IMF support to enable the government to replenish its reserves
The Fund announces the launch of the Regional Economic Outlook
ISLAM SYFUL |
Oct 29, 2022 8:16:24 a.m.
October 29, 2022 12:51:37
The International Monetary Fund (IMF) says its support program for Bangladesh will help the country rebuild its foreign exchange reserves and strengthen its ability to weather the feared economic downturn.
At the Friday launch in Singapore of its “Regional Economic Outlook Report for Asia and the Pacific”, IMF officials said war in Ukraine and high commodity prices have dampened Bangladesh’s strong recovery from the pandemic.
The Government of Bangladesh has “preemptively requested an IMF-supported program that will strengthen the external position and access to the IMF’s new Resilience and Sustainability Trust Fund to meet its large need for climate finance, which will strengthen its ability to withstand future shocks,” the Fund said.
His observations on the strengths and weaknesses of the country’s economy – growth prospects and external headwinds – came, incidentally, as an IMF team is currently in Dhaka to assess Bangladesh’s creditworthiness in view. of a major loan requested for budget support.
In response to a question, the Deputy Director of the IMF’s Asia and Pacific Department, Anne-Marie Gulde-Wolf, said that Bangladesh had requested a support program from the IMF which consists of two components: a regular upper credit tranche arrangement (UCT) and a Resilient Agreement and Trust Program for Sustainability (RST).
She notes that Bangladesh continues to grow strongly this year and that the IMF expects growth of 7.2%, but there are global headwinds that are quite significant.
“Bangladesh is an export-dependent economy, and with headwinds in its major markets, our growth forecast for next year is 6.0%,” she said.
Ms. Gulde-Wolf says the taka has depreciated by about 20% as reserves have dwindled. “They are still at a comfortable level, but the direction has been down.”
Meanwhile, the IMF delegation has started talks with officials in Dhaka to discuss the terms of the proposed budget support loans, of which Bangladesh expects $4.5 billion to replenish its foreign exchange reserves.
The IMF’s 10-member team, led by the agency’s Bangladesh mission chief Rahul Anand, held several meetings on Wednesday with Finance Secretary Fatima Yasmin and her team at her office in the Bangladesh secretariat. The two sides discussed the overall economic health of the country as well as reform measures to help the economy weather the ongoing crises.
On Thursday, they had a number of meetings with Bangladesh Bank officials where they discussed fiscal and monetary policies, dollar prices and the method of calculating foreign exchange reserves, among others.
At the outlook report launch event, the IMF further said that growth in the Asia-Pacific region is expected to slow in 2022 and 2023, reflecting headwinds from global financial tightening, the war in Ukraine and the economic slowdown. brutal and unusual in the Chinese economy. .
“These difficult times pose tough trade-offs for policymakers,” the IMF notes in its report.
“Asia’s strong economic rebound earlier this year is losing momentum, with a weaker-than-expected second quarter…Despite this, Asia remains a relative bright spot in an increasingly bleak global economy. “said Krishna Srinivasan, director of the IMF’s Asia and Asia Department. Department of the Pacific.
He notes that the IMF has lowered its growth forecast for Asia and the Pacific to 4.0% this year and 4.3% next year, a drop of 0.9 and 0.8 percentage points. , respectively, relative to April’s World Economic Outlook, which is well below the 5.5% average of the past two decades.
Mr Srinivasan believes the region faces three formidable headwinds, which could prove persistent. The first, he says, is the global financial crunch, the second is the war in Ukraine, and the third is a sharp and unusual slowdown in China.
The Federal Reserve has become much more aggressive in tightening monetary policy as US inflation remains stubbornly high. This resulted in tighter financial conditions for Asia.
The main impact of the war in Ukraine on Asia was felt through commodity prices, which soared after the invasion and remained high. Most, but not all, Asian countries have experienced a deterioration in their terms of trade, and this has been a major driver of currency depreciations so far this year.
The IMF cut China’s growth for 2022 to 3.2%, its second lowest level since 1977, reflecting the impact of zero-COVID lockdowns on mobility and the housing sector crisis. This slowdown is believed to have significant spillovers to the rest of Asia through trade and financial ties.
Mr Srinivasan said that while inflation rose more modestly in Asia in 2021 than in other regions, the high volatility in global commodity markets after Russia’s invasion of Ukraine in February exerted a additional pressure on headline inflation in Asia in the first half of 2022.
“The increase was driven by higher food and fuel prices – particularly in emerging markets and developing economies in Asia – but also reflects higher underlying inflation as the region recovers. “, did he declare.
Against this backdrop, Mr. Srinivasan highlighted priorities such as further monetary policy tightening to ensure inflation returns to target, and fiscal consolidation to stabilize public debt and support the economy. direction of monetary policy.
He recalls that Asia is now the largest debtor in the world in addition to being the largest saver, and that several countries are at high risk of over-indebtedness. Public and private debt dynamics are already worse after the pandemic due to slower growth and higher debt levels.
“An integrated approach to address these challenges in a timely and well-calibrated manner is essential while being mindful of additional downside risks,” he said.
“While the exact policy responses will depend on country-specific circumstances, tackling corporate over-indebtedness and mitigating human capital losses will be important for a wide range of countries in the region.”