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IMF warns of double-digit inflation

GDP growth projected at 5 percent for FY10

Star Business Report
The Internationa) Monetary Fund (IMF) yesterday warned Bangladesh that excess liquidity and resurgent international commodity and food prices might push inflation to double-digit levels by year-end.
"Food and commodity prices are showing a rising trend. If global recovery takes place strongly, the price may go up further, Masato Miyazaki, adviser for Asia and Pacific Department of IMF, told reporters in a news briefing at the central bank.
A four-member IMF mission led by Miyazaki visited Bangladesh from October 26-29 to conduct the annual Article IV consultation discussions with Bangladesh authorities. The mission also issued a statement at the conclusion of its work yesterday.
The Article IV of IMF Mission provides fielding of an economic mission in member countries annually to discuss economic development progress and constraints.
Besides sluggish demand for investment, the mission chief said inflows of huge remittances also resulted in a rise in liquidity in Bangladesh.
The IMF also suggested Bangladesh Bank reduce the risk of excess liquidity.
“We believe BB should reduce the risk by mopping up excess liquidity from the market," the IMF adviser said. Investment in the private sector may jump on a quick recovery of recession, he said.
The IMF statement said BB should start issuing a sufficiently large amount of BB bills so that excess liquidity is taken out even if the government starts drawing on its deposits with BB.
Declining international food and commodity prices had helped the country with a low inflationary pressure for the past one year.
The rate fell to 2.2 percent in June from a double-digit mark a year ago. The rate however rose to 4.7 percent in August, clearly show-ing a rising trend in commodity prices.
However, Finance Minister AMA Muhith told the IMF mission that the government would be able to manage inflationary pressure.
The IMF team projects the country's economic growth at 5 percent in fiscal 2009-10, down from nearly 6 percent in fiscal 2008-09 on weak economic activity.
"Economic activity is likely to be held back by weak imports, particularly of capital machinery, sluggish exports and private sector credit and an ongoing slowdown in the hiring of Bangladeshi workers by employers abroad," the statement said.
The IMF however forecasts medium-term growth at 6 percent based on global exports and trade recovery. On the other hand, it said a prolonged global slump could weigh on exports and remittances.
The global watchdog on financial systems said the energy crisis may impede Bangladesh's development prospects although it suggests an upward adjustment of energy prices.
"If you don't have an enough energy supply, what will be the benefit of increasing its prices," said Miyazaki. "But the government can't cover the loss forever."
The team leader of the visiting IMF mission also talked on the appointment of directors in state-owned banks, poor implementation of annual development programme, the possibility of capital flight, financial support plan of IMF and rumour to squeeze its from Bangladesh.
Miyazaki said Bangladesh does not need financial support at the moment.
The IMF team also discussed the appointment of directors in state-owned banks with the government and expressed its uncertainty whether they (directors) would be able to help strengthen the banks.