Staff Reporter :
The International Monetary Fund (IMF) has said that Bangladesh requires more time to fully transition to a flexible exchange rate system, as the country continues to implement critical economic reforms under its $5.5 billion loan programme.
Speaking at a virtual press briefing on Monday, IMF Mission Chief for Bangladesh Chris Papageorgiou stated that the country is currently operating under a transitional exchange rate regime – specifically a crawling peg with a band – which allows for limited flexibility.
The framework, introduced by Bangladesh Bank in May, is intended to gradually prepare both the economy and the financial system for a fully market-determined exchange rate.
“This transitional arrangement is a step in the right direction,” Papageorgiou said. “While it is not yet a fully flexible system, it does enable market forces to play a greater role and supports institutional preparedness.”
The briefing followed the conclusion of the IMF’s third and fourth reviews of Bangladesh’s reform agenda, which is supported by three financial instruments: the Extended Fund Facility (EFF), the Extended
Credit Facility (ECF), and the Resilience and Sustainability Facility (RSF).
Papageorgiou emphasised that adopting a fully flexible exchange rate remains a long-term goal, but cautioned that the shift must be managed with care. “Ultimately, Bangladesh Bank will need to take full ownership of and lead this transition,” he noted.
Inflation was identified as a major challenge. Food inflation has surged to 14.5 per cent, with overall inflation peaking at nearly 12 per cent. Although the headline rate has since eased to 9 per cent, it remains well above the IMF’s recommended target range of 5-6 per cent.
“We commend the authorities for maintaining a tight monetary policy stance to rein in inflation, but further efforts are necessary,” Papageorgiou added.
He also warned of potential external risks, particularly disruptions to global oil supplies stemming from geopolitical tensions in the Middle East.
Nevertheless, he acknowledged that recent exchange rate reforms have improved Bangladesh’s capacity to absorb such external shocks.
On food inflation, Papageorgiou acknowledged the limitations of monetary policy in addressing supply-side pressures, although he welcomed recent signs of moderation in prices.
IMF Deputy Mission Chief Ivo Krznar addressed the need for structural reforms in Bangladesh’s banking sector. He called for enhanced transparency, stronger corporate governance, and robust legal safeguards to ensure financial stability.
Krznar outlined three key priorities for banking reform: a comprehensive assessment of the sector’s health, including capital adequacy; a clear plan for fiscal support; and a strategy to address the challenges facing underperforming banks.
Also participating in the session were Jayendu De, the IMF’s Resident Representative in Bangladesh, and Randa Elnagar, Director of Communications at the IMF, who moderated the discussion.
