IMF for high forex reserves to ward off external shocks

The International Monetary Fund (IMF) today suggested Bangladesh maintain a healthy foreign exchange reserves to ward off any external shock.

Bangladesh economy will continue to rely on exports for growth and remains particularly exposed to the changing external environment, Brian Aitken who led the IMF’s Article IV Mission to Bangladesh made these recommendations.

Read more about IMF’s Article IV Mission to Bangladesh

“It is therefore essential that the country’s foreign exchange buffers, which have been built over the last several years, continue to be maintained at levels adequate to ensure the economic resilience,” he observed at IMF’s Bangladesh office at the Bangladesh Bank.

Export earnings declined 4.49 percent year-on-year to $2.72 billion in February due to a slowdown in apparel shipments that account for more than 80 percent of national exports, according to a The Daily Star report published today.

“Bangladesh’s investment needs are large, and will require stepping up intermediation of the country’s underutilized pool of savings over longer horizons,” Aitken observed at the conclusion of the visit that kicked off on February 26.

As commercial banks’ ability to carry out this function will remain limited, policies that develop the country’s capital markets for financing long-term private investment would greatly improve future growth prospect, he added.

An important impediment to modernizing the financial sector arises from the increasing reliance on high-cost National Savings Certificates (NSCs) as a financing vehicle for the government budget, which prevents the development of a deep and liquid market for government securities, Aitken said in his statement.

“The authorities could consider whether there are better targeted and less costly alternatives that achieve the government’s social policy goals without distorting financial markets,” he further adds. 

The mission visited Bangladesh to assess the economic health of the country and the financial sector as part of an Article IV agreement.