The ongoing loan programme with the International Monetary Fund (IMF) obliges Bangladesh to meet a series of reform conditions, notably enhancing revenue collection, allowing market-based exchange rates, and maintaining net foreign reserves.
While the Fund showed some leniency during the first three review missions, it has taken a firmer stance in the fourth and current mission, prompting analysts to fear that failure to fulfil key benchmarks may jeopardise upcoming disbursements.
The IMF mission, led by Chris Papageorgiou, Head of the Development Macroeconomics Division in the Research Department, commenced its visit to Bangladesh on 6 April.
He also led the previous three missions. Based on the findings of this latest mission, a proposal for releasing the fourth and fifth instalments—totalling $1.3 billion—will be placed before the IMF Executive Board in June, subject to approval.
The mission has already held discussions with various government entities, including the Finance Ministry, Bangladesh Bank, the National Board of Revenue (NBR), and energy sector bodies such as Petrobangla and the BERC.
On the first day, IMF officials met with Economic Adviser Dr Salehuddin Ahmed and Finance Secretary Md Khairuzzaman Mozumder.
The final round of meetings is scheduled for 17 April, where IMF delegates will again engage with the adviser, secretary, NBR chair and others.
Though the primary purpose of the mission is to assess progress on implementing reforms under the loan programme, the IMF has voiced marked concern over Bangladesh’s failure to meet its revenue targets and its hesitance to allow a fully market-determined exchange rate.
These concerns were conveyed during meetings with the finance adviser and again during discussions with the NBR, where the IMF advocated raising turnover tax, minimum tax, and supplementary duties, while urging a unified VAT rate and the withdrawal of tax exemptions.
Against a revenue target of Tk4.55 trillion for the current fiscal year, the NBR has so far managed to collect Tk2.52 trillion in the first nine months.
This implies an unrealistic requirement to raise over Tk2 trillion in the final quarter alone—an objective the NBR has informed the IMF is unattainable under present circumstances.
Moreover, for the FY2025–26 fiscal year, the IMF has asked the government to present a concrete plan to raise an additional Tk570 billion, a goal NBR officials admit will be extremely challenging.
Sources at the Finance Ministry and NBR confirm that the IMF remains dissatisfied with the state of revenue mobilisation. The mission has urged the government to narrow the budget deficit through enhanced tax collection by any means necessary.
During the previous review, the IMF had already raised concerns about the growing debt burden and emphasised deficit reduction.
Although Bangladesh has requested some flexibility, indications suggest the IMF is unlikely to offer much leeway. Should the government fail to present a convincing revenue plan, the release of upcoming loan tranches may be withheld.
Since the inception of the loan programme, the IMF has urged Bangladesh to adopt a market-based exchange rate for its currency.
However, fearing volatility, the government has refrained from a full float.
Instead, it introduced a crawling peg in May last year—a policy that ultimately failed to stabilise the exchange rate and contributed to further depreciation.
In response, the central bank announced in early 2024 its intention to abandon the crawling peg.
Under the new system, banks would determine the reference price for the dollar based on actual transaction data twice daily.
Though implementation was slated for 12 January, the system has yet to be fully operational.
At present, dealer banks set exchange rates based on demand and supply within a narrow band.
Notably, record remittance inflows last month were partly driven by banks offering above-average rates for dollars, a move to which Bangladesh Bank has turned a blind eye.
The IMF is now pressing for a fully market-based exchange rate, at least on a trial basis.
Although Bangladesh Bank remains hesitant due to inflationary concerns, the IMF has floated the option of providing additional financing outside the current programme to ease supply pressures should the exchange rate spike.
The government believes improved remittance and export earnings, along with better reserves, could help weather any initial turbulence.
Today and tomorrow, the IMF and government officials are scheduled to draft a memorandum outlining the country’s economic and financial policy commitments.
Two days after the mission ends, senior Bangladeshi officials, including the finance adviser and finance secretary, will travel to the United States for further talks with top IMF officials.
According to sources, this round of high-level discussions will focus on the politically sensitive issues of revenue mobilisation and exchange rate liberalisation, with both sides expected to engage in hard bargaining.
At a press conference following last December’s mission, Papageorgiou had emphasised that fulfilling revenue and exchange rate conditions was essential for the disbursement of loan tranches.
Although the fourth tranche was initially due to be proposed to the Board in early March, it was postponed to 12 March.
Bangladesh then requested more time to meet conditions, and the IMF agreed to bundle the fourth and fifth disbursements in June—provided reforms are delivered.
If Bangladesh fails to meet the conditions, not only could the disbursement be delayed, but several billion dollars in associated funding from other lenders could also be held up.
This would place the country’s credit rating at risk. Against this backdrop, the government is expected to pursue every possible measure to satisfy the IMF’s terms.
IMF Executive Board had approved the $4.7 billion loan proposal for Bangladesh on 30 January 2023.
The loan is to be disbursed in seven instalments over 42 months, at an average interest rate of 2.2 per cent.
