference, which has undermined earlier efforts to fully commercialize their operations. As a pioneer in microfinance, Bangladesh has made considerable progress in financial inclusion over the past few decades, but broader efforts will be needed to support more equitable growth, as envisaged in the SFYP (Box 3).

Table 6.Bangladesh: Financial Soundness Indicators, 2006-11(In percent, end-of-period)
200620072008200920102011
JuneDecember
Est.
Capital adequacy
Regulatory capital to risk-weighted assets (adjusted) 1/5.64.16.58.87.68.2
State-owned commercial banks (adjusted) 1/-2.1-21.2-14.8-7.6-0.11.5
Regulatory capital to risk-weighted assets (unadjusted)5.69.310.411.79.39.711.3
State-owned commercial banks-2.17.37.99.08.99.511.7
Specialized development banks-4.5-5.0-3.30.4-7.3-7.1-4.5
Private commercial banks9.010.411.212.110.110.411.5
Foreign commercial banks24.522.823.828.115.617.121.0
Regulatory capital to assets (adjusted) 1/3.22.44.05.36.97.1
Regulatory capital to assets (unadjusted)3.25.66.57.18.58.59.0
Nonperforming loans to regulatory capital (adjusted) 1/280.1404.6191.6109.969.064.2
Nonperforming loans to regulatory capital (unadjusted)280.1168.5115.580.255.152.842.2
Asset quality
Nonperforming loans to total loans12.814.511.29.07.37.16.1
State-owned commercial banks22.829.028.020.115.714.111.3
Specialized development banks14.313.511.724.124.121.824.6
Private commercial banks4.95.45.14.03.13.52.9
Foreign commercial banks2.82.93.72.23.03.13.0
Loan provisions to total nonperforming loans45.243.050.161.262.762.567.4
Loan provisions to total loans5.86.25.65.54.64.54.1
Profitability
Return on equity 2/-64.019.825.019.521.015.516.8
State-owned commercial banks1,262.5-9.435.624.918.410.018.5
Specialized development banks24.716.621.0-199.0-3.2-5.1-0.9
Private commercial banks24.826.724.318.920.915.615.7
Foreign commercial banks21.520.618.518.917.020.216.6
Return on assets 3/-2.11.11.61.41.81.31.5
State-owned commercial banks-9.2-0.31.21.01.10.61.3
Specialized development banks-0.9-0.6-0.6-0.60.2-0.30.0
Private commercial banks1.51.91.91.62.11.61.6
Foreign commercial banks3.33.22.93.22.93.63.2
Sensitivity to market risk
Net open position in foreign exchange to capital16.64.26.03.3
Composition of credit (in percent of total)
Oil and gas1.80.80.91.60.70.8
Industry (other)32.234.536.036.435.535.8
Agriculture8.27.76.86.95.76.0
Forestry2.42.11.80.50.00.0
Trade22.124.324.026.637.637.2
Construction4.13.43.33.67.07.6
Households3.34.74.84.76.85.6
Other26.022.622.519.76.77.1
Memorandum items:
Share of assets (as a percent of total banking system assets)
State-owned commercial banks33.333.529.828.828.528.828.0
Specialized development banks7.97.06.66.56.15.85.5
Private commercial banks50.551.155.257.258.859.060.0
Foreign commercial banks8.38.48.37.46.66.36.4
Sources: Bangladesh Bank; and IMF staff estimates.

From 2007, an adjustment is made to exclude special accounts set up in banks’ balance sheets, which contain the accumulated losses arising from the difference in market and book value of assets. These amounts are deducted from banks’ assets and from their regulatory capital.

Bangladesh Bank defines return on equity as the ratio of net income after taxes to regulatory capital.

Bangladesh Bank defines return on assets as the ratio of net income after taxes to total assets.

Sources: Bangladesh Bank; and IMF staff estimates.

From 2007, an adjustment is made to exclude special accounts set up in banks’ balance sheets, which contain the accumulated losses arising from the difference in market and book value of assets. These amounts are deducted from banks’ assets and from their regulatory capital.

Bangladesh Bank defines return on equity as the ratio of net income after taxes to regulatory capital.

Bangladesh Bank defines return on assets as the ratio of net income after taxes to total assets.

17. Program objectives. Financial sector governance will be strengthened to better manage risks and support growth, with steps toward this anchored by proper managerial and operational controls in banks, particularly those necessary to reduce fiscal risks posed by SOCBs. The ability of regulators to ensure sound bank governance will be enhanced by the establishment of clear oversight responsibilities and strong risk-based supervision. The performance of SOCBs is expected to be buttressed by steps taken to reduce the burden on them of energy subsidies (as discussed in Box 1).

18. Policy reforms.

  • Strengthen bank governance and oversight (MEFP, ¶23). Foremost, the government will undertake the necessary legal and prudential reforms in order to establish a clear supervisory mandate for BB and strengthen internal governance at commercial banks. To achieve these objectives, relevant amendments to the Bank Companies Act (BCA) will be submitted to Parliament by September 2012 (program benchmark). In view of current liquidity pressures, limited supervisory capacity, and pending governance reforms, BB is expected to strictly enforce new bank licensing criteria to ensure a stable banking environment. It will also strengthen memoranda of understanding with each SOCB, in response to the findings of external audits of these banks in 2011 and the need to tighten their lending standards. In this context, the SOCBs will be urged to build their capital bases through larger retained earnings, in view of the nonstandard methods currently employed to meet Basel II capital requirements.
  • Improve BB’s supervisory capacity and enforcement (MEFP, ¶24). In support of this, BB will focus more resources on risk-based supervision and controls. It issued a set of risk management guidelines in February 2012 aimed at strengthening processes in place at commercial banks. Bangladesh Bank also intends to adopt a new organizational structure by May 2012 that consolidates management of on- and off-site supervisory wings. These efforts should allow a clearer picture to emerge of bank-by-bank performance, to be supported by further efforts to improve the integrity of FSIs. The central bank will also issue new loan classification and loss-provisioning guidelines embracing international best practices by June 2012 (program benchmark).
  • Contain risks posed by equity markets (MEFP, ¶25). Consistent with the envisaged amendments to the BCA, BB plans to issue an order by September 2012 establishing limits on commercial banks’ shareholdings in the stock market to 25 percent of total regulatory capital (program benchmark). Furthermore, approval will be sought from the Securities and Exchange Commission (SEC) by December 2012 of a demutualization model and plan for the Dhaka and Chittagong stock exchanges (program benchmark). Together, BB and the SEC will begin conducting consolidated supervision of merchant bank subsidiaries of commercial banks by mid-2012, with a view to bring all of these entities under BB’s supervisory umbrella by mid-2013.

D. Reform Pillar #4—Trade and Investment Reforms

19. Main issues. Bangladesh remains a relatively closed economy owing to a restrictive trade regime. As a share of GDP, total trade was 48 percent in FY11, compared to an average of 74 percent among low-income ASEAN countries. Foreign direct investment also remains low by most measures, constrained by the trade regime, poor infrastructure, and the business climate. Ad hoc changes to the tariff regime are routinely made with each budget, as a second best to comprehensive tax policy reform.

20. Program objectives. Over the medium term, the government aims to reduce trade distortions, minimize anti-export biases, and strengthen regional linkages to ensure greater integration into the multilateral trading system. Improvements in the business climate are expected to come from maintaining a stable macroeconomic environment; developing a modern, transparent tax regime; ensuring a well-regulated financial system; and expanding social and physical infrastructure.

21. Policy reforms.

  • Rationalizing trade barriers (MEFP, ¶28). A Diagnostic Trade Integration Study for Bangladesh, under preparation with the World Bank, is expected to be completed by early 2013. It will help guide policies for reducing tariff and nontariff barriers to trade during the program period, including para-tariffs arising from supplementary and regulatory duties, as tax revenues rise. Better infrastructure, particularly strategic investments in ports and transport, should facilitate more cross-border and transit trade activity with India.
  • Strengthen the investment climate (MEFP, ¶29). Working with the International Finance Corporation along with the World Bank, the authorities will look to take steps to improve property registration, contract enforcement, and adjudication processes. Intensifying efforts to attract and retain FDI and diversify the export base will also be high priorities, supported by more enabling infrastructure, particularly in export processing zones.

PROGRAM MODALITIES

22. Program reviews. Semi-annual program reviews will be conducted (Table 7) based around quantitative targets and structural benchmarks. Test dates for the first and second program reviews will be end-June 2012 and end-December 2012, respectively.

Table 7.Bangladesh: Proposed Schedule of Disbursements and Timing of ECF Arrangement Reviews
Availability DateDisbursementConditions for Disbursement
(In percent of quota)(In SDRs)
April 11, 201217.191,423,000Board approval of the arrangement
November 15, 201217.191,423,000Board completion of first review based on observance of performance criteria for end-June 2012
April 15, 201317.191,423,000Board completion of second review based on observance of performance criteria for end-December 2012
November 15, 201317.191,423,000Board completion of third review based on observance of performance criteria for end-June 2013
April 15, 201417.191,423,000Board completion of fourth review based on observance of performance criteria for end-December 2013
November 15, 201417.191,423,000Board completion of fifth review based on observance of performance criteria for end-June 2014
April 1, 201517.191,422,000Board completion of sixth review based on observance of performance criteria for end-December 2014
Total120.0639,960,000
Source: IMF.
Source: IMF.

23. Access and use. Under the current outlook and on the strength of envisaged reforms, the proposed access of SDR 639.96 million (120 percent of quota) has been determined by staff’s assessment of the BOP financing need and guided by the norm of ECF arrangements for countries with outstanding concessional IMF credit of less than 100 percent of quota. Seven equal disbursements to BB are envisaged, beginning with program approval.

24. Gross external financing requirement. During the program period, the gross financing requirement is around US$19 billion, of which US$1 billion will be covered by the requested access to IMF resources and another US$0.6 billion from other exceptional financing (Table 8). Most of the rest of the external financing requirement will be met by multilateral and bilateral agencies (US$11.4 billion), led by the World Bank Group, AsDB, and Japan International Cooperation Agency, mainly as project-based lending; FDI (US$4.7 billion); and nonconcessional short-term oil credits (US$0.8 billion).

Table 8.Bangladesh: External Financing Requirements and Sources, FY2010-151/(In millions of U.S. dollars)
FY10FY11FY12FY13FY14FY15
Projections
Gross financing requirements2,9552,9223,7814,7465,1715,162
External current account deficit-3,250-2641,2281,204397140
Amortization of medium- and long-term debt6717398009211,079984
Gross reserves accumulation (+ = increase)2,827-1,023-8441,0342,4322,871
IMF repayments38571992028360
Other net capital outflows2,6693,4132,3991,3851,1801,107
Available financing2,2052,9223,6384,2624,6874,678
Capital grants488600598646633684
Loan disbursements to the public sector8541,0511,3282,0002,6712,844
Portfolio investment, net-117-28556986107
Foreign direct investment, net9137688451,0481,2971,543
Short-term oil import credit, net675318125000-500
Exceptional financing7500143484484484
IMF: Prospective arrangement0143284284284
Asian Development Bank75000100100100
World Bank00000
Other development partners00100100100
Sources: Data provided by the Bangladesh authorities; and IMF staff estimates and projections.

Fiscal year begins July 1.

Sources: Data provided by the Bangladesh authorities; and IMF staff estimates and projections.

Fiscal year begins July 1.

25. Capacity to repay. Bangladesh is expected to be able to meet its obligations to the IMF under the proposed ECF arrangement. With the proposed access, outstanding IMF resources would peak in Bangladesh’s FY15 at SDR 670 million, equivalent to 1.7 percent of exports and remittances (Table 9). Debt service to the IMF (including previous obligations) would peak at SDR 131 million in FY13, equivalent to 0.4 percent of exports and remittances.

Table 9.Bangladesh: Indicators of the Capacity to Repay the IMF, FY2011-25 1/2/
FY11FY12FY13FY14FY15FY16FY17FY18FY19FY20FY21FY22FY23FY24FY25
Est.Projections
IMF obligations based on existing credit (in millions of SDRs)
Principal36.4126.7130.053.538.626.93.40.00.00.00.00.00.00.00.0
Charges and interest1.81.50.50.20.20.10.10.10.00.10.10.10.10.10.1
IMF obligations based on existing and prospective credit (in millions of SDRs)
Principal36.4126.7130.053.538.626.93.427.40.0100.6128.0128.0100.664.027.4
Charges and interest1.81.50.50.71.61.71.71.70.01.41.10.80.50.20.1
Total obligations based on existing and prospective credit
In millions of SDRs38.2128.1130.554.140.228.75.129.10.0101.9129.1128.8101.064.227.5
In millions of U.S. dollars59.6201.0202.884.162.444.57.945.20.0158.4200.6200.1157.099.842.8
In percent of gross international reserves0.62.32.00.70.40.20.00.20.00.50.50.50.30.20.1
In percent of exports of goods and services and remittances0.20.50.40.20.10.10.00.10.00.20.20.20.10.10.0
In percent of debt service 3/6.215.814.85.94.73.20.52.60.06.97.87.15.43.31.4
In percent of GDP0.10.20.20.10.00.00.00.00.00.10.10.10.10.00.0
In percent of quota7.224.024.510.27.55.40.95.50.019.124.224.118.912.05.2
Outstanding IMF credit
In millions of SDRs379.0343.7396.6526.0670.2643.3639.9612.5548.5447.9319.9191.991.427.40.0
In millions of U.S. dollars590.4539.2616.2817.31,041.4999.5994.3951.7852.3696.0497.1298.3142.042.6-0.1
In percent of gross international reserves6.16.16.26.66.85.54.53.62.92.01.30.70.376.6-0.1
In percent of exports of goods and services and remittances1.61.31.31.51.71.51.31.21.00.70.50.30.10.00.0
In percent of debt service 3/61.442.345.057.277.772.766.454.842.130.219.310.74.81,391.9-1.6
In percent of GDP0.50.50.50.60.70.60.60.50.40.30.20.10.10.00.0
In percent of quota71.164.574.498.6125.7120.6120.0114.8102.884.060.036.017.15.10.0
Net use of IMF credit (in millions of SDRs)
Disbursements0.091.4182.8182.8182.80.00.00.00.00.00.00.00.00.00.0
Repayments and repurchases38.2128.1130.554.140.228.75.129.10.0101.9129.1128.8101.064.227.5
Memorandum items:
Nominal GDP (in billions of U.S. dollars)110.6115.2121.4131.5143.2156.0170.0185.4202.4221.1240.7261.3283.1305.9329.6
Exports of goods and services and remittances (in billions of U.S. dollars)37.241.046.853.560.467.373.880.888.596.9105.5114.8124.7135.3145.8
Gross international reserves (in billions of U.S. dollars)9.78.99.912.415.218.222.226.229.934.238.542.948.655.563.4
Debt service (in billions of U.S. dollars) 3/1.01.31.41.41.31.41.51.72.02.32.62.82.93.13.1
Quota (in millions of SDRs)533.3533.3533.3533.3533.3533.3533.3533.3533.3533.3533.3533.3533.3533.3533.3
Source: IMF staff estimates and projections.

Fiscal year begins July 1.

Includes the proposed ECF arrangement with an access level of 120 percent of quota.

Total public debt service, including IMF repayments.

Source: IMF staff estimates and projections.

Fiscal year begins July 1.

Includes the proposed ECF arrangement with an access level of 120 percent of quota.

Total public debt service, including IMF repayments.

26. Poverty Reduction Strategy. Bangladesh’s SFYP, entitled Accelerating Growth and Reducing Poverty, was released in July 2011. It provides a framework for implementing the government’s poverty reduction strategy during FY11-15, as Bangladesh pushes to meet it Millennium Development Goals (Table 10). The government has also published its longer-term Outline Perspective Plan (2010-21), laying out its development vision, which will be implemented under the sixth and seventh five-year plans.

Table 10.Bangladesh: Millennium Development Goals, 1990-20151/
BaseCurrentTarget
1990-952005-102015Status
Goal 1: Eradicate extreme poverty and hungerGoal will probably be met
Target 1: Halve by 2015 the proportion of people living below the poverty line
Poverty headcount ratio593229On Track
Poverty gap ratio1778Goal Met
Income share held by lowest 20 percent99Needs Attention
Target 2: Halve by 2015 the proportion of people who suffer from hunger
Prevalence of child malnutrition (percent of children under 5)684533Off Track
Population below minimum level of dietary energy consumption (percent)282014On Track
Goal 2: Achieve universal primary educationGoal will probably be met
Target 3: Ensure that all boys and girls complete a full course of primary schooling
Net enrollment ratio in primary education6191100On Track
Proportion of pupils starting grade 1 who reach grade 5, percent4355100Needs Attention
Adult literacy rate of 15-24 years old population (percent)3758---Needs Attention
Goal 3: Promote gender equality and empower womenGoal will probably be met
Target 4: Eliminate gender disparity in primary and secondary education preferably by 2005 and at all levels by 2015
Ratio of girls to boys in primary and secondary education (percent)77106100Achieved
Ratio of girls to boys in tertiary education (percent)3732100Needs Attention
Ratio of literate females to males (percent of ages 15-24)6585100Needs Attention
Share of women employed in the nonagricultural sector (percent)192550Needs Attention
Proportion of seats held by women in national parliament (percent)131933Needs Attention
Goal 4: Reduce child mortalityGoal will probably be met
Target 5: Reduce by two thirds by 2015 the under 5 mortality rate
Under 5 mortality rate (per 1,000)1465450On Track
Infant mortality rate (per 1,000 live births)924131On Track
Immunization, measles (percent of children under 12 months)5482100On Track
Goal 5: Improve maternal healthGoal will probably be met
Target 6: Reduce by three quarters, by 2015, the maternal mortality ratio
Maternal mortality ratio (modeled estimate, per 100,000 live births)574194143On Track
Births attended by skilled health staff (percent of total)52450Needs Attention
Goal 6: Combat HIV/AIDS, malaria, and other diseasesGoal will potentially be met
Target 7: Have halted by 2015 and begin to reverse the spread of HIV/AIDS
Contraceptive prevalence rate (percent of women ages 15-49)406072Needs Attention
HIV prevalence among population (per 100,000 population)00.3HaltingOn Track
Target 8: Have halted by 2015 and begin to reverse the incidence of malaria and other major diseases
Prevalence of malaria (per 100,000 people)1.40.40.0Needs Attention
Incidence of tuberculosis (per 100,000 people)264225HaltingNeeds Attention
Tuberculosis treatment success rate under DOTS (percent)217475On Track
Goal 7: Ensure environmental sustainabilityGoal will potentially be met
Target 9: Integrate the principles of sustainable development into country policies and reverse the loss of environmental resources
Productive forest area (%) (70 % tree density)9.013.020Needs Attention
CO2 emissions (metric tons per capita)0.10.3Needs Attention
Terrestrial protected areas (percent of total surface area)1.61.75Needs Attention
Target 10: Halve, by 2015, the proportion of people without sustainable access to safe drinking water and sanitation
Improved water source (percent of population with access)937997Needs Attention
Improved sanitation facilities (percent of population with access)158556On Track
Target 11: By 2020, to have achieved a significant improvement in the lives of at least 100 million slum dwellers
Slum population as percentage of urban (percent)87.370.8Insufficient Data
Goal 8: Develop a global partnership for developmentGoal will potentially be met
Target 12: Develop further an open, rule-based, predictable, nondiscriminatory trading and financial system
Net ODA received per capita (current U.S. dollars)208Needs Attention
Target 13: Make available the benefits of new technologies, especially information and communication
Fixed line and mobile telephones (per 100 people)0.213.650On Track
Internet users (per 100 people)0.03.4Insufficient Data
General indicators
Population (in millions)115.6146.7
Gross national income (in billions of U.S. dollars)39.2104.7
GNI per capita, Atlas method (current, in U.S. dollars)330700
Total fertility rate (births per woman)3.42.7
Life expectancy at birth (years)58.066.670
Sources: United Nations Development Program and World Development Indicators.

In some cases, the data are for earlier or later years than those stated.

Sources: United Nations Development Program and World Development Indicators.

In some cases, the data are for earlier or later years than those stated.

27. Technical assistance. Implementation of the ECF-supported program will be backstopped by considerable TA and capacity building from the IMF, World Bank Group, AsDB, and other DPs. Currently, the IMF envisages providing TA in a range of program-critical areas, notably follow-up tax reforms and VAT implementation; cash management, fiscal reporting, and subsidy reform; bank supervision and central bank accounting; and statistical methods. The World Bank Group is expected to continue focusing on revenue administration and tax reforms; PFM, SSN reforms, and vulnerability monitoring; central bank strengthening and financial sector reform; and statistical policy. The AsDB is also supporting revenue administration and involved in building a PPP operational framework and capital market development.

28. Statistical policy. The authorities are committed to strengthening macroeconomic statistics, in order to better inform policy decisions and monitor outcomes, guided by a national strategy for statistics under preparation with World Bank support and a new Statistics Act expected to be approved in 2012 (MEFP, ¶30). While data are adequate for program monitoring purposes, work is under way to address deficiencies in national income accounts and the BOP in the context of ongoing IMF TA.

STAFF APPRAISAL

29. Bangladesh faces major challenges in restoring macroeconomic stability, strengthening its external position, and engendering higher, more inclusive growth. These efforts come at a time of increased global headwinds and firming oil prices, making all the more urgent the need for decisive policy adjustments and structural reforms. The government’s near-term objectives focus on bringing down inflation, rebuilding a reserve buffer, and solidifying the foundation for sustained growth. To these ends, credible, well-coordinated actions are needed to build upon stabilization measures already in train. While policy buffers are limited, contingencies are in place to mitigate external risk factors, consistent with achieving program targets. Medium-term objectives center on creating more fiscal space and catalyzing additional resources to boost social and development spending and reduce the infrastructure deficit. They also aim at reinvigorating the financial sector and further liberalizing the trade and investment regime to stimulate business creation and job growth.

30. In support, the three-year ECF arrangement embodies a comprehensive set of policy adjustments and reforms aimed at meeting these challenges. Its core priorities in the first year focus on macro-tightening measures, supported by greater exchange and interest rate flexibility, sound debt management, and reforms in tax policy and administration, PFM, and the financial sector, and, over the medium term, improvements to the trade and investment climate. Upfront actions have been taken to begin addressing external, fiscal, and inflation pressures. Program conditionality is focused on macro-critical areas to better ensure lasting adjustment. In support, a number of critical TA and capacity building requirements have been identified, to be met by the IMF and other DPs.

31. A credible path of moderate fiscal consolidation is expected to anchor stability and generate resources to support growth. Further gains in tax revenue and curbs on subsidies will be necessary to create additional fiscal space for development spending, restrain domestic borrowing, and meet program fiscal targets. On tax reforms, the draft VAT law presents an opportunity to usher in a modern tax regime built around transparency and efficiency. Similar decisive steps will be needed on a direct tax law. All are expected to be supported by comprehensive administrative reforms.

32. Recent fuel and electricity price adjustments have helped mitigate fiscal pressures, but the current situation warrants sustained vigilance. In view of the rapid expansion in demand and sustained rise in costs, further price changes and subsidy reforms will be necessary to ensure fuel, electricity, and fertilizer subsidies do not undermine fiscal sustainability, heighten dependence on costly suppliers’ credit, or exacerbate broader stability concerns. These efforts are also expected to free up resources to mitigate the impact of rising energy and food prices on the most vulnerable. However, to achieve this objective, a clear strategy is needed to improve the design, breadth, and administration of safety nets.

33. Improved ADP implementation and sound debt management will also buttress growth with stability. On ADP spending, the government, line ministries, and DPs need to cooperate closely to resolve procedural bottlenecks and governance concerns that slow project implementation and aid utilization. Priority needs to be given to high-return projects—notably roads, bridges, and ports; electricity generation, transmission, and distribution; and health and education networks—in support of inclusive growth and poverty reduction. In keeping with this, debt management should factor in commitments of existing aid and access to concessional financing into future borrowing plans, taking a cautious approach toward a sovereign issuance, to ensure Bangladesh remains at a low risk of external debt distress and maintains manageable domestic debt levels.

34. Sound monetary management and exchange rate flexibility remain essential to reducing inflation pressures and building a reserve buffer. Policy tightening over the past year appears to be taking hold, but risks of backsliding remain high. Bangladesh Bank will need to resist calls to reduce interest rate flexibility or to contain exchange rate movements, in keeping with program monetary and reserve targets. At the same time, it should be prepared to further tighten monetary policy if macroeconomic pressures intensify. Success in meeting program targets will also hinge on greater monetary and fiscal policy coordination, ensuring that government domestic borrowing does not crowd out private sector credit or fuel inflation through excessive central bank financing of the budget.

35. A well-regulated financial sector will help reinforce macroeconomic stability and make it more responsive to growth-critical financing needs. Efforts to strengthen regulatory oversight, the supervisory framework, and internal governance of the banking system will need to be anchored by appropriate amendments to the BCA and associated changes to key prudential guidelines. In this context, BB’s new oversight and enforcement powers should help it better manage systemic risks, in particular those posed by SOCBs, as the financial system matures, products and services expand, and the economy further opens, as necessary to support growth. New bank licensing criteria will also need to be strictly enforced to ensure a stable banking environment. Collaboration between the MoF, BB, and the SEC remains critical to contain banks’ exposures to the equity market in view of recent volatility.

36. Strong implementation of the program will bring substantial benefits, but it will require broad ownership to mitigate risks. Efforts to realign policies and to jumpstart structural reforms are already under way. To build on this, the authorities are encouraged to work closely with political leaders, DPs, and civil society to sustain support for the program, which will be essential to achieving its objectives and bringing lasting adjustment. Staff recommend approval of the authorities’ request for an ECF arrangement.

Box 1.Bangladesh: Managing Macro-Distortions Amid Energy Decompression and Subsidies1

Starting in 2010, the government embarked on an ambitious plan to more than double electricity generation by 2016. Decades of underinvestment in the energy sector in Bangladesh have constrained energy availability and held back growth. Currently, per capita energy use is only one-third of that in India. In the short run, power generation is being boosted by installing “rental power plants” that run on diesel and furnace oil. Over the medium term, Bangladesh is planning to set up new power plants with more than 12,000 MW in total generating capacity (see Appendix I in IMF Country Report 11/314), effectively tripling current capacity.

Energy decompression has caused a surge in oil imports and BPC losses, with broad macroeconomic implications. The volume of fuel imports is projected to increase by 21 percent in FY12, following a 29 percent rise in FY11. On this basis, the oil import bill is expected to be around 5 percent of GDP in FY12—roughly doubling as a share of GDP over the past two years. Against the backdrop of rising international oil prices and the depreciation of the taka, low administered retail prices have led to rising BPC losses and fiscal pressures related to energy subsidies. In addition to borrowing from foreign oil suppliers, the state-owned BPC has resorted to additional loans from the SOCBs and the budget to cover its operating losses, adding to liquidity pressures. It has also depended on the SOCBs to provide much of the foreign exchange needed to import oil, which has exacerbated the distortions caused by inadequate exchange rate flexibility and led to pressures on foreign reserves.

  • The rising oil import bill has created challenges for fiscal and monetary policy and financial sector stability. Official subsidies doubled to 3.0 percent of GDP in FY11 and are set to rise to 3.8 percent of GDP in FY12, almost equal to ADP spending. The increasing subsidy bill has contributed to a widening of the fiscal deficit, increasing the government’s reliance on central bank financing and adding to inflation pressures. Accumulated losses of the BPC have also resulted in higher nonperforming loans (NPLs) for SOCBs, forcing the government to issue special recapitalization bonds to allow write-down of some of these NPLs, equivalent to around 0.3 percent of GDP in FY12.
  • The BPC has regularly lacked domestic currency to purchase foreign exchange for oil imports. Key culprits were delayed budget transfers—themselves necessitated by low retail prices and inadequate cost recovery—and weaknesses in cash-flow forecasting. Liquidity problems on the side of the SOCBs were a compounding factor; owing to weaknesses in their asset and liability management alongside their drive to expand their loan portfolio amid low real deposit and lending rates, SOCBs have been increasingly unable to help the BPC meet its liquidity shortfalls. Over much of the past year, the SOCBs have been unable to buy foreign exchange for oil imports in the interbank market, as inadequate exchange rate flexibility depressed turnover in this market.

Consolidated Fiscal Deficit Indicators

(In percent of GDP)

Sources: Bangladesh authorities; and IMF staff estimates and projections.

1/ Central government consolidated with BPC, BPDB, and BCIC.

Total Energy Use

(Tons of oil equivalent, per inhabitant))

Sources: BP Energy Statistics; and IMF WEO database.

  • To cope with the BPC and SOCBs’ dual problems of taka and U.S. dollar liquidity shortages, BB started providing foreign exchange overdrafts (FXODs) to SOCBs in late 2010, alongside direct FX sales. The stock of FXODs reached about US$0.5 billion in April 2011 and again in November 2011 (around 5 percent of gross reserves at the time). In October and November 2011 alone, BB provided US$0.8 billion in foreign exchange through FXODs and direct sales, contributing to a US$1 billion fall in net international reserves during the same period.

Since late 2011, the availability of taka and U.S. dollar liquidity has improved, mainly by virtue of increased exchange rate and interest rate flexibility. A weakening of the taka and slowing of non-oil import growth has increased foreign exchange turnover in the spot interbank market. As a result, the SOCBs began settling FXODs (around US$0.2 billion since the November 2011 peak) and meeting foreign exchange needs through some outright purchases. At the same time, however, they have come to rely more on foreign currency swaps. As a result, the SOCBs have been running negative net open foreign exchange positions (NOPs) in excess of prudential limits. Greater exchange rate flexibility could be expected to further deepen the interbank market and allow the SOCBs to procure more foreign exchange for oil imports, while also bringing NOPs within the prevailing limits.

Under the ECF-supported program, a three-pronged approach will be taken to adjust to the higher energy imports while safeguarding macroeconomic stability. First, the losses of the BPC—which has a monopoly on fuel imports—and the BPDB will need to be contained through further adjustments to retail petroleum and electricity prices, with the expectation that Bangladesh will close the diesel price wedge with neighboring India by the end of the first year of the ECF-supported program. Second, the shock to the BOP will be absorbed through a combination of adjustment (i.e., the exchange rate) and financing (namely short-term oil import credits). Finally, reforms to the trade and investment regime will be stepped up over the medium term to enhance Bangladesh’s capacity to earn and conserve foreign exchange, by diversifying exports and tapping domestic energy resources (namely coal, natural gas, and bio-fuels), supported by more FDI in this area. The government has also recognized the need to strengthen policy coordination to address the macroeconomic pressures resulting from the rising oil import bill. Accordingly, an interagency working group has been established to help improve the BPC’s cash-flow planning, including by reducing the delays with which the Ministry of Finance makes budgetary transfers and by better coordinating the mobilization of foreign financing for the BPC.

Regional Diesel Prices 1/

(U.S. dollars per liter, end of period)

Sources: Nepal Oil Corporation; and IMF staff estimates.

1/ For 2012, data are asof: Bangladesh (latest), India (latest), Nepal (latest), Singapore (February 1), Sri Lanka (February 11).

Bangladesh: Fuel Consumption

FY2003-15

Sources: Bangladesh Petroleum Corporation; and IMF staff estimates and projections.

1 Prepared by Gerard Almekinders (APD).

Box 2.Bangladesh: Reserve Adequacy1,2

Using recently developed methodologies, the optimal level of reserves is estimated to be 3-4 months of imports, assuming the opportunity cost of holding reserves is in the range of 4-5 percent. For Bangladesh, this cost could be seen as the difference between short-term U.S. dollar-denominated borrowing to finance oil imports and BB’s return on reserve assets (proxied by U.S. Treasury bills).

These estimates should be considered at the lower bound, given the model’s assumption of risk-neutrality and the exclusion of adverse shocks to remittances—an important driver of foreign exchange inflows in Bangladesh. They underscore the importance of rebuilding reserve buffers under the program following the recent depletion.

Bangladesh: Optimal Level of Reserves

Source: IMF staff estimates.

Extended Credit Facility Countries: Reserve Levels

End-2011

Source: IMF staff estimates.

1 Prepared by Tiago Severo (APD) and Jules Leichter (SPR).2 See the IMF Working Paper Optimal Precautionary Reserves for Low-Income Countries: A Cost-Benefit Analysis (WP/11/249) and IMF Board Paper Assessing Reserve Adequacy (PIN No. 11/47). The optimal level of reserves prescribed by the model in the working paper is a decreasing function of the opportunity cost of holding reserves. The findings for Bangladesh are broadly consistent with countries classified as having a more flexible regime, based on the classification used in the IMF’s Annual Report on Exchange Arrangements and Exchange Restrictions.

Box 3.Bangladesh: Financial Inclusion and Growth1

Financial inclusion is an integral part of achieving higher growth with greater equity. A broad base of literature has associated financial access and development with growth and poverty reduction.2 Reflecting this, Bangladesh’s SFYP emphasizes the need to make further financing available for job-creating small enterprises, expand private investment in non-rice agricultural activities through rural finance, and enhance factor endowments of the poor, including capital, through financial sector policies. Financial inclusion goes beyond the traditional rubric of microfinance in Bangladesh, which mainly focuses on the provision of financial services to the poor, and instead encompasses the whole continuum of financial service providers working within their comparative advantages to reach underserved but bankable firms and individuals. That said, Bangladesh’s vibrant microfinance sector has been a catalyst for broader inclusion given its reach, with more than one in four adults a member of a microfinance institution (MFI) at end-FY11, three-quarters of whom were women.

For its income level, Bangladesh has progressed well in financial inclusion, including when seen against other countries in the South Asia region (see table below). While recognizing the limitations of such metrics in reflecting technological change, levels of financial development, and product innovation, Bangladesh appears to not only exceed typical low-income country thresholds on a range of metrics, but is nearing levels associated with lower middle-income countries in a few areas. It particularly stands out on the level and use of bank deposits and also shows high degree of geographic penetration of bank branches (although once scaled for population, Bangladesh is still below the SAARC average). Here, private commercial banks (PCB) are making inroads into the legacy dominance of SOCBs, with the number of PCB branches broadly proportional to their share of assets in the banking system.

Pro-active and sustained policy attention to financial inclusiveness, reinforced by domestic MFI expertise, has catalyzed progress. Bangladesh Bank is playing a lead role through an agricultural credit policy that gives priority to marginal farmers, underdeveloped areas in the country, and women. In addition to credit lines for small- and medium-scale enterprises, BB has introduced refinancing schemes with MFIs for landless sharecroppers. It has also created facilities for marginal and small farmers to open bank accounts for as little as Tk 10 (less than US$0.15), through which they can receive cash transfers from the government for farm inputs (see Annex I).

Drawing on experiences with financial inclusion in countries that have reached middle-income status suggests several areas for further attention. First, given the large number of those who remain unbanked in Bangladesh (45 percent of the adult population by some estimates), raising further participation levels in formal financial services could have a sizable payoff. Second, in light of the low presence in rural areas and potential to leverage on substantial remittance inflows, steps could be taken to expand financial access by leapfrogging traditional branch/ATM expansion constraints, building on technological innovations such as mobile banking, which BB is now promoting. Third, expanding initiatives to cover basic financial literacy as part of the broader financial education process has been effective in other countries (e.g., Indonesia, Malaysia, and Peru) toward increased financial capability and consumer protection.

Financial Inclusion Indicators
Selected SAARC Countries 1/SelectedEmergingMarketsGlobal Averages
LowerUpper
SouthLowMiddleMiddle
BangladeshIndiaMaldivesPakistanSAARC 1/BrazilMalaysiaAfricaIncomeIncomeIncome
200520102005201020052010200520102010201020102010201020102010
Penetration
Geographic
Bank branches per 1,000 sq. km.49.458.923.929.190.0126.79.612.233.62.36.22.95.812.618.0
Demographic
ATMs per 100,000 adults0.21.98.120.21.14.46.8120.656.259.63.730.948.5
Bank branches per 100,000 adults6.36.99.710.913.717.17.78.89.213.810.510.13.613.221.0
Actual usage
Depositors per 1,000 adults321418637747 2/7951,2001312494921,620978146826967
Borrowers per 1,000 adults828192137 2/1581292860194284428 2/22147247
Deposits-to-GDP (in percent)43544758 2/58533730494811741284467
GDP per capita (in USS, PPP basis)1,1341,5852,1903,4085,3177,8552,2312,7213,27411,27314,74410,518
Sources: IMF Access to Finance Project; and IMF staff estimates.

Average of eight South Asian Association for Regional Cooperation (SAARC) countries, subject to data availability.

2008 data.

Sources: IMF Access to Finance Project; and IMF staff estimates.

Average of eight South Asian Association for Regional Cooperation (SAARC) countries, subject to data availability.

2008 data.

1 Prepared by Seng Guan Toh and Tiago Severo (APD).2 For a cross-country case discussion (including Bangladesh), see Demirgec Kunt, A., Beck, T., and Honahan, P. (2008), Finance for All? Policies and Pitfalls in Expanding Access, World Bank Policy Research Report, Washington, D.C.
ANNEX I. MACROECONOMIC ADJUSTMENT WITH A HUMAN FACE: PUBLIC SOCIAL SAFETY NETS IN BANGLADESH1

The note focuses on the Public Social Safety Net (PSSN) programs that are financed through the budget of the government of Bangladesh. While a number of programs are already in place, weak administrative capacity and poor benefits targeting constrain their effectiveness. Over the near term, several successful programs could be scaled up to mitigate the impact of higher food and energy prices, with resources in part coming from a better targeting of existing schemes.

A wide range of PSSN programs shield the poor from destitution in Bangladesh, where 31.5 percent of the population lives under the poverty line.2 These programs address poverty from a broad perspective, including through education, health, nutrition, employment, and disaster response programs targeted to the poor (see table). Vulnerable groups, particularly the elderly, women, children, and disabled persons, are given priority in the delivery of PSSNs. Programs provide benefits in the form of food, cash transfers, or a combination of the two and are administered through the government, bilateral, and multilateral development partners.

Budgetary allocations for PSSN programs have increased over time. Relative to other South Asian countries, SSN spending in Bangladesh, as a share of GDP, is comparable to India, but higher than Nepal, Pakistan, and Sri Lanka. The government provided an average of 9 percent of total annual public expenditures (about 1.3 percent of GDP) to PSSNs during 1996-2008. The allocation was increased in response to the global food and energy price crisis to about 2.0 percent of GDP in FY10 and FY11. A major portion of the support has gone to food assistance covered through direct feeding programs, followed by cash transfer social protection programs (including the flagship Employment Generation Program for the Poorest (EGPP) that was set up in response to the 2008 food price crisis).

Bangladesh: Share of Poorest Quintile Covered by Social Safety Net Programs, 2010

Bangladesh: Distribution of Social Assistance Coverage Across Expenditure Quintiles

(in percent of total assistance)

Sources: Bangladesh authorities; and World Bank staff estimates.

Despite this growth, coverage of PPSN programs is low, mainly concentrated in the rural areas, and coordination in their administration is lacking. Existing PSSN schemes currently reach about 7 million beneficiaries, which is equivalent to less than 15 percent of the population living below the poverty line and only around 39 percent of the poorest quintile (text chart 1). The urban poor are generally marginalized and excluded from most of these programs. At the same time, a significant number of nonpoor households gain access to multiple programs due to the lack of an integrated policy aimed at targeting and coordinating the delivery of safety nets (text chart 2). The widest reaching scheme is the Old Age Allowance (OAA) program, which provides a monthly allowance of Tk 500 per month through bank accounts of the elderly poor.

Poor institutional and administrative capacity is a particularly challenging constraint for quickly expanding food-based programs in response to rising prices. Currently, more than a dozen ministries implement 30 major programs in this area. The programs are often fragmented, administered by multiple ministries, and have considerable overlap. This makes for possible duplication and spreads scarce resources too thin. Better targeting and implementation of these programs could increase coverage and have a greater impact on poverty mitigation within the existing budget.3

Nevertheless, faced with the recent increase in food and energy prices, Bangladesh has managed to scale up participation in several of its ongoing PSSN. A fair price cardholder program resumed in November 2010, which allows some 2 million low-income households to purchase up to 20 kilograms of rice per month at a below-market price. Open market sales are also being used to provide subsidized rice, but they tend to be poorly targeted, with anyone allowed to buy up to 5 kilograms of low-quality rice per day through this operation. In addition, the government initiated an input subsidy program in 2010, allowing the then approximately 9 million marginal and small farmers (i.e., those with less than 3 hectares of land) to open a bank account and receive a cash subsidy for diesel used in irrigation pumps and other agricultural inputs used during the boro (main) crop season.

Looking ahead, the continued development of PSSNs with a stronger focus on improving administrative capacity is necessary for mitigating the impact on the most vulnerable. Efficiency gains could be realized by consolidating and rationalizing existing programs, with resources reallocated from poorly performing ones (such as Food for Works) to those that are relatively better targeted and administered (e.g., EGPP, VGF, and VGD). Such reform measures are likely to allow both the expansion of coverage and increase in per capita benefit levels.

Bangladesh could also broaden the reach of its successful targeted cash transfer systems. To increase coverage and remove inefficiencies in the existing system, efforts need to be made to create a database of the most vulnerable, including the urban poor, through existing household surveys; give these individuals or households access to bank accounts; and administer electronic cash transfer through these accounts, with support from development partners. Emerging evidence shows that such administrative reforms have markedly improved the performance of EGPP. Once an adequate PSSN transfer infrastructure is developed, schemes such as the EGPP and OAA could be easily topped up.

Bangladesh: Main Type of Safety Net Programs
Type of AssistanceSafety Net Programs
Cash transfersOld Age Allowance: Social pension using community-based targeting to select individuals based on eligibility criteria for low monthly cash benefits. About 7 percent of the population (i.e., 10 million people) are older than 65 years of age, but only 2 million are covered under the old age allowance program.
Widowed and Distressed Women Allowance: A monthly allowance (Tk 250 per person) distributed to about 900,000 selected women residing in rural areas.
Disabled Allowance: A monthly allowance (Tk 250 per person) distributed among mentally or physically challenged/handicapped persons. Currently, 200,000 persons are covered under this scheme.
Conditional cash transfersPrimary Education Stipend Program: A monthly stipend (Tk 100-125 per pupil aimed at supporting poor families (under a specific targeting criteria) to send their children to school.
Stipends for Female Secondary Students: Monthly cash transfer conditioned on school attendance, academic performance, and girls remaining unmarried.
Public worksRural Maintenance Program:
Food-for-Work: A 100-day employment guarantee scheme where beneficiaries receive food grain instead of cash for their work.
Employment Generation Program for the Poorest (EGPP): Short-term employment on community sub-projects, currently covering approximately 800,000 workers per year (and partially funded by the World Bank).
Vulnerable Group Development (VGD): 30 kilograms of rice for a period of 24 months to poor women.
Emergency or seasonal reliefVulnerable Group Feeding (VGF) program: Food to households affected by disasters and lacking agriculture land and productive assets. Under the program, an affected person gets 10 kilograms of food grains per month for three months following a disaster, with no labor requirement.
Gratuitous Relief: Emergency food and other necessities to the victims of natural calamities. The program is short-term in nature and can provide 10 kilograms of food grains per person per month. Additionally, cash can be distributed under the program.
Test Relief: 5-6 kilograms of wheat per day for a month during rainy months.
Open Market Sales: Rice made available to rural and urban areas. Anyone can buy a maximum of five kilograms of subsidized rice each day. The program was established in response to the 2008 food crisis.
Sources: Bangladesh authorities; and the World Bank.
Sources: Bangladesh authorities; and the World Bank.
APPENDIX I. LETTER OF INTENT

27 March, 2012

Ms. Christine Lagarde

Managing Director

International Monetary Fund

Washington, D.C. 20431

Dear Ms. Lagarde:

Bangladesh continues to open its economy, which is driving up investment rates, stimulating new exports, and creating employment opportunities, especially for women. Our economy grew by 6¾ percent in FY11 (July 2010-June 2011) and on average by 6 percent a year during the past decade. Domestic resources mobilization, as a share of GDP, reached a record level in FY11. Over the past 10 years, external trade increased by almost four-fold in U.S. dollar terms and more than doubled as a share of GDP. At the same time, the poverty level nearly halved, in line with achieving most of our Millennium Development Goals by 2015, but it remains unacceptably high. Bangladesh has drawn up a Vision-2021 programme aiming to raise its growth rate to 8 percent by 2015 and possibly to 10 percent by 2021, in line with our objective to attain middle income status in the next 10 years. In the process, we intend to further reduce poverty to a tolerable range of 12-15 percent and bring the unemployment rate down to this vicinity.

Our strategy of growth with equity has been embraced in many reform measures announced in our annual budget statements as well as in our finalized Sixth Five-Year Plan. However, due to the process of slow recovery out of the global financial crisis and expansionary domestic measures, we face several major challenges now, which have given rise to an actual balance of payment financing need that is expected to be protracted. First, relatively accommodative policies coupled with increasing global headwinds have led to widening trade imbalances and foreign reserve losses. Second, a rapid rise in oil imports, continued firmness in commodity prices, and associated increases in government subsidies have added to external and fiscal pressures. Third, power, transportation, and climate change-mitigating infrastructure needs remain immense, creating huge import requirements that exacerbate BOP needs.

In response, we have formulated a reform program based on various policy announcements that we have made in the last three years in support of high, sustainable, and equitable growth. The current three-year programme is centered on upfront policy actions aimed at preserving macroeconomic stability and gradually rebuilding our reserve buffer, while going forward with macro-critical structural reforms. In keeping with these objectives, stepped-up efforts will be made to (a) create more fiscal space and better utilize resources mobilized from development partners; (b) ensure a stable, well-regulated financial system; (c) create a business-friendly trade and investment regime; and (d) secure greater regional and global economic integration. This is likely to raise saving and investment rates, strengthen our external position, and achieve broad-reaching labor-intensive export-led growth.

The attached Memorandum of Economic and Financial Policies (MEFP) sets out the major objectives of the government’s reform program for the period 2012-2015. In this context, the government of the People’s Republic of Bangladesh is requesting access to IMF resources under an Extended Credit Facility (ECF) in the amount of SDR 639.96 million (120 percent of quota) over a three-year period to meet in part our BOP financing need and provide a buffer against shocks until our policy adjustments and reform measures take hold. During this time, we expect to secure support from other development partners to meet our overall financing needs.

We believe that our commitments, as outlined in the MEFP, are adequate to achieve program objectives, but we are prepared to take further measures, as appropriate, for this purpose. To ensure strong performance under an ECF-supported arrangement, we will maintain a close policy dialogue with the IMF and pursue technical assistance, as necessary, from the IMF and other development partners in support of our reform agenda. In keeping with this, we will consult with the IMF on the adoption of measures and in advance of revisions to the policies contained in the MEFP, in accordance with the IMF’s policies on such matters. Moreover, we will provide the IMF with information in connection with our progress in implementing the policies and achieving the objectives of the program. We also authorize publication of this Letter of Intent and its attachments, as well as the accompanying staff report.

Sincerely yours,

/s/

Abul Maal Abdul Muhith

Minister of Finance

Government of the People’s Republic of Bangladesh

Attachments: Memorandum of Economic and Financial Policies and Technical

Memorandum of Understanding

ATTACHMENT 1. MEMORANDUM OF ECONOMIC AND FINANCIAL POLICIES

I. OVERVIEW

1. This memorandum lays out the reform program of the government of the People’s Republic of Bangladesh under the three-year Extended Credit Facility (ECF) arrangement. It focuses on the targets and objectives in the first year of the ECF, setting forth the policy adjustments and structural reforms needed to preserve macroeconomic stability, strengthen the external position, and enhance overall competitiveness. Our ultimate aim is to lay a strong foundation for higher, more inclusive growth. This objective is in keeping with our long-term Perspective Plan (2010-2021), which seeks to halve poverty rates and elevate Bangladesh to middle-income status over the next decade. In support, our Sixth Five Year Plan (FY11-15) (SFYP) sets out specific policies intended to narrow our infrastructure deficit, enhance the business environment, and expand the industrial base, while effectively mobilizing resources on all fronts, in order to create employment opportunities, especially for women, as a key plank of our poverty reduction efforts.

II. MACROECONOMIC CONDITIONS

2. Macroeconomic pressures have intensified over the past 18 months, resulting in heightened risks to Bangladesh’s external position. Our balance of payments (BOP) slipped into a deficit in FY11 (July 2010-June 2011) for the first time in a decade. Record exports were driven higher by ready-made garments, in part from the capture of new market share. However, they were more than offset by record imports, which were pushed up by surging oil demand and accommodative policies. Remittances flows were supportive, as the pace of workers going abroad picked up in 2011, but aid disbursements slowed, owing in part to the low uptake of project loans. External pressures have prevailed in FY12, but with exports now affected by the weaker global demand. As a result, gross international reserves (GIR) have declined substantially since late 2010. Despite record tax takes, fiscal pressures have also emerged, stemming mainly from rising fuel, electricity, and fertilizer subsidies. In turn, domestic borrowing by the government rose sharply in the first half of FY12, straining available liquidity in the banking system and putting upward pressure on interest rates. Lastly, inflation pressures have firmed, with headline, food, and non-food rates now in excess of 10 percent due to rising commodity prices and strong aggregate demand.

3. Current conditions have given rise to an actual and protracted BOP financing need. Notwithstanding recent policy adjustments and sizable exchange rate depreciation, reserves could slip well below two months of import without further adjustments and reforms, exposing Bangladesh to greater risks and vulnerabilities. In the longer term, our external position is expected to come under additional pressures from increased import demand, previously held back by less-open trade policies and repressed energy demand, as we take steps to further open our economy and relieve infrastructure bottlenecks, most notably in the power and transport sectors, which currently constrain growth.

III. POLICY FRAMEWORK

4. Against this backdrop, our reform program aims to preserve macroeconomic stability, strengthen our external position, and ultimately bolster growth prospects. During the program period (FY12-15), we will seek to bring down inflation to and retain it at single-digit levels through appropriately restrained fiscal and monetary policies and over time by further easing supply constraints. We also intend to increase reserves to 2¾-3 months of import cover by FY15 by putting the BOP on a sustainable path through sound aggregate demand management, continued exchange rate flexibility, and structural reforms needed to bolster competitiveness. These measures are also expected to catalyze additional external inflows, including foreign direct investment (FDI). Finally, we aim to increase real GDP growth to 7.5-8 percent a year by mid-decade through reforms aimed at increasing investment rates, further opening our economy, and broadening employment opportunities, focused on labor-intensive and export-oriented activities, consistent with our SFYP.

5. We recognize that upfront policy actions are needed to reduce the risk of a payments crisis and put Bangladesh on a firm adjustment path. Under our program, we will pursue moderate fiscal consolidation over the near to medium term by further increasing tax revenue, reducing subsidy costs, and prioritizing development spending, with a view to containing domestic borrowing. In keeping with this, we will also limit monetary policy accommodation by setting appropriate policy rates and containing Bangladesh Bank (BB) financing of the budget deficit, aided by stronger policy coordination, to ensure stable reserve money growth. Greater interest rate flexibility should help improve monetary policy transmission. Finally, we will continue to maintain a flexible exchange rate regime, taking steps to deepen the foreign exchange market and limit official intervention to smoothing short-term volatility, in order to facilitate adjustment. A well-coordinated mix of fiscal and monetary tightening and continued exchange and interest rate flexibility, combined with limited BB activity in the foreign exchange market, should help protect reserves.

6. In addition, macro-critical structural reforms are necessary to raise saving and investment rates, expand the export base, and ensure BOP sustainability. They are also aimed at promoting sound economic governance and accountability. Thus, over the near to medium term, we will undertake structural fiscal reforms centered on modernizing our tax regime, strengthening public financial management (PFM), and promoting a sound debt policy, in order to provide adequate budgetary resources to bolster social and infrastructure outlays over the medium term, supported by new public-private partnerships (PPP). Moreover, we will take steps to ensure a stable, inclusive, and well-regulated financial system conducive to meeting private financing needs, including in agriculture and for small-and medium-scale enterprises, and minimizing fiscal and systemic risks. Finally, focus will be placed on enhancing Bangladesh’s integration into the global economy through business-friendly trade and investment climate reforms, drawing on the experience of outward-oriented economies that have transitioned successfully to middle income status.

A. Fiscal Policy and Debt Management

7. Policy objectives. Fiscal policy will be geared towards promoting a stable macroeconomic environment, debt sustainability, and broad-based growth. Upfront tightening measures will be complemented by tax, subsidy, and PFM reforms to ensure Bangladesh stays on a sound fiscal path. To this end, we will limit our overall fiscal deficit (excluding grants) to around 4.5 percent of GDP in FY12 and pursue moderate fiscal consolidation in FY13 and over the medium term. During the program period, we aim to increase tax revenue to around 13 percent of GDP in order to create adequate space to raise Annual Development Program (ADP) spending to at least 6 percent of GDP, in support of higher growth. Fiscal performance will be anchored by a ceiling on net claims on government by the banking system (a performance criterion) and supported by a floor on tax revenue (an indicative target). To ensure targets are met in FY12, we have capped total energy-related subsidy costs to Tk 150 billion in FY12 (a prior action). In part, this is being aided by recent domestic fuel prices increases, which have averaged nearly 40 percent since mid-2011, as well as through scheduled adjustments to electricity tariffs.

8. Tax policy. The adoption of new VAT and income tax regimes will be the centerpiece of our tax reform efforts, with the aim to broaden the tax base and increase tax receipts, in support of stability and growth. On the VAT, we received approval by our Cabinet of the new legislation in March 2012 (a prior action), following careful drafting and extensive stakeholder consultation, supported by technical assistance (TA) from the IMF and other development partners (DPs). The law, which will build on recent reforms, has a single 15 percent VAT rate with very limited exemptions, no truncated valuations, and minimal advance payment and withholding schemes. A final draft of the law that is consistent with tax modernization efforts and medium-term revenue targets will be submitted to the National Parliament by June 2012 (a program benchmark). To ensure a modern VAT is fully in place by FY15, we will get the approval of the Minister of Finance of an implementation plan and timetable and a new organizational structure for the National Board of Revenue (NBR) by September 2012 (a program benchmark). Timely implementation will be ensured with support from a resident adviser as well as by peripatetic experts from DPs. We will remove certain tax concessions and exemptions in the FY13 Finance Bill in June 2012 equivalent to 0.5 percent of GDP (a program benchmark). We also plan to finalize a new draft direct tax code in FY13 that further rationalizes exemptions, rates, and thresholds in keeping with our medium term revenue target and embracing international best practices.

9. Revenue administration. We will consolidate revenue administration reforms already under way over the past few years to further modernize tax collections and enforcement. An NBR modernization plan (2012-16), building on its June 2011 outline of a tax modernization plan, will be formulated by mid-2012, with support from DPs. As part of our efforts, we aim to continue upgrading systems, broadening the coverage, and improving the coordination of the Large Taxpayers Units for income tax and indirect taxes. The use of the taxpayer identification numbers is also being expanded by beginning to automate their issuance and linking them to national identification and business identification numbers—a process we aim to complete in our main tax offices by December 2012 (a program benchmark). Furthermore, we are upgrading the ASYCUDA system, with an aim of installing it in major land customs stations by December 2012, with support from UNCTAD. We have also begun implementing an alternative dispute resolution (ADR) mechanism in FY12 at the NBR on a pilot basis. Over the medium term, we will further improve tax compliance by strengthening audit and investigative procedures, establishing separate court benches dedicated to taxation issues, and fully rolling out the ADR mechanism.

10. Subsidy reforms. Effective steps are being taken to contain the growth in fuel, electricity, and fertilizer subsidies and to bring these costs fully on budget starting in FY13, in order to protect priority social and development spending and reduce price distortions. The overall size of these subsidies has grown rapidly in recent years due to rising import costs and inadequate cost recovery undermining our fiscal position and overall macroeconomic stability. Notwithstanding significant fuel and electricity prices adjustments over the past year, we recognize that further adjustments to energy prices are likely necessary in 2012, given projected import costs and available budgetary financing. To contain fuel subsidies, we will move to an automatic adjustment formula by December 2012, which will ensure full pass-through of changes in international prices (a program benchmark), with a clear timeline being developed to make necessary preparations for this change. In the meantime, we established a technical committee in January 2012 comprising the Ministry of Finance (MoF) and BB to monitor closely the finances of the Bangladesh Petroleum Corporation (BPC) in order to ensure regular budget transfers to cover subsidy-related losses and subsequently to enable it to buy foreign exchange from domestic banks to pay for petroleum imports. In addition, we are undertaking timely implementation of the medium-term electricity tariff adjustment schedule, as set out by the independent Bangladesh Energy Regulatory Commission. Moreover, we will adjust fertilizer prices, as necessary, to more fully capture changes in local and imported inputs, in order to contain subsidy growth. Finally, taking a longer-term perspective, we will make efforts to accelerate our Power Sector Road Map, adopted in 2010, so that higher-cost temporary rental power units now being used to relieve electricity shortages can be replaced with more cost-effective permanent power plants. Chronic under-investment in the power, gas and coal, and oil sectors will be further aided by moves towards full cost recovery by energy producers and distributors.

11. State-owned enterprise finances. In keeping with our commitment to bring subsidy costs on budget, new subsidy-related loans from the state-owned commercial banks (SOCBs) to the BPC, Bangladesh Power Development Board (BPDB), and Bangladesh Chemical Industries Corporation (BCIC) will be limited to zero on a net basis in FY12 (an indicative target). Agreement to settle existing legacy loans held by the SOCBs stemming from earlier subsidy-related losses will be fully reflected in our budget framework, with around Tk 27 billion in these loans already securitized in FY12. We are further committed to conducting efficiency audits of the BPC and BPDB in 2012. To safeguard fiscal targets, we will continue to monitor closely budget transfers and directed lending to all state-owned enterprises (SOEs), placing strict limits on support to largely inoperative ones, to ensure public resources are not diverted away from priority needs.

12. Public financial management. We are committed to strengthening PFM, focusing our efforts on performance-focused budgeting, budget integration and monitoring and improved cash and debt management. The Strengthening Public Expenditure Management Program (SPEMP)—a multi-donor trust fund administered by the World Bank—will guide these reforms, with its mandate now focused on strategic policy planning and budget management, public financial systems, and training and capacity building in PFM. In keeping with our priorities, we will establish new budget management wings/branches in all line ministries and issue a circular ensuring uniform budget implementation and reporting standards by June 2012 (a program benchmark). In our efforts to improve cash and debt management, we will expand the terms of reference of the Cash and Debt Management Technical Committee to prepare bi-weekly and monthly rolling cash flow projections of the government’s Treasury Single Account (TSA) balance by June 2012, with reporting standards to be consistent with previous TA in this area. To better monitor performance, we are further committed to revising the current budget classification structure and reporting, with the new Integrated Budget and Accounting System expected to provide an important bridge in generating GFS compliant statements. As a follow up to Public Expenditure and Financial Accountability (PEFA) assessment done in mid-2011, a fiscal Report on Standards and Codes focused on budget transparency will be sought in FY13.

13. Annual Development Program implementation and aid effectiveness. In support of our growth strategy and poverty reduction efforts, we are taking steps to improve ADP implementation, better align spending with development objectives, and increase overall aid effectiveness, in close collaboration with DPs. Balancing these objectives with current resource constraints, we have reprioritized development projects in FY12 budget and also issued a government circular in January 2012 restricting the use of taka funding to make up for shortfalls in the externally-funded ADP budget (a prior action). Going forward and working closely with DPs, we will further rationalize the number of ADP projects, build project appraisal capacity in the Planning Commission and line ministries, and issue a basic technical manual on project formulation and appraisal by December 2012. During the program period, measures will also be taken to improve land acquisition procedures, strengthen government-DP interface on procurement processes, and improve aid coordination, especially on multi-donor projects, consistent with the Joint Cooperation Strategy agreed between the government and DPs in 2011.

14. Social spending and safety nets. During the program period, we will intensify efforts to protect priority social spending and improve the effectiveness of safety nets, carefully monitoring social-related spending (an indicative target). We will use this information in our regular reporting to the National Parliament on budget implementation, which we commenced following the adoption of the Public Moneys and Budget Management Act in 2009. In recognition that fuel and electricity price increases could place a heavy burden on the poor, we will develop an action plan by June 2012 to ensure well-targeted social safety net programs aimed at mitigating this burden. As an upfront measure, we will ensure that open market sales of food staples, a self-targeted program mostly for the urban poor, are done in a timely and judicious way in 2012 to mitigate the impact of rising fuel and food prices on their purchasing power.

15. Public-private partnerships. Operational guidelines and legal and institutional framework for PPPs are being established, as part of our strategy to increase infrastructure investment, with support from the Asian Development Bank (AsDB). The government will take equity stakes in projects through the new Bangladesh Infrastructure Finance Fund, as well as provide technical and viability gap funding. Large projects will be approved by the Cabinet Committee on Economic Affairs to ensure consistency with our growth and debt strategies. As a coordinating body, a PPP office has been established in the Prime Minister’s Office and staffed by professional managers. It is charged with supporting line ministries to ensure that PPP projects are properly identified, contracted, and implemented, with a view to minimizing fiscal risks. A cell was also created in the MoF in mid-2011 to assess the medium-term fiscal implications of PPP projects and ensure that government resources required for selected projects are fully incorporated into future budgets.

16. Debt management. Our debt management strategy (DMS) is consistent with minimizing borrowing costs and ensuring a sustainable fiscal stance. The strategy, prepared in 2011, is anchored by maintenance of prudent levels of domestic borrowing and reliance for the foreseeable future on concessional terms for most external borrowing. Its execution and monitoring are being supported by a dedicated debt management wing in the MoF. Under our DMS, annual borrowing plans will be guided by a macro-fiscal framework and debt sustainability analysis and supported by a single, comprehensive debt database. We will also move toward fully recognizing the debts of SOEs and other official entities in our analysis, particularly on BPC, BPDB, and BCIC, where government guarantees on borrowing have been provided and/or contingent liabilities exist. To ensure adequate domestic financing, we have signaled to primary dealers in the Treasury market that yields on bills and bonds will continue to be responsive to market conditions by setting auction cutoff rates across all maturities at market-clearing level. As part of this effort, we will also strengthen the operations of the National Savings Directorate, benchmark yields on National Savings Certificates (NSCs) to market-based rates, and bring the taxation of interest on NSCs in line with other government debt instruments by June 2012. In this process, we will also revamp savings schemes aimed at non-resident Bangladeshis to attract stronger foreign inflows. Building on progress in recent years in recording external debt flows, we will install the UNCTAD’s Debt Management and Financial Analysis System (DMFAS.6) by June 2012 to incorporate most domestic debt flows.

17. Debt ceilings and limits. Under our program, we will adhere to nonconcessional external debt ceilings, consistent with our DMS and continued sound management of public sector external borrowing. In compliance with our ceiling on new nonconcessional external debt maturing in more than one year (a continuous performance criterion), we will limit any such borrowing to properly evaluated projects, in line with procedures followed by the executive committee of our National Economic Council in considering and approving larger development projects. We will also have a ceiling on nonconcessional external debt maturing in one year or less (a continuous performance criterion). This debt will exclude normal import-related credits, notably suppliers’ credit and other short-term financing for oil imports from the Islamic Development Bank and other official entities, on which we will have a separate non-zero ceiling (an indicative target). To keep this borrowing manageable, our program will have adjustors on net international reserves (NIR) of BB, net domestic assets (NDA) of BB, and NCG by the banking system for suppliers’ credit contracted by BPC and guaranteed by the government in excess of programmed levels. We will also continue to ensure no new accumulation of external payment arrears by the public sector (a continuous performance criterion).

B. Monetary and Exchange Rate Policy and Central Bank Operations

18. Policy objectives. Monetary policy will aim to contain aggregate demand pressures, bring down inflation, and help build a reserve buffer. Bangladesh Bank has demonstrated its resolve by increasing its benchmark repo rate by 325 bps over the past 18 months to 7.75 percent, including the latest 50 bps rise in January 2012. As a result, credit growth has slowed significantly since mid-2011, in support of stabilization efforts. To improve the monetary transmission mechanism, Treasury bill and bond yields have also been allowed to adjust more to market conditions. In addition, most remaining bank lending rate caps were removed in December 2011 (a prior action). Greater exchange rate flexibility has also been allowed to facilitate adjustment. Central bank actions will continue to be guided by its semiannual monetary policy statements, which will be consistent with our program ceilings on reserve money (an indicative target), as a nominal anchor, and on NDA of BB—its main operating targets (a performance criterion). To contain external vulnerability, we will target a modest reserve buildup in NIR of BB in 2012 (a performance criterion) and a further significant increase over the medium term, in keeping with monetary as well as fiscal tightening, continued exchange rate flexibility, and, over time, improved external prospects.

19. Monetary management. To help achieve our program targets, BB is prepared to maintain the existing restrained monetary policy and to take further steps to strengthen liquidity management, backed by an appropriately tight fiscal policy. Bangladesh Bank will undertake further hikes in its repo and reverse repo rates, as necessary, and continue to channel most liquidity support through the emergency repo window (currently provided at 300 bps above the regular repo window). It will also encourage all commercial banks to maintain market-determined lending and deposit rates to facilitate monetary transmission and properly price risk. Furthermore, BB will strictly enforce its cash reserves, liquid asset, and credit-to-deposit ratio requirements, sanctioning banks found in violation of these standards. In addition, it will finalize a lender of last resort policy and contingency plan in May 2012, approved by BB management, in line with TA we received earlier in this area. Finally, BB is committed to improve its liquidity forecasting framework in 2012, with possible TA from DPs.

20. Exchange rate policy. We will continue to allow greater exchange rate flexibility, to ensure orderly conditions in the foreign exchange market and facilitate external adjustment over the medium term. Bangladesh Bank will allow interbank transactions at market-determined rates and limit its intervention to smoothing short-term volatility, consistent with meeting NIR targets. To boost turnover in the spot interbank foreign exchange market, BB will monitor that the interbank selling rate remains aligned with the selling rate for bills of collection of foreign exchange dealers. In keeping with our reserve targets, SOCBs will be expected to procure foreign exchange for oil-, food-, and fertilizer-related import payments from the interbank spot market, taking advantage of rising turnover in this market. At the same time, other banks will be encouraged to open letters of credits for these payments, notably for BPC, with BB setting notional targets, if necessary. Bangladesh Bank ceased issuing foreign exchange overdrafts in December 2011 and will reduce their outstanding balances to zero by June 2012 (a program benchmark), with settlement being done consistent with meeting our NIR targets. It will also enforce banks’ net open foreign exchange position limits.

21. Central bank operations. Other measures are being taken by BB to strengthen its financial operations and controls. Bangladesh Bank will adhere to new reserve management guidelines adopted in mid-2011. It will also address significant vulnerabilities identified in the IMF’s Safeguards Assessment, completed in July 2011, notably in external and internal audits and oversight mechanisms. On this matter, the government floated a tender in February 2012 for an internationally-affiliated firm to conduct an external audit on BB’s end-June 2012 accounts, with the audit opinion to be signed by both the audit firm’s international or regional head office and by its local affiliate (a prior action). Bangladesh Bank has also begun implementing an automated Enterprise Resource Planning system, phasing out its manual accounting system by June 2012, to ensure timely and comprehensive financial reporting, with ongoing support from the DPs.

C. Financial Sector Reforms

22. Policy objectives. Under our program, we will strengthen financial sector governance and oversight in order to better manage risks and support growth. Further steps will be taken to improve the stability, soundness, and reach of our financial system, anchored by clear oversight responsibilities, strong risk-based supervision, and proper managerial and operational controls. We recognize that a rapidly expanding financial sector, deepening interbank linkages, and increasing parent-subsidiary activities require coordinated efforts by regulators to minimize risks posed by poorly governed or weakly supervised institutions.

23. Bank governance and performance. On banks’ internal governance and risk controls, we are committed to making necessary legal and prudential reforms, with a focus on the SOCBs. An amended Bank Companies Act (BCA) will be submitted to the National Parliament by September 2012 aimed at establishing a clear supervisory mandate for BB, allowing remedial actions against prudential lapses, and strengthening the internal governance of commercial banks (a program benchmark). In view of current liquidity pressures, limited supervisory capacity, and pending governance reforms, we will strictly enforce new bank licensing criteria to ensure a stable banking environment. With regard to the SOCBs, we will pursue further measures aimed at increasing operational independence, strengthening their finances, broadening their capital bases with a view to corporatizing their operations, minimizing fiscal risks, and reducing the government’s effective ownership over the program period. Bangladesh Bank will continue to anchor this process through memoranda of understanding with each bank, with new ones issued in March 2012 particularly focused on SOCBs’ lending standards. To improve their financial performance, an audit of each SOCB was conducted by reputable internationally-affiliated auditors in 2011. Using these audits as a guide, we intend to help stabilize the financial position of SOCBs over the near to medium term by limiting their dividend payments, ensuring proper loan loss provisions, and prohibiting their purchase of any classified loans from other banks, as notified by BB in February 2012. The SOCBs will adhere strictly to agreed schedules to amortize valuation adjustments made to their balance sheets to cover earlier losses, as part of BB’s effort to fully enforce Basel II capital adequacy standards introduced in 2010.

24. Financial supervision. Bangladesh Bank will focus more efforts and resources on risk-based supervision and controls. To lay a foundation for this, BB issued a set of guidelines in February 2012 aimed at strengthening the risk management framework and processes of commercial banks. It also intends to adopt a new organizational structure by May 2012 aimed at consolidating management over on-site and off-site activities. As a complement, a council of the regulatory agencies will be established by June 2012, comprising BB, the MOF, Insurance Development and Regulatory Authority (IDRA) and the Securities and Exchange Commission (SEC), with a mandate to preserve financial stability and powers inter alia to designate potentially systemic financial firms for enhanced supervision. The central bank will also adopt new loan classification and loss-provisioning standards that embrace international best practices by June 2012 (a program benchmark), implementing them over a two-year period. To increase transparency, BB published its inaugural Financial Stability Report in December 2011, detailing the finding of its off-site supervisory activities. It will continue to compile a unified set of financial soundness indicators and report them on a quarterly basis, putting greater emphasis on data integrity. An IMF resident advisor at BB is supporting efforts to improve bank supervision, with peripatetic experts also expected to help strengthen on-site inspections.

25. Securities markets. We will also closely regulate the securities market to ensure a stable trading environment, in view of recent volatility. The SEC will develop and enforce a transparent regulatory framework in line with international best practices, with support from the AsDB. In this context, we will strengthen the SEC’s autonomy, ensuring it has a sufficient supervisory mandate and qualified personnel to properly oversee brokers, dealers, and merchant banks and develop the necessary contingencies to contain systemic risk. As part of our effort to strengthen self-governance over securities markets, we will seek approval by the SEC of a demutualization model and plan for the Dhaka Stock Exchange and Chittagong Stock Exchange by December 2012 (a program benchmark). We are also committed to capping banks’ shareholding limits to 25 percent of their regulatory capital by September 2012 (a program benchmark), subject to parliamentary approval of the amended BCA. Bangladesh Bank and the SEC will conduct jointly consolidated supervision of merchant bank subsidiaries, completing examinations of the larger ones by June 2012. They, in tandem, are further committed to ensuring all banks comply with a reduced margin lending and collateral requirements. We will also bring all bank subsidiaries under BB’s supervision by mid-2013.

26. Anti-money laundering. In order to conform to international best practices, we have promulgated the Anti-Money Laundering Ordinance and the Anti-Terrorism Financing Ordinance which will be placed before the National Parliament for ratification in February 2012.

D. Trade and Investment Environment

27. Policy objective. Achieving our ambitious growth targets depends on creating a more supportive investment climate, accelerating trade liberalization, and attracting more FDI. During the program period, our efforts on trade reform will aim at reducing trade distortions, minimizing anti-export biases, and ensuring greater integration of Bangladesh into the multilateral trading system. Improvements in the investment climate are expected to come from maintaining a stable macroeconomic environment; developing a modern, transparent tax regime; and ensuring well-regulated financial system, supported by improved social and physical infrastructure.

28. Trade regime. We will work closely with the World Bank on a Diagnostic Trade Integration Study for Bangladesh in 2012, which is expected to inform on the near to medium term priorities in our trade development strategy. In this context, we are committed to rationalizing trade taxes, inclusive of para-tariffs arising from supplementary and regulatory duties. We will also bring down trade logistic costs, which are substantially higher than those in the region, with strategic investments in ports and transport. In addition, we will seek more effective regional trade cooperation, using recent inroads with India as a catalyst for change.

29. Investment climate. We will work with the International Finance Corporation (IFC) and other DPs to strengthen property registration, contract enforcement, and adjudication processes—each of which currently constrain investment, as highlighted in the IFC’s 2012 Doing Business report rankings. Elevating government support to attract and retain FDI will also be a high priority, with an upfront focus on ensuring adequate power supply in export processing zones and improving access to information on land availability and logistical support.

E. Statistical Policy

30. We are committed to strengthening macroeconomic statistics, in order to better inform policy decisions and monitor targeted outcomes. The Bangladesh Bureau of Statistics (BBS) is preparing a National Strategy for the Development of Statistics (NSDS), supported by development partners. The NSDS, when fully formulated in late 2012, will provide a roadmap for improving the timeliness and accuracy of national statistical reporting and better integrating statistics into planning and development processes. A new Statistics Act that provides the BBS with greater autonomy will be submitted to the National Parliament by June 2012. The BBS, in turn, will receive more resources, including staff, and upgrade regional facilities to improve statistical surveys. It plans to complete the rebasing of the national accounts to 2005/06 by mid-2012, with continued IMF TA. Bangladesh Bank is also improving external statistics to ensure proper recording and classification of balance of payments flows.

IV. PROGRAM MONITORING

31. Progress under the our program will be monitored through quantitative performance criteria and indicative targets, structural benchmarks, and other necessary measures, in order to complete semi-annual program reviews, as summarized in Tables 1 and 2 and guided by the attached Technical Memorandum of Understanding.

Table 1:Bangladesh: Quantitative Performance Criteria (PC) and Indicative Targets (IT) 1/
20112012
6/309/3012/313/316/309/3012/31
Est.Est.Est.ITPCITPC
Performance criteria 2/
Net international reserves (NIR) of Bangladesh Bank (BB) (floor, end of period (eop) stock, in millions of U.S. dollars (US$)) 3/6,7266,7916,1545,9775,9376,1656,256
Net domestic assets (NDA) of BB (ceiling, eop stock, in billions of taka) 3/371377444483550556573
Net credit to the central government (NCCG) by the banking system (ceiling, cumulative change from the beginning of the fiscal year, in billions of taka) 3/205681391742524999
New nonconcessional external debt maturing in more than one year, contracted by the public sector or and/or guaranteed by the central government or BB (ceiling, eop stock since the beginning of the program, in millions of U.S. dollars) 4/5005001,0001,000
New nonconcessional external debt maturing in one year or less, contracted by the public sector and/or guaranteed by the central government or BB (ceiling, eop stock since the beginning of the program, in millions of U.S. dollars) 4/0000
Accumulation of new external payment arrears by the public sector (ceiling, eop stock since the beginning of the program, in millions of U.S. dollars) 4/0000
Indicative targets
Reserve money (ceiling, eop stock, in billions of taka)8979049259501,0141,0371,061
Tax revenue of central government (floor, cumulative change from the beginning of the fiscal year, in billions of taka) 5/763190394627924232489
Social-related spending by central government (floor, cumulative change from the beginning of the fiscal year, in billions of taka)3427024840081161
Net suppliers’ credit and other short-term financing for oil imports (cumulative change from end-FY11, in millions of U.S. dollars), program level-75-557501,0001,1251,250
State-owned banks funded loans to BPC, BPDB and BCIC (ceiling, cumulative change from the beginning of the fiscal year, in billions of taka) 6/41-7215000
Memorandum item:
Budget support from bilateral and multilateral donors agencies (cumulative change from the beginning of the fiscal year, in millions of U.S. dollars), program level00050

Fiscal year begins July 1.

Evaluated at the program exchange rate.

The adjustors are specified in the Technical Memorandum of Understanding. Accordingly, the floor on NIR of BB will be adjusted upward (downward) and the ceiling on NCCG by the banking system and the ceiling on NDA of BB will be adjusted downward (upward) by the amount of budget support received from bilateral and multilateral donors in excess (short) of the programmed level. The floor on NIR of BB will be adjusted upward and the ceiling on NCCG by the banking system and the ceiling on NDA of BB will be adjusted downward by the amount of suppliers’ credit and other short-term financing for oil imports in excess of the programmed level. The ceiling on NCCG by the banking system will be adjusted downward by the amount of net lending by the central government to the Bangladesh Petroleum Corporation (BPC) and the Bangladesh Power Development Board (BPDB) short of the programmed level. The ceiling on NCCG by the banking system in FY12 (July 2011-June 2012) excludes Tk 27 billion of special bonds issued by the central government to state-owned commercial banks for securitization of loans made by these banks to the BPC prior to FY12 to cover shortfalls in government budgetary transfers for fuel-related subsidy costs incurred by the BPC.

These performance criteria are applicable on a continuous basis.

Collections by the National Board of Revenue only.

Outstanding funded loans of Sonali Bank, Janata Bank, Agrani Bank, Rupali Bank, and BASIC Bank to BPC, BPDB, and Bangladesh Chemical Industries Corporation.

Fiscal year begins July 1.

Evaluated at the program exchange rate.

The adjustors are specified in the Technical Memorandum of Understanding. Accordingly, the floor on NIR of BB will be adjusted upward (downward) and the ceiling on NCCG by the banking system and the ceiling on NDA of BB will be adjusted downward (upward) by the amount of budget support received from bilateral and multilateral donors in excess (short) of the programmed level. The floor on NIR of BB will be adjusted upward and the ceiling on NCCG by the banking system and the ceiling on NDA of BB will be adjusted downward by the amount of suppliers’ credit and other short-term financing for oil imports in excess of the programmed level. The ceiling on NCCG by the banking system will be adjusted downward by the amount of net lending by the central government to the Bangladesh Petroleum Corporation (BPC) and the Bangladesh Power Development Board (BPDB) short of the programmed level. The ceiling on NCCG by the banking system in FY12 (July 2011-June 2012) excludes Tk 27 billion of special bonds issued by the central government to state-owned commercial banks for securitization of loans made by these banks to the BPC prior to FY12 to cover shortfalls in government budgetary transfers for fuel-related subsidy costs incurred by the BPC.

These performance criteria are applicable on a continuous basis.

Collections by the National Board of Revenue only.

Outstanding funded loans of Sonali Bank, Janata Bank, Agrani Bank, Rupali Bank, and BASIC Bank to BPC, BPDB, and Bangladesh Chemical Industries Corporation.

Table 2.Bangladesh: Prior Actions and Structural Benchmarks in the First Year of the ECF Arrangement
ActionsDateMacroeconomic CriticalityStatus
Prior Actions:
Approval by the Cabinet of Ministers of a new value added tax (VAT) law consistent with National Board of Revenue (NBR) tax modernization plans and medium-term revenue targets.To increase tax revenueCompleted. Cabinet approved law in March 2012.
Issue a government circular to line ministries indicating that shortfalls in externally-funded ADP budget will not be substituted with taka funding.To achieve fiscal targetsCompleted. Circular issued in January 2012.
Adjust retail electricity and petroleum prices to contain budgetary transfers to the Bangladesh Petroleum Corporation (BPC) and the Bangladesh Power Development Board (BPDB) to Tk 150 billion in FY12.To reduce operating losses of BPC and BPDB and overall subsidy costs in the budgetCompleted. Programmed fiscal targets in FY12 are consistent with this cap.
Lift the remaining lending caps on commercial bank loans, except on agricultural loans and short-term pre-shipment credits for exports.To increase interest rate flexibility and deepen financial marketsCompleted. Caps lifted in January 2012.
Float a tender for an internationally-affiliated firm to conduct an external audit on Bangladesh Bank’s (BB) end-June 2012 accounts, with the audit opinion to be signed by both the audit firm’s international or regional head office and local affiliate.To strengthen central bank operationsCompleted. Tender floated in February 2012.
Structural Benchmarks:
Reduce the outstanding balances of foreign exchange overdrafts provided by BB to zero.June 2012To increase transparency and safeguard foreign reserves
Submit a new VAT law to the National Parliament consistent with tax modernization plans and medium-term revenue targets.June 2012To increase tax revenue
Remove tax concessions and exemptions in the FY13 Finance Bill equivalent to at least 0.5 percent of GDP in FY13.June 2012To increase tax revenue
Establish budget management wings/branches in all line ministries and issue a circular to ensure uniform budget implementation and reporting standards.June 2012To strengthen budget monitoring and controls
Issue new BB regulations on loan classification and loan-loss provisioning in line with international best practices, to take full effect by June 2014.June 2012To strengthen the financial sector
Approval by the Minister of Finance of a VAT implementation plan and timetable and a new organizational structure of the NBR.September 2012To increase tax revenue
Submit amendments to the Bank Companies Act (BCA) to the National Parliament, giving BB the sole legal supervisory and regulatory authority over all commercial banks and expanding fit and proper criteria for all commercial banks to major shareholders, board members, and executive officers.September 2012To strengthen risk management and improve bank governance
Issue a BB order, consistent with the amended BCA, establishing a limit on a commercial bank’s shareholdings in the stock market to 25 percent of its total regulatory capital.September 2012To strengthen banks’ financial position
Automate taxpayer identification number issuance, including links to the national identification number system.December 2012To increase tax revenue
Adopt an automatic adjustment mechanism for retail petroleum prices to ensure full pass-through of international prices.December 2012To eliminate operating losses of BPC and reduce overall subsidy costs in the budget
Approval by the Securities and Exchange Commission of a demutualization model and plan for the Dhaka and Chittagong stock exchanges.December 2012To strengthen the financial sector
ATTACHMENT 2. TECHNICAL MEMORANDUM OF UNDERSTANDING

1. This Technical Memorandum of Understanding (TMU) defines the variables subject to quantitative performance criteria and indicative targets under the Extended Credit Facility (ECF) arrangement, as specified in the Memorandum of Economic and Financial Policies (MEFP). It also describes the methods to be used to assess program performance and information requirements to ensure adequate monitoring of the targets.

2. Under the first year of the ECF arrangement, the program exchange rate is Bangladesh taka (Tk) 74.23 per U.S. dollar, or the average interbank rate prevailing on June 30, 2011. Foreign currency accounts denominated in currencies other than the U.S. dollar and monetary gold will first be valued in U.S. dollars as at the exchange rates and gold prices prevailing on June 30, 2011, and then be converted to Bangladesh taka.

3. The data listed in Table 1 will be provided for monitoring performance under the program based on data templates agreed with IMF staff. Under each section, reporting responsibilities are indicated. The best available data will be submitted, so that any subsequent data revisions will not lead to a breach of quantitative performance criteria or benchmarks. All revisions to data will be promptly reported to IMF staff.

Table 1.Bangladesh: Data Reporting Requirements
ItemReporting agencyPeriodicity
I. Monetary, exchange rate, and interest rateBangladesh Bank
data(BB)
Daily exchange rates (taka per U.S. dollar)—weighted-average, open market (buy and sell rates), interbank (high and low rates), and BAFEDA member rates.BBDaily, next working day
Daily foreign exchange interbank market trading spot, forward, and swap volumeBBDaily, next working day
Net open position of deposit money banksBBDaily, next working day
Stock of gross international reserves (GIR), Asian Currency Unit liabilities, Foreign Exchange Clearing Account balances, Foreign exchange overdraft balance (FXOD) and exchange rate valuation changes to GIR.BBDaily, next working day
Detailed data on the composition of GIR, including currency compositionBBDaily, next working day
Stock of GIR, net international reserves (NIR), NFA including subcomponents, both at program and market exchange rates.BBDaily, next working day
Stock of noninvestment grade bonds by name of issuer, investment rating, and currency compositionBBMonthly, within two weeks of the end of each month
Sales and purchases of foreign exchange by BBBBDaily, next working day
Daily bank and call money market ratesBBDaily, next working day
Daily BB repo and reverse repo rates and interbank repo and reverse repo rates (weighted average yields)BBDaily, next working day
Daily BB repo and reverse repo and interbank repo and reverse repo trading volumes (billions of taka)BBDaily, next working day
Daily volume of open market operations (sales and purchases) by BB (billions of taka)BBDaily, next working day
Stock of reserve money and its componentsBBDaily, next working day
Excesses/shortfalls of DMBs’ reservesBBDaily, next working day
Bangladesh Bank’s balance sheet and off-balance items by currency representationBBMonthly, within two weeks of the end of each month
Treasury bill and bond auction reports, including range of bids submitted by primary dealersBBWeekly, within one week of the end of each week
Weekly retirement of government securities and outstanding balances of Treasury bills and bondsBBWeekly, within one week of the end of each week
Balance sheet of BB (form 10 G)BBMonthly, within six weeks of the end of each month
Balance sheet (aggregate) of commercial banks (form 20 G)BBMonthly, within six weeks of the end of each month
Monetary survey (form 30 G)BBMonthly, within six weeks of the end of each month
Foreign assets and liabilities of BBBBMonthly, within six weeks of the end of each month
Foreign exchange cash flow of BBBB (Foreign Reserve and Treasury Management Department)Monthly, within five working days of the end of each month
II. Fiscal dataMinistry of Finance(MOF)
Fiscal outturn, including financing of the overall fiscal balanceMOF (Finance Division (FD))/

Controller General of Accounts (CGA)
Monthly, within six weeks of the end of each month
Revenue, by type of tax and nontax revenues (with main subheadings)MOF (FD)/CGAMonthly, within six weeks of the end of each month
Privatization receiptsMOF (FD)/CGAMonthly, within six weeks of the end of each month
National Bureau of Revenue collections (by type of tax and subheadings)NBRMonthly, within six weeks of the end of each month
Recurrent expenditure, including spending on pay and allowances, goods and services, interest payments (domestic and foreign), subsidies, transfers, and block allocations (with main subheadings)MOF (FD)/CGAMonthly, within six weeks of the end of each month
Breakdown of subsidies by main categories (agriculture, fertilizer, food, exports, and others)MOF (FD)/CGAMonthly, within six weeks of the end of each month
Social spending (see Table 4)MOF (FD)/CGAQuarterly, within six weeks of the end of each quarter
Food account surplus/deficitMOF (FD)/CGAMonthly, within six weeks of the end of each month (quarterly for detailed data)
Annual Development Program (ADP) expenditure funded by (i) the central government and (ii) foreign grants and loans, included in the budget, including separately for Padma Bridge (domestically and externally funded)MOF (FD)/CGAMonthly, within six weeks of the end of each month (quarterly for detailed data)
Non- ADP capital spending (including main subheadings) and net lending (including by receipts and payments, including a breakdown by state-owned enterprises (SOEs))MOF (FD)/CGAMonthly, within six weeks of the end of each month
Extraordinary expenditures (by type)MOF (FD)/CGAMonthly, within six weeks of the end of each month
Foreign financing, comprising (i) disbursements and amortization of program and project loans; and (ii) changes in external debt arrears, classified into principal and interest arrearsMOF (FD)/CGAMonthly, within six weeks of the end of each month
Disbursements of program and project grantsMOF (FD)/CGAMonthly, within six weeks of the end of each month
Foreign financing, comprising (i) disbursements and amortization of program and project loans; and (ii) changes in external debt arrears, classified into principal and interest arrearsMOF (Economic Relations Division (ERD))Monthly, within four weeks of the end of each month
Disbursements of program and project grants by donorMOF (ERD)Monthly, within four weeks of the end of each month
Domestic financing, comprising (i) borrowing from and repayment to BB, DMBs, and nonbanks; (ii) changes in deposits held in BB, DMBs, and other deposit-taking institutions (see Table 2)MOF(FD)/CGA/BBMonthly, within six weeks of the end of each month
Balancing items reported by the CGAMOF (FD)/CGAMonthly, within six weeks of the end of each month
III. State-owned enterprise dataMOF
See Table 3 on key financial indicators for Bangladesh Power Development Board (BPDB), Bangladesh Petroleum Corporation (BPC), and Bangladesh Chemical Industries Corporation (BCIC).MOF (FD/SOE Monitoring Unit)/BPCQuarterly, within six weeks of the end of each quarter
IV. Debt dataMOF/BB/National Savings Directorate (NSD)
New external debt obligations contracted and/or guaranteed (concessional and nonconcessional) by the government of Bangladesh, BB, nonfinancial public enterprises, departments and autonomous and semi-autonomous bodies of all ministries and divisions (i.e., the public sector), including details on the amounts, terms, and conditions of each new obligationMOF (ERD)/BBMonthly, within six weeks of the end of each month
Stock of outstanding external debt (short-term and medium-and long-term obligations) of the public sector, by creditor (in original currency and U.S. dollars)MOF (ERD)/BBQuarterly, within eight weeks of the end of the quarter
Stock of arrears on external debt contracted or guaranteed by the public sector by creditor (in original currency and U.S. dollars)MOF (ERD)/BBMonthly, within six weeks of the end of each month
Stock of domestic debt, including the outstanding balance of Treasury bills, Treasury bonds, as well as breakdown of instruments of the National Savings Directorate (i.e., National Savings Certificates)MOF (FD)/BB/NSDMonthly, within six weeks of the end of each month
Projections of daily individual oil-related payments by commercial banks.BBMonthly, two weeks in advance of the beginning of each month
V. Financial dataBB
Financial soundness indicators of DMBsBB (Department of Off-Site Supervision (DOS))Quarterly, within eight weeks of the end of the quarter
Compliance of state-owned commercial banks (SOCBs) with memoranda of understandingBB (DOS)Quarterly, within six weeks of the end of the quarter
Total capital market exposure and total share holding (in percent of total liabilities) of DMBs, and their exposures via subsidiariesBB (DOS)Monthly, within six weeks of the end of each month
Risk-weighted capital asset ratios and asset quality indicators of DMBsBB (DOS)Monthly, within six weeks of the end of each month
Stock of loans extended to SOEs (BPC, BPDB, BCIC) by SOCBs (Sonali, Agrani, Janata, Rupali) and BASIC bank, both funded and unfunded loansBB (DOS)Monthly, within four weeks of the end of each month
VI. External dataBB/Other agencies
Detailed balance of paymentsBBMonthly, within six weeks of the end of each month
Export data by goodsExport Promotion BureauMonthly, within four weeks of the end of each month
Import letters of credit (settlement, opening, and outstanding)BBMonthly, within four weeks of the end of each month
Remittances and manpower exportsBB/Bureau Manpower, Employment, and TrainingMonthly, within two weeks of the end of each month
VII. Other dataBangladesh Bureau of Statistics (BBS)
National accounts, by expenditure and by production, in nominal and real termsBBSAnnual, within three months of the end of each year
Overall consumer price indexBBSMonthly, within six weeks of the end of each month
Industrial production statisticsBBSMonthly, within eight weeks of the end of each month

I. Quantitative Performance Criteria and Indicative Targets

4. Under the first year of the ECF arrangement, quantitative performance criteria will be set for end-June 2012 and end-December 2012, while indicative targets will be set for end-March 2012 and end-September 2012.

5. Performance criteria under the ECF arrangement have been established with respect to a:

  • Floor on the level of net international reserves of Bangladesh Bank (BB), calculated as an end-of-period stock;
  • Ceiling on the level of net domestic assets of BB, calculated as an end-of-period stock; and
  • Ceiling on the change in net credit to the central government from the banking system, calculated as a cumulative flow from the beginning of the fiscal year (FY) (i.e., FY12 is July 1, 2011-June 30, 2012).

6. Performance criteria applicable on a continuous basis have been established with respect to a:

  • Ceiling on new medium- and long-term nonconcessional external debt (maturing in more than one year) contracted by the public sector and/or guaranteed by the central government or BB, calculated in cumulative terms from December 31, 2011;
  • Ceiling on new short-term nonconcessional external debt (maturing in one year or less) contracted by the public sector and/or guaranteed by the central government or BB, calculated in cumulative terms from December 31, 2011; and
  • Ceiling on the accumulation of new external payment arrears by the public sector, calculated in cumulative terms from December 31, 2011.

7. Indicative targets have been established with respect to a:

  • Ceiling on the level of reserve money, calculated as an end-of-period stock;
  • Ceiling on the net change in suppliers’ credit and other short-term financing for oil imports, calculated in cumulative terms from June 30, 2011;
  • Ceiling on the net change in funded loans made by state-owned banks to Bangladesh Petroleum Corporation (BPC), Bangladesh Power Development Board (BPDB) and Bangladesh Chemical Industries Corporation (BCIC), calculated in cumulatively from the beginning of the fiscal year;
  • Floor on tax revenue of central government, calculated cumulatively from the beginning of the fiscal year; and
  • Floor on social-related spending by central government, calculated cumulatively from the beginning of the fiscal year.

8. Adjustors to the measurement of performance criteria are (i) budget support to the central government from bilateral and multilateral agencies, calculated cumulatively from the beginning of the fiscal year; (ii) net lending by the government to the BPC and BPDB calculated cumulatively from the beginning of the fiscal year; and (iii) suppliers’ credit and other short-term financing for oil imports.

II. Institutional Definitions

9. The central government is defined as all budgetary units of the government of Bangladesh. It captures balances in the Treasury accounts and for special projects outside the Treasury accounts (as will be measured by government lending funds reported in the monetary accounts).

10. The public sector is defined as the central government, BB, nonfinancial public enterprises, departments, and autonomous and semi-autonomous bodies of all ministries and divisions.

11. Deposit money banks (DMBs) include commercial banks (state-owned, Islamic, private, and foreign-owned) and specialized banks, on which BB compiles data for the monthly monetary survey.

12. Nonbank claims on the central government represent the sum of cash receipts from sales of National Savings Certificates and Treasury bill and bond holdings outside BB and the DMBs, as reported by National Savings Directorate and BB’s Debt Management Department.

III. Monetary Aggregates

A. Reserve Money

13. A ceiling applies on the level of reserve money, which comprises currency issued by BB (excluding BB holdings of currency) plus deposits of DMBs held at BB. Reserve money excludes DMBs’ foreign currency clearing accounts at BB and nonbank deposits at BB.

B. Net International Reserves of Bangladesh Bank

14. A floor applies to the level of net international reserves (NIR) of BB. The floor on NIR of BB will be adjusted upward (downward) by the amount of budget support from bilateral and multilateral agencies in excess (short) of the programmed level. The floor on NIR of BB will be adjusted upward by the amount of suppliers’ credit and other short-term financing for oil imports in excess of the programmed level.

15. For program monitoring purposes, NIR of BB is defined as gross international reserves (GIR) less international reserve liabilities. For program monitoring purposes, the stock of foreign assets and foreign liabilities of BB shall be valued at the program exchange rate in U.S. dollars, as described in paragraph 2.

16. Gross international reserves of BB are defined as the sum of:

  • Foreign currency assets in convertible currencies held abroad and as vault cash that are under the direct and effective control of BB, readily available for intervention in the foreign exchange market or the direct financing of balance of payments imbalances, and of investment grade (i.e., a rating of at least Baa (Moody’s) or BBB- (Standard & Poors and Fitch)) or held with an investment-grade institution;
  • The reserve position of Bangladesh in the IMF;
  • Holding of SDRs; and
  • Monetary gold.

Excluded from the definition of GIR are:

  • Foreign currency assets that are in any way encumbered or pledged, including, but not limited to, reserve assets used as collateral or guarantee for third-party external liabilities, BB’s blocked account with the Central Bank of Iraq, and BB’s deposits with Rupali Bank (Pakistan);
  • Foreign currency assets in nonconvertible currencies and precious metals other than gold, including BB’s Silver Acquisition Account;
  • Non-investment grade foreign currency sovereign bonds;
  • Foreign currency claims on entities incorporated in Bangladesh, including funds lent out through the Foreign Exchange Overdraft Facility (FXOD) and funds invested in offshore banking units (OBUs) of domestic banks and subsidiaries or branches of international banks in Bangladesh;
  • Any other foreign currency claims on residents; and
  • Capital subscriptions in international institutions.

17. International reserve liabilities of BB are defined as the sum of:

  • All outstanding liabilities of Bangladesh to the IMF; and
  • Foreign currency liabilities in convertible currencies to nonresidents, including liabilities to the Asian Clearing Union, the Foreign Currency Clearing Account (i.e., the total amount of DMBs’ foreign currency deposits held at BB), and forward contracts, foreign currency swaps, and other futures market contracts.

C. Net Domestic Assets of Bangladesh Bank

18. A ceiling applies to the level of net domestic assets (NDA) of BB. The ceiling on NDA of BB will be adjusted downward (upward) by the amount of budget support from bilateral and multilateral agencies in excess (short) of the programmed level. The ceiling on NDA of BB will be adjusted downward by the amount of suppliers’ credit and other short-term financing for oil imports in excess of the programmed level.

19. For program monitoring purposes, NDA of BB is defined as the difference between reserve money and the sum of NIR of BB and other net foreign assets (NFA) of BB valued in taka using the program exchange rates specified in paragraph 2. Any revisions to the historical stock of reserve money based on changes to the accounting treatment of the profit/loss account of BB will be notified to the IMF immediately and used to adjust monetary aggregates by an equivalent amount, as deemed appropriate. Other NFA of BB includes:

  • Foreign assets related to holdings of foreign currency deposits and securities not included in NIR of BB, and loans, shares, financial derivatives, or other accounts receivable with nonresidents (including BB’s blocked account with the Central Bank of Iraq and deposits with Rupali Bank (Pakistan); holdings of noninvestment grade foreign currency bonds; and other foreign assets that are not included in NIR of BB, as defined in Section III. B (including the Silver Acquisition Account); and
  • Foreign liabilities related to foreign currency deposits and securities of nonresidents, and loans, shares, financial derivatives, and other accounts payable with nonresidents; and other foreign liabilities that are not included in NIR of BB, as defined in Section III. B.

Other NFA does not include funds invested in OBUs of resident domestic banks and subsidiaries or branches of resident foreign banks in Bangladesh. These funds are included as a part of NDA of BB.

D. Net Credit to the Central Government by the Banking System

20. A ceiling applies on the change in net credit to the central government (NCCG) by the banking system measured cumulatively from the beginning of the fiscal year. The ceiling on NCCG by the banking system will be adjusted upward (downward) by the amount of budget support from bilateral and multilateral agencies short of (in excess of) the programmed level. The ceiling on NCCG by the banking system will be adjusted downward by the amount of suppliers’ credit and other short-term financing for oil imports in excess of the programmed level and by the amount of net lending by the central government to the BPC and the BPDB short of the programmed level. The ceiling on NCCG by the banking system excludes special bonds issued by the central government to the state-owned commercial banks (SOCBs) for the securitization of loans made by these banks to the BPC prior to FY12 to cover shortfalls in government budgetary transfers for fuel subsidy-related costs incurred by the BPC.

21. For program monitoring purposes, NCCG by the banking system is defined as the sum of net claims of BB and DMBs on the central government (see Table 2).

Table 2.Bangladesh: Components of Domestic Bank Financing of the Central Government
Item (in Tk millions)Reporting agencyPeriodicity
Bank financingBangladesh BankAll quarterly
Bangladesh Bank
Change in claims on government
of which: Change in ways and
means balance
Change in overdraft
Change in overdraft block
Change in holdings of Treasury bills and bonds
Change in government currency liabilities
Change in credit to autonomous and semi-autonomous bodies
Change in accrued interest
Change in government deposits and lending funds
Change in government deposits
Change in government lending funds
Commercial banks
Change in claims on government
Of which: Change in holdings of Treasury bills and bonds
Change in advances and bills to ministries (of food and others)
Change in credit to autonomous and semi-autonomous bodies
Change in accrued interest
Change in government deposits and lending funds
Change in government deposits
Change in government lending funds

E. Funded Loans by State-Owned Banks to State-Owned Enterprises

22. A ceiling applies on the net change in funded loans by selected banks to state-owned enterprises. Funded loans are defined as cash lending by Sonali Bank, Janata Bank, Agrani Bank, Rupali Bank, and BASIC Bank to BPC, BPDB and BCIC (see Table 3).

Table 3.Bangladesh: Template for Key Financial Indicators of Bangladesh Petroleum Corporation (BPC), Bangladesh Power Development Board (BPDB), and Bangladesh Chemical Industries Corporation (BCIC)
Name of company (BPC, BPDB, or BCIC)Periodicity
Item (in Tk millions of taka)All quarterly
Tax payments, due to the National Bureau of Revenue (NBR)
Tax payments, paid to the NBR
Debt service payments, due to the government
Debt service payments, paid to the government
Quarterly profit (loss) reported by company
Transfers received from the budget
New interest-bearing loans received from the budget
Outstanding stock of funded loans from state-owned commercial banks (SOCBs)
Additional items (for BPC only)All monthly
Financing requirements: (in Tk millions, unless otherwise indicated)
Oil import costs
Costs of operating BPC
Repayments of SOCB loans
Repayments to Islamic Development Bank (IsDB) (in US$ millions)
Repayment of deferred payments (other suppliers’ credit) (in US$ millions)
Repayment of syndicated loans
Increase in assets (inventories, cash, etc.)
Other
Sources of financing: (in millions of taka, unless otherwise indicated)
Sales revenue
Other income
Gross disbursements of loans from SOCBs
Gross disbursements from IsDB (in US$ millions)
Gross disbursements of deferred payments (other suppliers’ credit) (in US$ millions)
Gross disbursement of syndicated loans
Net lending from the government
Increase in payables
Other items:
Exchange rate imputed for estimated outturns (taka per U.S. dollar)
Demand volumes of petroleum products (kerosene (SKO), diesel (HSD), furnace oil (FO), petrol (MS), octane (HOBC), and jet fuel (JET-A-1))

IV. Fiscal Aggregates

A. Tax Revenue

23. A floor applies on tax revenue of central government measured cumulatively from the beginning of the fiscal year.

24. For program monitoring purposes, tax revenue is defined as collections by the National Bureau of Revenue that have been transferred to the Controller General of Accounts.

B. Social-Related Spending

25. A floor applies on social-related spending by central government cumulatively from the beginning of the fiscal year.

26. For program monitoring purposes, social spending comprises all spending categories of the Ministry of Primary and Mass Education; Ministry of Education; Ministry of Health, Family, and Welfare; and all expenditures on social safety net programs in the budget economic codes listed in Table 34. Safety net programs hosted in one of these ministries already included in this definition will be deducted from the total to avoid double counting.

V. External Debt

A. Medium- and Long-Term External Debt

27. A continuous ceiling applies to new nonconcessional external debt with nonresidents with original maturities of more than one year contracted by the public sector and/or guaranteed by the central government or BB. The ceiling applies to debt and commitments contracted or guaranteed for which value has not yet been received. This applies to private debt for which official guarantees have been extended and which, therefore, constitutes a contingent liability of the central government or BB.

28. For program monitoring purposes, the definition of debt is set out in Point 9 of the Guidelines on Performance Criteria with Respect to External Debt in Fund Arrangement Executive Board Decision No. 6230-(79/140), as subsequently amended, including by Executive Board Decision No. 14416-(09-91), effective December 1, 2009 (see Annex I). External debt is defined by the residency of the creditor, excluding any taka-denominated Treasury bonds and any U.S. dollar-denominated bonds issued by the central government’s Directorate of National Savings that are held by nonresidents (see TMU paragraph 29).

29. Excluded from the ceiling are (i) the use of IMF resources; (ii) concessional debts; (iii) debts incurred to restructure, refinance, or prepay existing debts, to the extent that such debt is incurred on more favorable terms than the existing debt and up to the amount of the actually restructured/refinanced/prepaid debt; (iv) any taka-denominated Treasury bonds held by nonresidents; and (v) any U.S. dollar-denominated bonds issued by the central government’s Directorate of National Savings that are held by nonresidents.

30. For program purposes, the guarantee of a debt arises on any explicit legal obligation of the central government or BB to service debt in the event of nonpayment by the main obligor (involving payments in cash or in kind).

31. For program purposes, a debt is concessional if it includes a grant element of at least 35 percent, calculated as follows: the grant element of a debt is the difference between the net present value (NPV) of debt and its nominal value, expressed as a percentage of the nominal value of the debt. The NPV of debt at the time of its contracting is calculated by discounting the future stream of payments of debt service due on this debt. The discount rates used for this purpose are the currency specific commercial interest reference rates (CIRRs), published by the Organization for Economic Cooperation Development (OECD). For debt with a maturity of at least 15 years, the ten-year-average CIRR will be used to calculate the NPV of debt and, hence, its grant element. For debt with a maturity of less than 15 years, the six-month average CIRR will be used. To both the ten-year and six-month averages, the same margins for differing repayment periods as those used by the OECD would continue to be added (0.75 percent for repayment periods of less than 15 years, 1 percent for 15 to 19 years, 1.15 percent for 20 to 29 years, and 1.25 percent for 30 years or more).

B. Short-Term External Debt

32. A continuous ceiling applies to new nonconcessional debt with nonresidents with original maturities of up to and including one year contracted by the public sector and/or guaranteed by the central government or BB. The ceiling applies to debt and commitments contracted or guaranteed for which value has not yet been received. This applies to private debt for which official guarantees have been extended and which, therefore, constitute a contingent liability of the central government or BB.

33. For program monitoring purposes, the definition of debt is set out in Point 9 of the Guidelines on Performance Criteria with Respect to External Debt in Fund Arrangement approved by the Executive Board Decision No. 6230-(79/140), as subsequently amended, including by Executive Board Decision No. 14416-(09-91), effective December 1, 2009 (see Annex I). External debt is defined by the residency of the creditor, excluding any taka-denominated Treasury bills or BB bills held by nonresidents (see TMU paragraph 34).

34. Excluded from the ceiling are (i) debts classified as international reserve liabilities of BB; (ii) debts incurred to restructure, refinance, or prepay existing debts, to the extent that such debt is incurred on more favorable terms than the existing debt and up to the amount of the actually restructured/refinanced/prepaid debt; (iii) taka-denominated Treasury bills and BB bills held by nonresidents; (iv) concessional debts; (v) normal import financing; (vi) suppliers’ credit and other short-term financing for oil imports from the Islamic Development Bank (IsDB) and other official entities; and (vii) forward contracts, foreign currency swaps, other futures market contracts, and short-term liabilities of the banking system. A financing arrangement for imports is considered to be “normal” when the credit is self-liquidating.

C. Suppliers’ Credit and Other Short-Term Financing for Oil Imports

35. A ceiling applies on the net change in suppliers’ credit and other short-term financing for oil imports.

36. For program monitoring purposes, suppliers’ credit is defined in Annex I. Other short-term financing for oil imports comprises financing received for this purpose from the IsDB and other official entities and through syndicated loans, which is contracted by the public sector and/or guaranteed by the central government or BB.

VI. External Payment Arrears

37. A continuous ceiling applies on the accumulation of new external payments arrears by the public sector.

38. For program monitoring purposes, external payments arrears comprise external debt and debt-service obligations (principal and interest) that have not been paid at the time they are due, as specified in the contractual agreements. However, for program purposes, overdue debt and debt-service obligations that are in dispute will not be considered as external payment arrears.

Table 4.Bangladesh: Safety Net Programs
ProgramsName of MinistryCode
(A.1) Cash Transfer (Allowances) Programs & Other Activities:
(A.1.1) Social Protection
1Old Age AllowanceMinistry of Social Welfare3960
2Allowances for the Widow, Deserted and Destitute WomenMinistry of Social Welfare3965
3Allowances for the Financially Insolvent DisabledMinistry of Social Welfare3970
4Maternity Allowance Program for the Poor Lactating MothersMinistry of Social Welfare4715
5Honorarium for Insolvent Freedom FightersMinistry of Social Welfare3587
6Honorarium & Medical Allowances for Injured Freedom FightersMinistry of Social Welfare3585
7Grants for Residents in Government Orphanages and Other InstitutionsMinistry of Social Welfare0000
8Capitation Grants for Orphan Students in Non-government OrphanagesMinistry of Social Welfare3451
9General Relief ActivitiesDisaster Management & Relief Division0001
10Block Allocation for Disaster ManagementDisaster Management & Relief Division0003
11Non-Bengali RehabilitationMinistry of Social Welfare0015
12Allowances for Distressed Cultural Personalities/ ActivistsMinistry of Cultural Affairs0001
13Pension for Retired Government Employees and their FamiliesAll Ministries
14Ration for Shaheed Family and Injured Freedom FightersMinistry of Liberation War Affairs0001
(A.1.2) Social Empowerment
1Stipend for Disabled StudentsMinistry of Social Welfare4711
2Grants for the Schools for the DisabledMinistry of Social Welfare0001
(A.2) Cash Transfer (Special) Program
(A.2.1) Social Empowerment
1Housing SupportDisaster Management & Relief Division0001
2Agriculture RehabilitationMinistry of Agriculture0012
(B) Food Security Programs: Social Protection
1Open Market Sales (OMS)
2Vulnerable Group Development (VGD)Ministry of Women & Children Affairs0005
3Vulnerable Group Feeding (VGF)Ministry of Women & Children Affairs0007
4Test Relief (TR) FoodFood Division0001
5Gratuitous Relief (GR)- FoodFood Division0001
6Food Assistance in CTG-Hill Tracts AreaMinistry of Chittagong Hill Tracts0003
7Food For Work (FFW)Disaster Management & Relief Division5010
(C.1) Micro-Credit Programs: Social Empowerment
1Micro-credit for Women Self-employmentMinistry of Women & Children Affairs3092
2Fund for Micro-Credit through PKSFFinance Division3912
3Social Development FoundationFinance Division3946
4NGO FoundationFinance Division2829
(C.2) Miscellaneous Funds: Social Empowerment
1Fund for the Welfare of Acid Burnt and DisabledMinistry of Social Welfare3967
2Fund for Assistance to the Small Farmer and Poultry FarmsFinance Division3996
3Swanirvar Training ProgramFinance Division3961
4Shamaj Kallyan ParishadMinistry of Social Welfare3091
(C.3) Miscellaneous Funds: Social Protection
1Fund for Climate ChangeMinistry of Environment & Forest0002
2Allowances for Urban Low-income Lactating MothersFinance Division4005
3Block Allocation for Various ProgramFinance Division0000
4Employment Generation Program for the Ultra PoorDisaster Management & Relief Division0006
5National ServiceMinistry of Youth and Sports4729
6Special Program for Irrigation and Water LoggingMinistry of Agriculture4837
7Skill Development Fund for Expatriate Returnees and New Entrants to Labor marketMinistry of Expatriates Welfare & Overseas Employment0010
8Child Development CenterMinistry of Social Welfare3489
9Service and Assistance Center for DisabledMinistry of Social Welfare3490
10Ghare Fera Program (Returning Home)Banking Division0014
(C.4) New Fund: Social Protection
1Rehabilitation and Creation of Alternative Employment for People Engaged in Begging ProfessionMinistry of Social Welfare3495
(D) Development Sector Programs: Social Empowerment
(D.1) Running Development Programs
1Stipend for Primary StudentsMinistry of Primary & Mass Education6020
2School Feeding ProgramMinistry of Primary & Mass Education5150
3Stipend for Dropout StudentsMinistry of Primary & Mass Education5960
4Char LivelihoodRural Development & Cooperatives Division6980
5“Ashrayan” (Housing)Prime Minister’s Office6520
6Stipend and Access Increase for Secondary and Higher Secondary Level Students (including Secondary Education Stipend Project)Ministry of Education5620
7Maternal Health Voucher SchemeMinistry of Health & Family Welfare8540
8National Nutrition ProgramMinistry of Health & Family Welfare8320
9Protection of Children at RiskMinistry of Social Welfare7011
10Economic Empowerment of the PoorRural Development & Cooperatives Division8162
11Fundamental Education for Urban Working ChildrenMinistry of Primary & Mass Education5964
12Employment for Ultra-Poor in Northern RegionRural Development & Cooperatives Division7000
13Participatory Rural Development (2nd Phase)Rural Development & Cooperative Division8090
14Rural Employment Opportunity for Public AssetLocal Government Division6030
15“Gucchagram” (Climate victims rehabilitation project)Ministry of Land5010
16Rural Employment and Rural Maintenance ProgramLocal Government Division8112
17Preliminary Education for Development of ChildrenMinistry of Women & Children Affairs5011
18Vulnerable Group Development for Ultra Poor (Women)Ministry of Women & Children Affairs5100
19Reconstruction of Houses of SIDR affected landless peopleFood Division5160
20Construction of Flood-Shelter in Flood Prone and River-Erosion AreasFood Division5381
21Disaster Risk Mitigation and ReductionDisaster Management & Relief Division5010
22Small Farmers Development FoundationRural Development & Cooperatives Division7250
23Regional Fisheries and Livestock DevelopmentMinistry of Fishery & Animal Division5300
24Projects Undertaken for Fisheries DevelopmentMinistry of Fishery & Animal Division7050
25Jatka (Fish)Protection and Alternative Employment for FishermenMinistry of Fishery & Animal Division5390
26Micro-Nutrient SupplementationMinistry of Health & Family Welfare8340
27Post Literacy Education Project for Human Resource DevelopmentMinistry of Primary & Mass Education5960
28One Household One FarmRural Development & Cooperatives Division7310
29Revitalization of Community Health Care Initiative in BangladeshMinistry of Health & Family Welfare5450
30Sisimpur Outreach ProjectMinistry of Women & Children Affairs7021
31National Sanitation ProjectLocal Government Division5140
32Pulse and Oil Seed ProjectMinistry of Agriculture7450
33Community Based Adaptation to Climate Change through Coastal Aforestation in BangladeshMinistry of Environment & Forest5360
34Comprehensive Village DevelopmentRural Development & Cooperatives Division8167
35Comprehensive Disaster Management ProgramDisaster Management & Relief Division5041
36Urban Public Environment Health Development ProgramLocal Government Division7479
(D.2) New Development Programs
1Poverty Eradication and Ensuring Livelihood for the People Living in Economically Backward Areas.Ministry of Fishery & Animal Division6463
2Poverty Eradication through Social Aforestation.Ministry of Environment & Forest7396
3Improvement and Quality Seed Production of Rice, Wheat and Maize.Ministry of Agriculture8881
Annex I. Guidelines on Performance Criteria with Respect to External Debt

Excerpt from Executive Board Decision No. 6230-(79/140), subsequently amended, including by Executive Board Decision No. 14416-(09-91), effective December 1, 2009.

  • 9. (a) For the purpose of this guideline, the term “debt” will be understood to mean a current, i.e., not contingent, liability, created under a contractual arrangement through the provision of value in the form of assets (including currency) or services, and which requires the obligor to make one or more payments in the form of assets (including currency) or services, at some future point(s) in time; these payments will discharge the principal and/or interest liabilities incurred under the contract. Debts can take a number of forms, the primary ones being as follows:
    • (i) loans, i.e., advances of money to the obligor by the lender made on the basis of an undertaking that the obligor will repay the funds in the future (including deposits, bonds, debentures, commercial loans and buyers’ credits) and temporary exchanges of assets that are equivalent to fully collateralized loans under which the obligor is required to repay the funds, and usually pay interest, by repurchasing the collateral from the buyer in the future (such as repurchase agreements and official swap arrangements);
    • (ii) suppliers’ credits, i.e., contracts where the supplier permits the obligor to defer payments until some time after the date on which the goods are delivered or services are provided; and
    • (iii) leases, i.e., arrangements under which property is provided which the lessee has the right to use for one or more specified period(s) of time that are usually shorter than the total expected service life of the property, while the lessor retains the title to the property. For the purpose of the guideline, the debt is the present value (at the inception of the lease) of all lease payments expected to be made during the period of the agreement excluding those payments that cover the operation, repair or maintenance of the property.
  • (b) Under the definition of debt set out in point 9 (a) above, arrears, penalties, and judicially awarded damages arising from the failure to make payment under a contractual obligation that constitutes debt are debt. Failure to make payment on an obligation that is not considered debt under this definition (e.g., payment on delivery) will not give rise to debt.
1Bangladesh Bank has three windows for conducting repo operations: regular repo, emergency repo (regular repo plus the penalty rate), and the Liquidity Support Facility (LSF). The first two operations are done on a discretionary basis, while LSF operations are done on a nondiscretionary basis (i.e., they are reserved for primary dealers in Treasury securities, following a formula based on IMF technical assistance recommendations). From December 1, 2011 to date, no regular repo bids have been accepted by BB.
2Over the past year, the authorities have undertaken a series of administered energy price hikes aimed at capping subsidy costs. On fuel, prices were increased in May, August, and November 2011 and in January 2012 by a cumulative 39 percent for diesel and kerosene and 50 percent for fuel oil. For electricity, weighted average bulk and retail tariffs were increased in November 2011 and February 2012 by a total of 34 percent and 20 percent, respectively. As of mid-March 2012, retail diesel prices would need to rise by around 45 percent to achieve the break-even level.
3As noted in Box 1, the consolidated fiscal deficit is projected to be around 5.7 percent of GDP in FY12; it is inclusive of the off-budget losses of the large SOEs (1.2 percent of GDP in FY12).
4The low rate of aid utilization in Bangladesh arises mainly from lengthy project approvals and preparations, irregular procurement processes, and weak implementation capacity in line ministries.
5Lending rate caps remain on agricultural loans and short-term pre-shipment credits for exports.
6The latest safeguards assessment found that BB’s governance structure and legal underpinning need to be updated to strengthen autonomy and better safeguard resources. It also identified significant vulnerabilities in the external and internal audit mechanisms, along with inadequate oversight by the BB’s board and audit committee.
1Prepared by Stella Kaendera (FAD), Eteri Kvintradze (APD), and Iffath Sharif (World Bank).
2Bangladesh Bureau of Statistics, Household Income and Expenditure Survey (2010).
3See Sharif (2009), Building a Targeting System for Bangladesh Based on Proxy Means Testing, World Bank Social Protection Discussion Paper Series No. 0914.

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