The International Monetary Fund (IMF) has deferred the approval of Bangladesh’s fourth loan tranche under its ongoing $4.7 billion loan programme, pushing the expected disbursement to June amid concerns over revenue collection shortfalls.
Sources from the Ministry of Finance indicate that while most conditions have been met, achieving the required revenue target remains a significant hurdle.
Bangladesh has so far received $2.31 billion across three tranches, and the IMF had initially scheduled its board meeting to approve the fourth tranche on 5 February, later postponing it to 12 March.
However, the approval has now been delayed further, with hopes that both the fourth and fifth instalments may be disbursed together in June.
According to ministry officials, one of the key conditions for the fourth tranche is meeting revenue collection targets.
While previous targets were flexible, the IMF has now made revenue generation a strict requirement for further disbursement.
If the government fails to meet these stringent conditions, the loan release could face additional uncertainties, making revenue mobilisation the government’s top priority.
The IMF programme commenced on 30 January 2023, with Bangladesh receiving the first tranche of $476.3 million on 2 February 2023.
The second tranche of $681 million was disbursed in December of the same year, followed by the third tranche of $1.15 billion in June 2024.
The government is now awaiting the fourth tranche, but revenue collection remains a major concern.
As per IMF conditions, the National Board of Revenue (NBR) must collect Tk4.78 lakh crore by June, requiring a 21% growth in revenue.
However, current revenue growth stands at a mere 3%, making it nearly impossible to meet the target.
If the revenue goal remains unmet, the government may seek a waiver from the IMF board, though officials acknowledge that the global lender has taken a stricter stance this time.
Most of the conditions tied to the upcoming tranche revolve around revenue administration and policy reforms.
Key requirements include separating tax administration from tax policy, increasing revenue from individual income tax, rationalising corporate tax rates, eliminating discrepancies in VAT rates, and reducing tax exemptions.
Additionally, the government must introduce crucial financial sector legislation, lower non-performing loans in state-owned banks below 10%, and gradually transition to a market-driven exchange rate.
NBR sources confirm that progress is being made on tax administration reforms, with significant changes expected in the upcoming budget.
The number of registered individual taxpayers has surpassed 1.12 crore, and electronic tax filing has doubled from the previous year, with nearly 1.5 million taxpayers submitting returns online.
However, corporate tax compliance remains a challenge.
A senior NBR official, speaking on condition of anonymity, described the revenue target as overly ambitious and unlikely to be met, acknowledging that structural reforms are an ongoing process.
In line with these efforts, a five-member committee, headed by former NBR chairman Dr Mohammad Abdul Mazid, has submitted a draft report on tax administration reforms.
Former World Bank chief economist for Dhaka, Dr Zahid Hossain, remarked that the government recently increased VAT and supplementary duties on various goods and services to raise an additional Tk12,000 crore under IMF pressure.
However, the move sparked widespread backlash from businesses and consumers, leading the government to roll back some tax hikes.
While revenue collection has increased slightly, meeting the IMF’s ambitious target remains unrealistic, he added.
Zahid Hossain also pointed out that the country’s ongoing political uncertainty and economic slowdown further complicate revenue mobilisation.
He questioned whether the IMF is fully aware of the ground realities, given the prevailing economic and political challenges.
According to NBR statistics, the revenue shortfall for the first seven months (July-January) of the current fiscal year stands at Tk51,000 crore, with total revenue collection reaching Tk1.95 lakh crore against a target of Tk2.46 lakh crore.
While revenue growth had been negative in the early months of the fiscal year, it turned positive in January, showing a 2.96% increase.
To meet the IMF target by June, revenue collection would need to grow by at least 21%, which NBR officials deem highly unrealistic.
The IMF has set an additional revenue mobilisation target of 0.5% of GDP for the current fiscal year, prompting the government to impose higher VAT and supplementary duties on nearly 100 goods and services in January.
The mid-year tax hike sparked significant backlash from businesses and consumers, forcing the government to scale back some of the increases.
Despite ongoing reforms, experts remain sceptical about the feasibility of meeting the IMF’s revenue targets, raising concerns over further delays in loan disbursement.
