BD growth may slow to 3.5pc in FY27: IMF

Bangladesh’s economic growth may slow to 3.5 percent in fiscal year 2026-27 and fall below 3 percent over the medium term unless the country undertakes decisive fiscal and banking sector reforms, the International Monetary Fund has warned.

In a statement issued on Thursday, IMF Mission Chief for Bangladesh Ivo Krznar said the country’s growth outlook remained under pressure from banking sector weaknesses, fiscal constraints and external risks.

“Staff projects economic growth to slow to 3.5% in FY2027 and weaken further to below 3% over the medium term in the absence of decisive reforms to strengthen revenue mobilisation and create fiscal space, and to address weaknesses in the banking sector,” he said.

An IMF staff team led by Krznar visited Dhaka from July 12 to 16 following Bangladesh’s request for a new IMF-supported lending programme.

During the visit, the delegation reviewed recent economic and financial developments and discussed the government’s reform priorities.

The IMF said Bangladesh continued to face significant fiscal, financial and inflationary challenges, which had been aggravated by the conflict in the Middle East.

Higher global commodity prices and supply disruptions have renewed inflationary pressure and increased subsidy costs, further limiting the government’s fiscal space.

Rising import costs have also placed pressure on the country’s external accounts, despite continued strong growth in remittance inflows, while stress in the banking sector remains high.

The IMF recommended stronger revenue mobilisation and subsidy rationalisation to create additional fiscal space for social and development spending.

It also stressed the need for well-targeted social protection measures to shield vulnerable households from the impact of reforms.

The Fund called for maintaining tight monetary policy and prudent fiscal management to control inflation and rebuild foreign exchange reserves.

It also recommended consistent implementation of the crawling peg exchange rate regime introduced in 2025 to increase exchange rate flexibility and protect external stability.

On the financial sector, the IMF said banking sector restructuring should be based on a credible and comprehensive strategy.

It said a carefully managed clean-up of the banking sector was necessary to preserve macro-financial stability and support investment.

The mission described its discussions with the authorities as constructive and said negotiations on the possible size of a new programme and its reform conditions would continue over the coming months.

Speaking to reporters after meeting the IMF delegation at the Ministry of Finance, Finance Minister Amir Khosru Mahmud Chowdhury said reforms under any new IMF programme would be implemented gradually.

He said the reform measures would be introduced in phases based on the priorities and needs of the elected government.

“The reform process will be carried out while respecting the mandate of the elected government,” the minister said.

He added that the government would not implement all reforms at once and would instead introduce them according to the country’s needs and circumstances.

The minister said several reforms had already been implemented, while the remaining measures would be carried out gradually.