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IMF Warns

Economy at multiple risks

Rejaul Karim Byron
The economy of Bangladesh will face two sets of challenges over the next few years of which most immediate are the disruption and uncertainty associated with the forthcoming elections, says an IMF report.
Over a longer horizon, the country will need to manage a transition in the flagship ready-made garment (RMG) industry; it adds.
The International Monetary Fund (IMF) released the
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report yesterday (Thursday night, Washington time) after approving Bangladesh the fourth instalment of Extended Credit Facility loans.
It says with the uncertainty and disruption during the pre-election period, the country's GDP growth in the current fiscal year is projected to decline to 5.5 percent against the government target of 7.2 percent.
In the last four FYs, Bangladesh achieved an average of 6.2 percent GDP growth.
The risks also stem from the increase in minimum wages and string of accidents in the RMG sector, and withdrawal of Generalised System of Preferences (GSP) facility by the LIS, according to the report.
As a result, the RMG industry will face higher operating costs and face moderate displacement of external demands as some buyers shift in response to the industrial accidents, it says.
The direct impact of GSP facility withdrawal
would be limited, as it excluded RMG and covered only 0.6 percent of Bangladesh's export, observed IMF, adding that the decision on labour rights concerns, however, carried an important message.
The risks from the external environment could originate from a growth downturn in Europe or from the withdrawal of preferential market access under the European Union's GSP, which arises out of a perceived lack of progress in labour standard and workers' safety condition.
The IMF also said due to the ongoing political uncertainty capital flight had increased which contributed to the fall in remittance inflow in the recent times.
"The decline in official remittance data may also be masking some capital flight ahead of the elections, as funds are diverted from formal banking channel to informal channels", it said, adding, "This phenomenon is typical in election years, and is expected to normalise once political conditions settle."