Bangladesh’s economy may be emerging from its prolonged period of instability, but the International Monetary Fund (IMF) has warned that the recovery could quickly lose momentum unless the government delivers a series of politically difficult structural reforms as it negotiates a new $4.5-5 billion support program.
Following the first round of discussions with the Finance Division, Bangladesh Bank, the National Board of Revenue (NBR) and Finance Minister Amir Khasru Mahmud Chowdhury, the IMF concluded that recent improvements in key economic indicators are encouraging but remain largely cyclical rather than structural.
The Washington-based lender identified four immediate reform priorities: rationalizing subsidies, restructuring the banking sector, modernizing tax administration and postponing the proposed public service pay scale -- warning that these measures will determine whether Bangladesh can achieve durable macroeconomic stability.
According to officials familiar with the discussions, the IMF acknowledged that Bangladesh’s external position has improved in recent months, with foreign exchange reserves rebuilding, exchange-rate volatility easing, exports and remittance inflows remaining resilient and inflation gradually moderating.
However, the mission cautioned that these gains remain vulnerable because fundamental weaknesses in the economy have yet to be addressed.
Banks remain IMF’s biggest concern
The banking sector dominated much of the discussion.
The IMF expressed concern over rising non-performing loans (NPLs), weak governance, capital shortfalls and the financial condition of several troubled banks, particularly Islamic banks that have required emergency liquidity support.
The mission sought detailed information from Bangladesh Bank on emergency liquidity assistance extended to vulnerable commercial banks, including repayment schedules, compliance conditions and the financial health of institutions receiving support.
It also stressed stricter loan classification, realistic provisioning against bad loans and greater transparency in reporting banking sector risks.
Fiscal reforms under scrutiny
Fiscal policy emerged as another major focus.
Although Bangladesh has committed to reducing subsidies, IMF officials noted that large government liabilities, particularly in the power sector, continue to place pressure on public finances.
The mission recommended delaying implementation of a new public sector pay scale, arguing that higher government expenditure could stimulate domestic demand and complicate efforts to bring inflation under control.
It also reiterated the need for a gradual reduction in energy subsidies while shifting fiscal policy from short-term relief measures towards long-term sustainability.
Responding after the meetings, Finance Minister Amir Khasru Mahmud Chowdhury said reforms would be implemented according to Bangladesh’s own economic realities.
“A political government must balance economic policy with public welfare. We will determine our own reform priorities, and the IMF understands that such changes cannot be implemented overnight,” he said.
Revenue system overhaul
The IMF also renewed pressure for long-delayed reforms at the National Board of Revenue.
The mission repeated its recommendation to separate tax policy formulation from revenue collection, arguing that institutional separation would improve transparency, accountability and administrative efficiency.
It also encouraged Bangladesh to broaden its tax base instead of relying on higher tax rates, reduce discretionary tax exemptions and strengthen parliamentary oversight of public finances.
NBR officials told the IMF that current reforms are focused on expanding the number of taxpayers at district and upazila levels while gradually reducing unnecessary corporate tax incentives to improve compliance without discouraging investment.
Why the deal matters
Beyond providing fresh financing, the proposed IMF program carries significance well beyond its headline value.
Economists say an agreement with the IMF would strengthen investor confidence and unlock additional financing from development partners such as the World Bank, Asian Development Bank (ADB) and Japan International Cooperation Agency (Jica), at a time when Bangladesh faces rising external debt-servicing obligations.
For the IMF, however, the message remains clear: stabilizing macroeconomic indicators may have bought Bangladesh valuable time, but only structural reforms will determine whether that stability can be sustained.