The International Monetary Fund (IMF) has praised
Bangladesh's measures, taken by the interim government, to overcome economic
challenges due to the recent turbulence and major floods.
"In response to the challenging circumstances, the authorities' efforts to
initiate adjustments, including continued monetary tightening and rationalizing
non-priority capital spending are commendable," IMF Mission Chief for
Bangladesh Chris Papageorgiou told BSS.
The
IMF mission team led by him visited Dhaka during September 24-30 to discuss
recent developments and the authorities' reform priorities.
Papageorgiou
said the timely formation of an interim government helped stabilize the
political and security conditions, alongside a gradual return to normalcy in
the economy.
"Nonetheless,
economic activity has slowed markedly, while inflation remains at double-digit
levels, owing to the recent turbulence and major floods. The deterioration in
the balance of payments, reflecting outflows in trade credit, has put
additional pressure on foreign exchange reserves," he mentioned.
However,
what the government has taken to improve the economic issues is really
praising, he added.
Responding to a question on the past government fiscal target, Papageorgiou
informed that the authorities' budget has been perceived as aspirational, with
optimistic tax revenue and ambitious capital spending projections.
Historically,
the government had to cut back on both recurring expenses and major investments
given weak revenue collection, he added.
He
mentioned that this was necessary to keep the budget deficit within their
target.
"In
this context and given continuously high inflation and external pressures, we
support the interim government's intention to rationalize capital spending by
considering execution capacity and cutting non-priority projects," he
added.
Given the country's low tax revenue-to-GDP ratio compared
to peers, he said the IMF supports the authorities' goal of setting ambitious
revenue targets.
However, these targets must be supported by concrete
revenue-generating measures, he noted.
Papageorgiou,
however, said Bangladesh's tax-to-GDP ratios has seen little improvement in
recent years.
Sustainable
revenue mobilization requires a multi-pronged approach, comprising both tax
policy and revenue administration measures, he added.
On
the tax policy front, he said, key areas for reform include reducing widespread
tax exemptions, simplifying the value-added tax (VAT) system, and broadening
the tax base, as part of an overarching strategy of shifting the tax burden
from trade-related taxes toward income tax and VAT.
To
improve tax administration, he said priority reforms include digitalization of tax
collection processes and better tax compliance risk management.