The International Monetary Fund (IMF) has come to help Bangladesh’s economy grow in the short to medium term, even as donor countries have begun to the belt on their fiscal and monetary policy. In consultation with the Finance Minster, the Prime Minister’s Economic Advisor, Bangladesh Bank and other major institutional stake-holders, the IMF has proposed a plan that, ideally, would help the economy of Bangladesh grow, and would moreover act as a mechanism of poverty alleviation.
In large part the economic reforms that the IMF has supported are also political reforms meant precisely to curb corruption and to raise government tax revenue. The IMF aid is meant to help Bangladesh bear the burden of costly institutional reforms that, in the immediate short-run, are bound to destabilize the current means by which the economy in Bangladesh functions (clientelism, etc). Thus, left on its own the recommended instituonal change might well destabilize the projected rise in economic growth in teh medium to teh long run.
Here’s what the IMF proposes to do for Bangladesh’s economy:
“Under a prospective IMF-supported program, the authorities aim to put Bangladesh on a higher growth trajectory, as necessary to accelerate poverty reduction and achieve middle income status by the next decade. Over the course of the program, balance of payments (BOP) needs are expected to intensify, mainly stemming from import-intensive investment in infrastructure and power sectors necessary to unleash growth. In IMF staff’s view, BOP pressures are expected to persist for some time, necessitating meaningful policy adjustment and reform. The IMF-supported program is expected to catalyze other financing.
“In this context, the authorities look to raise tax revenue by around three percentage points of GDP during the program period, building on momentum of recent tax administration reforms and factoring in passage and implementation of new VAT and income tax laws. They also plan to boost public and private investment by strengthening public financial management and operationalizing a private-public partnership framework. Adequate spending in key priority social sectors and on targeted transfers to protect the vulnerable will continue. The authorities are also committed to further strengthening the financial sector and its oversight, improving monetary and exchange rate operations, and enhancing Bangladesh’s integration into the regional and global economy through a more open trade and investment regime.
For more on what the IMF intends to do and to see why this plan is being put together, please read the IMF press release put out today, December 15th 2010, that you’ll find here.
