BD’s economy faces pressure despite progress

Business Report :

The International Monetary Fund (IMF) has said that Bangladesh’s economy continues to face three major challenges weak tax revenue, vulnerabilities in the financial sector, and high inflation despite recent progress in maintaining macroeconomic stability.

In a statement published on Thursday evening, the IMF noted that Bangladesh has made significant progress in safeguarding economic stability and advancing reforms. However, the economy still remains under pressure due to low tax collection, financial sector weaknesses, and elevated inflation.

An IMF delegation, led by Chris Papageorgiou, visited Bangladesh from 29 October to 13 November to discuss the country’s economic and financial policies with various government and financial institutions. During the visit, the delegation met with senior officials, including Economic Adviser Salehuddin Ahmed, Bangladesh Bank Governor Ahsan H. Mansur, Finance Secretary Khairuzzaman Mozumder, and NBR Chairman Abdur Rahman Khan.

Bold Actions Needed
The IMF stressed the need for bold policy measures to address revenue weaknesses and financial sector challenges. These steps are essential to restore strong and inclusive growth while ensuring long-term economic stability. Any delay or inadequate policy action could increase risks, it warned.

The organisation also said Bangladesh needs broad structural reforms in the medium term to strengthen governance, reduce youth unemployment, and accelerate economic diversification key factors for boosting long-term growth potential. It further urged efforts to improve public financial management and enhance institutional capacity to implement reforms effectively.

Slower Growth, Lower Inflation
According to the IMF, Bangladesh has made “commendable progress” in maintaining macroeconomic stability. However, financial challenges persist due to weak tax revenue and capital shortages in the banking sector. GDP growth has slowed to 3.7 percent in the 2024–25 fiscal year, partly due to production disruptions caused by last year’s mass uprisings. Inflation, however, has eased from double digits to 8 percent, providing some relief to households and businesses.

The IMF said tax system reforms are essential to create a simpler, fairer, and more efficient revenue environment. If current policies are implemented effectively, GDP growth could rise to around 5 percent in FY2025–26 and FY2026–27, before easing slightly to around 5.5 percent. It also highlighted the importance of ensuring social protection measures to shield vulnerable populations during economic adjustments.

Urgent Banking Sector Reforms
The IMF highlighted that banking sector reforms are critical. Weak banks must be identified, and a credible strategy developed to address capital shortfalls, government support requirements, legal restructuring, and sources of financing. State-owned banks also require asset quality reviews, and overall improvements are needed in bank governance, transparency, safety, and loan recovery processes. Strengthening regulatory oversight and improving risk management practices were also emphasized as vital steps to prevent future crises.

The IMF added that discussions on the fifth review of its support program will continue, reaffirming its commitment to supporting Bangladesh’s efforts toward sustainable economic stability and strong growth.