DHAKA: Bangladesh needs to tighten its monetary policy and have greater exchange rate flexibility to help contain high inflation, the International Monetary Fund said on Wednesday as its board cleared the first review of the country’s $4.7 billion bailout.

Sharply rising living costs have sparked violent protests in recent months ahead of national elections in January, as Prime Minister Sheikh Hasina’s government struggles to pay for costly energy imports due to shrinking dollar reserves and a weakening Taka currency.

The IMF board clearance provides Bangladesh immediate access to about $468.3 million and also makes available $221.5 million in support of the country’s climate change agenda.

“Combating inflation is our number one priority,” Bangladesh central bank spokesperson Mezbaul Haque said, adding that their aim is to bring it down to 8% this month and 6% by June.

“We’re getting $1.31 billion from the global lenders and our development partners this month. So, overall the foreign exchange reserves will be in a good position. Apart from that, the remittance flow is good,” Haque said.

The IMF said Bangladesh’s economy has suffered multiple shocks.

Its $416-billion economy was one of the world’s fastest growing for years, but rising energy cost following the war in Ukraine interrupted its post-pandemic recovery as it dipped into its depleting forex reserves to pay.

Bangladesh is now forecasting GDP growth to remain at six percent in fiscal year 2024 on the back of relatively resilient exports despite subdued private demand.

Readymade garments are a mainstay of Bangladesh’s economy, accounting for almost 16% of the GDP.

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Low wages have helped the country build the industry, with some 4,000 factories employing 4 million workers, supplying brands such as H&M and GAP.

But soaring living costs sparked a week of protests by garment workers last month calling for higher salaries.

The IMF projects inflation to moderate to 7.25% year-on-year by the end of FY2024 after a decade high of 9.9% in August.

“Bangladesh’s economy is navigating multi-faceted economic challenges. Despite a difficult external environment, program performance has been broadly on track…” Antoinette Sayeh, the deputy managing director of IMF, said.

“Near-term policies should continue to focus on containing inflation and rebuilding external resilience,” Sayeh said, adding that this required a calibrated monetary policy tightening, supported by a neutral fiscal stance and greater exchange rate flexibility.

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Bangladesh received an immediate disbursement of about $476 million when the IMF approved the loans in January.

Zahid Hussain, former lead economist at the World Bank’s Dhaka office, said the IMF funds unlocked after the first review were not large in size but they would help the economy.

“It gives a positive signal that the IMF is ok with the reforms so far and the program is on track,” Hussain said.