IMF says inflation to hurt Bangladesh poor hardest

DHAKA, July 15 (Reuters) - The International Monetary Fund urged Bangladesh on Tuesday to curb inflation, saying spiralling costs would hurt the nation’s poor hardest.

“Any further sustained increases in international oil and food prices would place stress on the balance of payments and fiscal position, and would inevitably reduce growth and poverty reduction,” Thomas Rumbaugh, adviser in the IMF’s Asia and Pacific department, said.

Rumbaugh told a news conference after a fortnight-long visit to Bangladesh that the IMF was concerned because the “current environment was very challenging for macroeconomic management.”

Rumbaugh’s team came to Bangladesh to assess the outlook for the new fiscal year, ending June 2009, against the backdrop of a surge in the trade deficit, which central bank officials estimate rose by 57 percent to around $6 billion in the 2007/08 fiscal year.

“Escalating international food and fuel prices drove up inflation in Bangladesh, which averaged 10 percent over the past year, increasing pressure on the livelihoods of the poor,” Rumbaugh said.

“Some initial increase in inflation is inevitable but there is a role for domestic policies in preventing second round effects where inflationary pressures spill over into wages and general practices,” he said.

Bangladesh raised fuel prices on July 1 this year for the second time in just over a year to offset a soaring subsidy bill but it promised financial support for those hardest hit.

“Improved revenue performance is therefore essential to allow much needed increase in public expenditure,” Rumbaugh said. The government has set a revenue target of 545 billion taka in the 2008-09 fiscal year, more than 24 percent higher than the previous year.

Some local economists and officials were sceptical about IMF guidance, including advice to tighten monetary policy to slow credit growth, currently running above 20 percent.

“Credit growth is the real reflection of the potential of our economy and if our economy can accommodate it they should not press us,” said economist Abu Ahmed, a professor of Dhaka University. “There is evidence that after acting on the IMF’s suggestions, many countries’ hands were burnt in the flame of inflation.”

($1=68.50 taka)

Writing by Anis Ahmed; Editing by Ruth Pitchford