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Download PDF The International Monetary Fund (IMF) yesterday welcomed the Bangladesh Bank’s contractionary monetary policy that has taken a lot of flak from different quaters, and said it will help to rein in inflation.
It also suggested that the country should adjust the fuel and energy prices to those at the international level on a regular basis.
Jonathan C Dunn, the IMF resident representative, said they had advised Bangladesh on several occasions to take tighter monetary measures. He added, “Now we are encouraged to see that the central bank has adopted an appropriate policy.”
Declining to term the policy strict, he said it should rather be described as cautious.
Asked if the Bretton Woods institution has pressured the government into taking the policy, he said, “The government is a sovereign entity. And our role is to give best advice to the governments where we [the IMF] operate.”
He made the observations speaking to journalists at a question-answer session on recent macroeconomic developments, the June 22 IMF board meeting and other issues. The briefing was held at the Fund’s office in the Bangladesh Bank Main Building at Motijheel.
Dunn noted that regular price adjustment to the international market is very significant for Bangladesh. The prices of gas, petroleum and electricity should be adjusted consistently so that the economy can be placed beyond losses.
About the Centre for policy Dialogue’s (CPD) views that the current monetary policy won’t be favourable for the economy and that the BB has accepted it following the Fund’s recommendations, he said it is very surprising because the IMF’s activities are spelled out in its board documents. He, however, said, “I would like to say the discussion that is going on regarding monetary policy is part of a healthy debate.”
The IMF representative in Dhaka said the rising inflation has been adversely affecting the country’s economy and it relates not only to the supply side factors but also to demand side factors.
Citing the inflation rate in May, he said the highest rate of inflation was not in food items or transport. Furniture, household appliances and some other services and goods were affected by inflation which is actually not related to the supply side.
When the demand side components are key to checking inflation here administrative costs in some sectors keep rising, he observed.
According to him, the government subsidies for different sectors do not reach the right people. Even in the case of diesel subsidy, the benefit goes to the top 40 percent people who in fact do not deserve it.
He said the recipients of such subsidies are mostly people like him who have cars, and not those from the lower income brackets, farmers or rural poor.
“You don’t distort the financial system. And eventually you should adjust prices to the international level,” he added.
The Fund recommends that Bangladesh acquire an international standard in pricing that will help it adapt to the prices at the global level, be they rising or coming down.
At the meet, Dunn sought to explain why the IMF refused to disburse the last instalment of poverty reduction growth facilities (PRGF) loan to Bangladesh.
He said the government’s excessive bank borrowing, failure to achieve the revenue target and carry out reforms in the tax structure, delay in corporatisation of the state-owned banks and above all declining law and order discouraged the Fund from paying out the loan.
He said the IMF board however appreciates the present government’s reform measures including the initiative for good governance and electoral reforms.
Queried if the country would receive the next PRGF loans, he said the board members are looking forward to the ongoing reforms, and they have stressed the need for close dialogues with the government for further PRGF facilities.
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