Crawling peg system: IMF lauds Bangladesh's efforts to take forward forex reserves

The International Monetary Fund (IMF) has lauded Bangladesh for recent introduction of the Crawling Peg Mid-Rate (CPMR) system which is helping foreign exchange reserves going forward.

"The transition to a crawling peg with the band exchange rate arrangement is a welcome step toward greater exchange rate flexibility. The increased flexibility should allow for a more orderly adjustment of external imbalances and help build foreign exchange reserves going forward," said Chris Papageorgiou, IMF mission chief for Bangladesh

Talking to BSS, Chris Papageorgiou said therefore, ensuring the smooth functioning of the new arrangement should remain firmly among Bangladesh's policy priorities.

"In the near term, the adjustment of the exchange rate to the market-clearing level is expected to support the external competitiveness of Bangladesh's exports, stimulate remittance inflows, and the repatriation of export receipts.

"This, in turn, should ease pressures in the foreign exchange market. Recently, Bangladesh Bank has substantially reduced foreign exchange sales and conducted purchases in a few instances," he added.

He said although the new exchange rate regime is conducive to safeguarding and boosting foreign exchange reserves, other supportive policies are crucial to achieving these objectives.

These policies should include maintaining a tighter monetary and fiscal stance in the near term, rationalising and reducing the non-monetary use of foreign exchange reserves, easing uncertainties, improving the business climate to stimulate inflows of non-speculative foreign capital, and developing mechanisms to help deepen foreign exchange market liquidity, he added.

Chris Papageorgiou, however, also welcomed the authorities' continuous commitment to comprehensive reforms to address long-standing structural issues and vulnerabilities including those related to climate change.

"Since the authorities' homegrown economic reform program supported by the IMF financial arrangement was approved in January 2023, the authorities have made good progress in implementing reforms," he added.

He said these include introducing a more flexible exchange rate framework, modernising the monetary policy framework, and rationalising energy subsidies, while also working on supporting social protection measures to support the most vulnerable face the effects of these reforms enhancing regulatory frameworks in the banking sector, and implementing climate change-related reforms.