Economy under stress: IMF

The International Monetary Fund (IMF) has said the macroeconomic and financial pressure on Bangladesh economy has intensified since December last year.
The organisation said it has recommended some steps including a hike in petroleum prices to reduce subsidy burden.
The IMF also criticised Bangladesh Bank's intervention in exchange rate and said the BB had violated an article of the IMF agreement.
An IMF mission after a discussion on $1 billion credit concluded its 10-day visit to Bangladesh last week and presented their observation to the government in a report.
Officials at the finance ministry and BB said the IMF mission was more critical of different economic issues.
The officials said the problems facing Bangladesh did not emerge suddenly; the setbacks such as high inflation, slow remittance and pressure on subsidy continued for long. The government and the BB are trying to address the issues, they added.
The IMF said if the petroleum prices are not adjusted, the government's subsidy may double to Tk 15,000 crore in the next fiscal year.
The IMF said fiscal policy is coming under increasing strain from rising subsidy costs. The government's domestic borrowing requirement is set to exceed the budget target in FY 2011, due to rising subsidy for electricity, petroleum and fertiliser.
"To limit an intensification of budget pressures and reduce opportunities for cross-border smuggling to India, retail prices of petroleum products require immediate adjustment," IMF said.
The organisation also said it was not happy with the extent of the recent hike in power tariff and said it should be enhanced further.
The IMF said balance of payment (BoP) pressures are becoming more acute owing to rising food, fuel, and cotton prices, slowing remittance growth, and an accommodating monetary policy.
As a result, the current account balance is expected to go from a surplus of 3.75 percent of GDP in FY2010 to a deficit of 0.75 percent in FY2011, with a further deterioration expected over the medium term, IMF said. It said inflation in January was the highest in the last two years.
Bangladesh has been absorbing the pressures by drawing down foreign reserves, the IMF said. The net provision of foreign exchange has been more than $1 billion during the first six months.
The IMF said a wedge has also developed between market and official exchange rates, indicating a possible Multiple Currency Practice (MCP).
The BB's official taka/US dollar rate has deviated significantly from market rates since late 2010, by as much as 3.5 percent. Bangladesh may be deemed as operating an MCP, which is a violation of Article VIII of the IMF's Articles of Agreement.
The IMF said the BB should allow greater exchange rate flexibility, facilitate inter-bank market development, and intervene only to smooth short-term volatility in the exchange rate.
The monetary policy should be further tightened to slow credit growth and reduce inflation pressures, with increased interest rate flexibility, it said.