The International Monetary Fund (IMF) Mission Chief to Bangladesh Chris Papageorgiou said they do not see inflation coming down in Bangladesh anytime soon.
He was speaking at a briefing on Thursday, at the Finance Division meeting room of the Ministry of Finance.
“It comes from two parts. One is from the supply side. We think it’s coming from food inflation. There are structural issues that keep inflation high. Then there is the demand side, which is aggregated demand. However, inflation remains much higher than our expectations, hence, you have a picture of low growth. High inflation also puts additional pressure on the balance of payments on reserves,” he explained.
Papageorgiou advised the interim government to take effective initiatives to reduce commodity prices, remove tax exemptions, unnecessary expenditures, control money supply, make the exchange rate more flexible, and maintain foreign exchange reserves.
“The picture of what we are seeing is not encouraging. We are seeing economic growth slowing down. For example, growth reduced in our (IMF) projection for FY25. In our previous review, it was around 6.6% and now it's only 3.8%. That is a big margin.”
“When inflation slows the economy down, the banking sector is in distress. This is an area where the IMF has been very vocal, especially regarding non-performing loans -- how they are recorded, how they are measured, and systematically even before the program. We know that these measures are biased output. Basically, the estimate should be much higher than what we were getting in the official numbers.”
He also thinks that all this economic pressure is not for internal economic reasons.
“A lot of the growth reduction we see is because of the disruptions during July and August, and also due to floods. During the IMF program, Bangladesh faced multiple shocks.”
“When the program started, we didn't have the effects of Russia's war on Ukraine. That's one. Second, we didn't have the financial inflationary pressures. As we know, Bangladesh is importing a lot of its food and commodities. These shocks came one after the other.”
The IMF mission chief to Bangladesh further stated: “If you put everything together, it is a picture where Bangladesh used to grow at 7% with low inflation even in 2022. And now we are in a situation where it is slowing at 3.8%. The high inflation puts an extra pressure on the banking sector, which needs help.”
Printing money
The organization has also expressed concern about printing new money and releasing it into the market. However, the IMF believes the Bangladesh Bank governor, who said that they will quickly withdraw the money they released into the market.
“However, if they do not do so, inflation will increase further, which will further increase the suffering.”
Chris Papageorgiou also said that the urgent tasks that need to be done include accurately identifying non-performing loans, effectively implementing the current regulatory measures, and creating a roadmap for restructuring the financial sector.
IMF also believes that the independence and good governance of Bangladesh Bank are very important for the successful implementation of the financial sector reform program.
Once again, the IMF said that the tax revenue ratio in Bangladesh is low.
To build a transparent and fair revenue system, urgent fiscal reforms must be carried out.
But he also hoped FY26 will give some good news.
“The good news is that next year, when things start improving, we will finally start seeing a curbing of inflation. That's the priority. We expect everything in growth momentum, which starts transitioning and rebounding, but together, there is work we have to do.”
A 13-member delegation led by Papageorgiou has been visiting Dhaka since December 3 to review the progress of implementing conditions and negotiate new loans before the fourth tranche of the IMF loan disbursement to Bangladesh.
Loan disbursement
Chris Papageorgiou also informed that Bangladesh will get $645 million as the fourth tranche of the $4.7 billion loan on February 10 because the IMF will place the fourth tranche loan to the board on February 5.
The global lender clarified that they will disburse $80 million of the additional $750 million loan alongside the fourth installment of the $4.7 billion loan program.
An additional $80 million will be released in June 2025 with the fifth installment of the loan, totaling $160 million from the new loan during the current financial year.
Earlier, Bangladesh requested an additional $750 million loan from the IMF to address economic challenges and foreign exchange shortages.
