Inflation rises over 7pc increasing food and non-food prices: IMF

The International Monetary Fund (IMF) after Article IV consultation said Bangladesh's growth outlook and external position remained robust, but inflation has picked up to over 7 per cent during the outgoing fiscal year.

"Inflation has recently picked up to over 7 per cent reflecting increases in both food and nonfood prices," it said in the review.

An IMF team recently visited Bangladesh and held meeting with different government functionaries following which the last installment of the Poverty Reduction Growth Facilities (PRGF) loan amounted to US$100 million is due to be disbursed.

The IMF said the economy of Bangladesh continued to grow at over 6.5 per cent in the fiscal year ending 2006-07spurred by strong exports and investment. GDP growth is expected to continue at around 6.5 per cent in FY07 despite some supply-related disruptions, with lower agricultural growth offset by strong manufacturing and service activities.

It said the exchange rate has been relatively stable and international reserves have increased throughout the period of political upheaval.

"The overall macroeconomic stability has been maintained, but fiscal performance continues to suffer from structural weaknesses. Revenue performance has consistently been below budget targets," it said adding spending accelerated early in FY07 causing a surge in domestic financing of the government while delays in external disbursements further aggravated the situation.

"This forced expenditure cuts later in the year to contain the overall deficit and domestic financing. As a result, development expenditure was significantly under executed."

The growth in monetary and credit aggregates increased considerably in FY07. Broad money growth reached a high of 22 percent in December and private credit growth has been close to 20 percent for much of the year, it revealed.

The review said, "Petroleum prices have not kept pace with international prices leading to a deterioration of finances of state-owned enterprises. After the April fuel price adjustments, domestic prices of diesel and kerosene are around 80 per cent of their break even level and below prices in neighboring countries."

It said despite the reform by the Bangladesh Bank interest rate spreads are high and point to inefficiencies in the domestic banking system that detracts from efficient financial intermediation.

"The current transitional government has moved to address several areas where reforms had stalled. These include adjustments in fuel and electricity prices, introduction of a Financial Intelligence Unit, reconstituting the Anti-Corruption Commission, and separating the judiciary from the executive branch."