[{"bbox": [86, 152, 1151, 208], "category": "Text", "text": "than the international recommended level (4% of GDP or 15% of education budget), the low utilisation of the budget\ndue to capacity constraint also poses questions on the efficiency of the budget utilisation."}, {"bbox": [86, 219, 1151, 273], "category": "Text", "text": "In conclusion, the policy is sufficiently relevant and credible for budget support contract objectives to be largely achieved. Therefore the policy can be supported by the Commission with the proposed budget support contract."}, {"bbox": [86, 298, 376, 325], "category": "Section-header", "text": "2.3.3 Macroeconomic Policy"}, {"bbox": [86, 340, 1145, 568], "category": "Text", "text": "Bangladesh's robust economic recovery from the pandemic has been interrupted by Russia's war in Ukraine. In FY22 consumer price inflation increased 6.1% while this was 5.6% in FY21, and the forecast for FY23 is 8.9%. This is all the more worrying because inflation has been impacting particularly severely already vulnerable groups, despite government subsidies for food and energy. Higher import prices lead to a sharp widening of Bangladesh's current account deficit, depreciation of the Taka and subsequent decline in foreign exchange reserves. Following this, Bangladesh requested in the second half of 2022 a loan from the IMF, which the IMF Board approved end of January 2023. The loan amounts to SDR 3.5 billion (i.e. approximately USD 4.7 billion) and consists of seven disbursements over 3.5 years. The IMF disbursed a first tranche promptly after the approval."}, {"bbox": [86, 585, 1145, 785], "category": "Text", "text": "While there is not a full-blown crisis, rising inflation, slowing economic activity, and strict austerity measures (such as closing diesel-fueled power plants, load shedding, reducing in-office hours and shortening of the school week to curtail energy demand) to deal with the shock are compressing demand, hurting the poor most. Even as Bangladesh tackles these immediate challenges, addressing long-standing structural issues remains critical with climate change as an added concern. The IMF assumes in its recent report that Bangladesh remains on track to graduate from the LDC status by 2026, but substantial gaps remain in social and development spending, tax revenue mobilisation, the scale and diversification of exports, foreign direct investment inflows and vibrancy of the investment climate."}, {"bbox": [86, 802, 1145, 1317], "category": "Text", "text": "The IMF-loan comes with conditions related to public finance management reforms and alterations in fiscal, monetary and exchange rate policies (click IMF Report, 2 February 2023). The five main areas are i) to preserve macro-economic stability, ii) to create fiscal space for growth enhancing spending needs, iii) to strengthen the financial sector to mobilise productive investment, iv) to strengthen and modernize the policy framework and institutions to enhance macro-economic stability and v) to green the financial system to meet climate needs and promote the green and circular economy. Main fiscal reforms will be geared toward creating fiscal space to increase social spending and investment sustainability. Bangladesh's tax-to-GDP ratio is one of the lowest in the world, constraining critical spending. Key areas for fiscal policy reform include rationalizing tax expenditures, simplifying the tax rate structure and broadening the tax base, as part of an overarching strategy of shifting the tax burden from trade-related taxes toward income and value-added taxes. Key areas for tax administration reforms are increasing tax compliance, broadening the tax base and strengthening information sharing between the income tax, VAT and customs wings of the tax office. The EU is helpful here, since it already works with the tax office on the digitalisation of e-returns for direct taxation, and has just developed a three year ICT-strategy regarding ICT. This should positively impact compliance and contribute to the reduction of fraud and corruption. According to the IMF-report, the Government will also gradually decrease subsidies on energy prices. Monetary and exchange rate policies should focus on containing inflation and stemming reserve losses. The monetary policy stance will be guided by the inflation outlook and will be anchored by an inflation target on the level of reserve money under the program. There will be greater exchange rate flexibility, away from the regular interventions that took place in 2022 to support the Taka."}, {"bbox": [86, 1334, 1145, 1419], "category": "Text", "text": "According to the Debt Sustainability Assessment (Feb 2023), Bangladesh remains at a low risk of debt distress, despite the growing amount of external loans. The projections for the total debt-to-GDP ratio is 42% for the coming years and the external public and publicly guaranteed debt to GDP remain sustainable at around 16%."}, {"bbox": [86, 1436, 1145, 1490], "category": "Text", "text": "In conclusion, the authorities are pursuing a stability-oriented macroeconomic policy and the eligibility criterion is met."}, {"bbox": [86, 1524, 437, 1551], "category": "Section-header", "text": "2.3.4 Public Financial Management"}, {"bbox": [86, 1578, 1145, 1636], "category": "Text", "text": "The Public Financial Management Reform Action Plan (2018-2023) adopted and endorsed by GoB in September 2018 provides the implementation roadmap for some priority actions with clear institutional responsibilities among"}, {"bbox": [1038, 1682, 1145, 1707], "category": "Page-footer", "text": "Page 9 of 28"}]