Bangladesh negotiates new IMF loan with stringent conditions
Staff Reporter :
Bangladesh has requested an additional $750 million loan from the International Monetary Fund (IMF) to address its economic challenges and ease foreign exchange constraints. If approved, this would bring the total loan package to $5.3 billion.
A staff-level agreement has already been reached for the disbursement of the fourth tranche, amounting to $645 million, under the ongoing $4.7 billion loan programme, as stated by the IMF on Wednesday.
Meanwhile, a visiting IMF mission has scheduled a press conference in Dhaka on Thursday afternoon.
The 13-member delegation, led by Chris Papageorgiou, head of Development Macroeconomics at the IMF Research Department, is in Dhaka to review the progress of the IMF’s conditions and negotiate new loans ahead of the fourth tranche’s release.
The IMF is prepared to provide Bangladesh with an additional $750 million outside the current loan programme, albeit under stringent terms.
One of the key conditions set by the IMF is the increase in electricity prices. However, the government has indicated that, due to high inflation, it will delay the price hike until next June.
The IMF’s statement stresses the need for immediate policy tightening to address the external financing gap and persistent inflation.
It recommends fiscal consolidation, including swift implementation of additional revenue measures, such as removing tax exemptions, and curbing non-essential spending. Additionally, monetary tightening, greater exchange rate flexibility, and safeguarding foreign exchange reserve buffers are crucial to strengthening the economy’s resilience to external shocks.
The IMF also highlights the urgent need for tax reforms in Bangladesh, noting the country’s low tax-to-GDP ratio. It calls for a more transparent system, focusing on rationalising exemptions, improving compliance, and separating tax policy from administration.
Furthermore, the IMF suggests a comprehensive strategy to reduce subsidy spending and resolve arrears in the electricity and fertiliser sectors.
The IMF statement also underscores the importance of addressing vulnerabilities in the banking sector. Immediate priorities include accurately assessing non-performing loans, ensuring effective implementation of existing regulations, and developing a roadmap for financial sector restructuring. Key actions include conducting an asset quality review and adopting a recovery and resolution framework aligned with global standards.
Improving governance and increasing transparency are seen as critical to enhancing the investment climate, attracting foreign direct investment, and diversifying exports beyond the ready-made garment sector.
The ongoing $4.7 billion loan programme with the IMF began in 2023. To date, $2.31 billion has been disbursed in three instalments, with the full amount expected to be received by 2026.