Highlights:
IMF flags weak tax revenue, high inflation, banking vulnerabilities
Inflation at 8.2% in October, remains elevated
Urges bold policies to address fiscal, financial sector risks
Stresses need for tax reforms to generate sufficient revenues
Calls for continued climate resilience and governance improvements
Underscores need for curb youth unemployment
Suggests promoting economic diversification
Bangladesh has made progress in maintaining macroeconomic stability and advancing reforms, but the economy continues to face mounting macro-financial challenges stemming from weak tax revenue, financial sector vulnerabilities, and elevated inflation, the International Monetary Fund (IMF) said today (13 November).
“Bold policies to address fiscal and financial sector challenges are critical to restore strong and inclusive growth, while safeguarding fiscal sustainability and macro-financial stability,” the IMF said in a press statement issued by Chris Papageorgiou, who led the latest 13-day review mission in Bangladesh.
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“Downside risks remain significant, particularly if policy responses are delayed or inadequate,” it added.
The observations came during an online press briefing ahead of the IMF delegation’s departure after completing discussions and following a 13-day review mission on the fifth review of the IMF’s Extended Credit Facility (ECF), Extended Fund Facility (EFF), and Resilience and Sustainability Facility (RSF).
An IMF mission team led by Chris Papageorgiou visited Dhaka from 29 October to 13 November to discuss economic and financial policies.
Over the medium term, the IMF underscored the need for comprehensive structural reforms to strengthen governance, curb youth unemployment, and promote economic diversification to unlock Bangladesh’s growth potential and achieve more inclusive development.
At the end of the mission, Papageorgiou said in the statement, “Bangladesh’s GDP growth in FY25 decelerated to 3.7% from 4.2% in FY24, reflecting production delays during the uprising, a tighter policy mix, and heightened uncertainty. Headline inflation fell from double-digit levels in early FY2025 but remained elevated at 8.2% (y-o-y) in October.”
“The authorities have made notable progress in maintaining macroeconomic stability. To ease external imbalances and contain inflation, the authorities tightened both fiscal and monetary policies,” he said.
“Importantly, foreign exchange reserves have begun to rebuild following the exchange rate reform launched in May. However, the economy continues to face significant macro-financial challenges stemming from weak tax revenue and undercapitalisation in the financial sector.”
Calls for stronger tax, banking reforms
According to the IMF, addressing these challenges will require reforming the tax system to build a simple and fairer taxation environment and tackling financial sector vulnerabilities.
With steadfast implementation, GDP growth is projected to accelerate to nearly 5% in FY26 and FY27, while inflation is expected to remain elevated at 8.8% in FY26 before declining to 5.5% in FY27.
The lending body warned, “Delayed or inadequate policy action in addressing fiscal and banking challenges would weaken growth, raise inflation, and increase risks to macro-financial stability.”
IMF stressed the need for ambitious tax reforms to generate sufficient revenues for higher social spending and infrastructure investment.
“Potential options include eliminating reduced VAT rates and removing exemptions—except for essential goods and services—and increasing the minimum turnover tax rate for all corporations,” the statement said, adding these reforms would need to be complemented by continuous efforts to strengthen tax administration.
Improving public financial and investment management and containing subsidies to a fiscally sustainable level will further support the reallocation of resources, including to broaden social safety net coverage, and the reforms could also provide the government with much-needed fiscal space to support the financial sector, it added.
Action on weak banks
The IMF official also called for a credible government-wide strategy to comprehensively address weak banks that should include estimates of system-wide undercapitalisation, the scope of fiscal support, and legally robust restructuring and resolution options with identified funding sources.
In addition, Asset Quality Reviews need to be expanded to all systemically important and state-owned banks, according to the IMF.
“Continued efforts are needed to improve banks’ governance and balance sheet transparency, strengthen the financial safety net, and improve frameworks for recovering non-performing loans. Any approach to dealing with weak banks should ensure healthy balance sheets, sustained profitability, and adequate liquidity without prolonged reliance on forbearance measures,” it stated.
“Monetary policy should continue to focus on bringing down inflation.”
Inflation, exchange rate management
The IMF urged the authorities to maintain tight monetary policy until inflation falls within the target range of 5-6%.
“The slow decline in inflation warrants maintaining tight monetary conditions until inflation returns to the target range,” the statement read.
The IMF also emphasised the need to fully implement the new exchange rate regime, including by fostering increased flexibility and improving monetary policy effectiveness. It said the authorities should continue to phase out non-standard monetary and quasi-fiscal operations.
On structural reforms, the lending body noted that Bangladesh is making progress in improving governance of the central bank and fiscal sector, but continued efforts are required to strengthen anti-corruption measures, enhance the AML/CFT framework, and promote job creation and export diversification.
“Building climate resilience and mobilising climate finance remain a priority,” the statement added, praising Bangladesh’s progress under the RSF in making infrastructure resilient against climate shocks and improving climate risk management in the financial sector.
“Nonetheless, further efforts are needed to rapidly scale up resources and close the climate financing gap,” it said.
“Discussions on the fifth review of the IMF-supported programme will continue in the period ahead. The Fund remains a committed partner to Bangladesh in the quest for sustained macroeconomic stabilisation and strong growth that benefits all its people,” the statement added.
The IMF review mission arrived in Dhaka on 29 October to assess whether Bangladesh has met the lender’s conditions despite the decision not to release the fifth tranche of the $5.5 billion loan during the tenure of the current interim government.
During the stay, the IMF mission held meetings with various departments of the Bangladesh Bank.
During the discussions, IMF officials inquired about the shortfall in revenue collection compared to the targets set under Bangladesh’s loan programme.
They also sought clarification on whether the government plans to increase domestic and foreign borrowing to bridge the revenue gap.
The IMF team also met with leaders of both BNP and Jamaat to understand their reform agendas, views, and economic plans.