IMF warns Bangladesh to watch out for inflation

Containing inflation and removing bottlenecks to growth should be priorities for Bangladesh's economy, the IMF said on Tuesday.                                           

In its annual review of Bangladesh's economy, the International Monetary Fund said inflation could rise into the double digits as food prices rise.                                           

It said "higher market interest rates would be a small price to pay to prevent a harmful acceleration of inflation."                                           

The Fund forecast the pace of annual growth would edge up to around 6% although would remain subdued in the near term due to weak imports, sluggish private-sector credit and fewer job opportunities for Bangladeshis working abroad. Therefore, it was important to unleash the economy's potential through higher revenue and more capital spending, it added.                                           

"Bangladesh seems stuck in a low revenue-low capital spending equilibrium and infrastructure bottlenecks are holding back growth," the IMF said, also urging the authorities to push through reforms for Value-Added Tax (VAT) and remove ceilings on lending rates.                                           

The IMF called for greater flexibility in the exchange rate to support monetary policy goals.                                           

"The authorities should move towards greater flexibility in the exchange rate to lessen the constraints on macroeconomic policies," the IMF said.                                           

It added: "The export sector should be able to sustain such a move, since they believed that the taka is somewhat undervalued, though not far out of line with fundamentals."