Political unrest taking toll on economy: IMF.

The International Monetary Fund on Tuesday warned that the current political unrest would discourage long-term investment in the country and undermine economic progress. The Washington-based multilateral lending agency made the observation after concluding a fortnight-long review of the country’s economy, in connection to its extended credit facility deal with the government. ‘The resurgence of unrest in recent months is taking a toll on the economy,’ said IMF mission chief Rodrigo Cubero during a press conference at the ministry of finance. He said the growth in gross domestic product would be six per cent in the current fiscal. He, however, noted that many things still depended on how long the current political situation continued. Buoyed by robust domestic economic activity, Bangladesh maintained momentum till the first half of the fiscal, said the IMF official.

The IMF review took place amid countrywide continuous blockade enforced by mainstream political party, BNP, since January 6, demanding fresh elections. The IMF team held discussions with a host of government policymakers, officials, representatives of the private sector, think-tanks and development partners. Rodrigo said they discussed the losses the country’s different sectors, like transport and service, incurred due to the blockade. He said it was difficult to calculate the losses now. ‘It will take time,’ he said. The IMF said inflation risked going up from unrest-related supply disruption. The external current account is expected to shift to a deficit on the heels of strong import growth and moderation in exports. Nevertheless, foreign exchange reserves have continued to increase, it said. Should calm be restored and uncertainty abate growth should strengthen to 6.5 per cent in the next fiscal, the IMF added.

The IMF has suggested for macroeconomic stability and fiscal space to support stronger growth and sustained poverty reduction over the medium term with investment on power, transport infrastructure and social spending. This, in turn, will require much higher fiscal revenue. Bangladesh has one of the lowest tax-to-GDP ratios in the world. The government’s main policy reform in this regard is the implementation of the new VAT Act, passed by Parliament in November 2012, said the IMF. The IMF hoped that the new VAT will provide a significant increase in revenue, while reducing taxpayer harassment and compliance costs for business, shielding small businesses through a minimum threshold, and protecting poor households through the exemption of basic consumption items. The IMF said strengthening the financial system was another priority to safeguard stability and boost growth.

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