An IMF mission to Bangladesh between 25 February and 10 March 2015 held discussions relating to the review of the three-year Extended Credit Facility (ECF). In its preliminary findings the IMF reports that the recent economic policies pursued in Bangladesh have laid the foundation for strong economic growth. The economic growth in the year to 30 June 2015 is expected to be around 6%.

To ensure strong growth in the medium term fiscal space is required to improve the power and transport infrastructure while maintaining well targeted social spending. Higher government revenues are therefore required. Bangladesh still has one of the lowest ratios of tax to GDP in the world and more revenue needs to be raised through taxation. The IMF considers that VAT Act passed in November 2012 is the main tax policy reform that can contribute to this goal.

The VAT system will provide more tax revenue and reduce compliance costs for business. The minimum threshold for VAT registration will protect small businesses and the VAT exemptions for basic household items of consumption will protect low income groups. The IMF therefore supports the government’s commitment to implementation of the new VAT in July 2016. This should be supported by measures to further modernize and automate the administration of tax revenue and by increasing taxpayer education.

The IMF mission also welcomes the steps taken to improve the climate for investment in Bangladesh including the liberalization of the foreign exchange regulations on current account transactions. These measures are expected to contribute to high economic growth.