IMF approves $1.33 billion to support Bangladesh economy

Arabian Post

4 days ago

By Saifur Rahman
The International Monetary Fund (IMF) has approved the allocation of US$1.33 billion to Bangladesh to support the country's economy that witnessed slowdown since the change of government in August 2024.
The allocation is part of the US$4.7 billion combined support package authorised by the IMF in January 2023 under the US$3.3 billion Extended Credit Facility (ECF) and Extended Fund Facility (EFF) and US$1.4 billion Resilience and Sustainability Facility (RSF), the International Monetary Fund (IMF) said.
The decision comes following the conclusion of the combined third and fourth reviews of Bangladesh's arrangements under the ECF, EFF and RSF that approved an extension, augmentation and re-phasing of access funds.
However, the latest allocation exceeds the total ECF and EFF package by US$800 million, from US$3.3 billion to US$4.1 billion and brings the total allocation to US$5.5 billion.
'The augmentation approved by the [IMF] Executive Board today brings the total financial assistance under the ECF and EFF arrangements to US$ 4.1 billion, alongside concurrent RSF arrangements of US$1.4 billion. The enlarged enhanced ECF/EFF is aimed at restoring macroeconomic stability, promoting inclusive growth, and protecting the vulnerable. The RSF arrangement has secured fiscal space needed to build resilience against climate risks,' IMF said in a statement.
Bangladesh's macroeconomic challenges have increased since the popular uprising in the summer of 2024, which led to the ouster of the previous government, IMF observed in its latest report.
'The timely formation of an interim government has helped stabilise political and security conditions, fostering a gradual return to economic stability. However, the economic outlook has worsened due to persistent political uncertainty, continuation of tighter policy mix, rising trade barriers, and increasing stress in the banking sector,' it said.
Bangladesh's Gross Domestic Product (GDP) has grown to US$473.63 billion in the financial year ending June 30, 2025 from US$413.90 billion in the last financial year, IMF data shows. The country's GDP growth rate declined from 7.1 per cent in the 2022 financial year to 3.8 percent this year. However, IMF projects the GDP growth to accelerate to 5.4 percent next year and 6.2 percent in the 2027 financial year.
After a fall in real GDP growth to 4.2 percent in FY24 from 5.8 percent in FY23, economic activity slowed further in FY25, the World Bank recently said in its periodic economic update on Bangladesh.
'The economy continues to face significant challenges, including investment moderation, elevated inflation and vulnerabilities within the financial sector. However, external sector pressures have apparently eased, with robust growth in remittance inflows and exports bolstering the current account balance in FY25,' the World Bank said.
'Real GDP growth is projected to further moderate to 3.3 percent in FY25 due to declining private and public investment. Political uncertainty and rising costs associated with borrowing and inputs are expected to constrain private investment growth and keep industrial growth subdued.'
Public investment will decline as the government reduces capital expenditure in FY25. The fiscal deficit is expected to remain under 5 percent of GDP in the medium term, with capital expenditure increasing only gradually. Inflation is likely to remain elevated in the near term, it observed..
Nigel Clarke, IMF Deputy Managing Director, said, 'Bangladesh's economy continues to navigate multiple macroeconomic challenges. Despite a difficult environment, programme performance has remained broadly on track, and the authorities are committed to implementing necessary policy actions and reforms. The IMF-supported programmes are helping safeguard macroeconomic stability and protect the most vulnerable, while accelerating reforms to support resilient and inclusive growth.
'Near-term policies should prioritise rebuilding external resilience and reducing inflation. The authorities' recent steps to implement a new exchange rate regime and include revenue-enhancing measures in the FY2026 budget are welcome. A balanced policy mix—anchored in maintaining a tight monetary policy stance, greater exchange rate flexibility, and revenue-based fiscal consolidation—will support efforts to restore both external and internal balances.'
Efforts to raise tax revenues and rationalise expenditures—including through subsidy reduction—are critical for creating the fiscal space needed to strengthen social, development, and climate initiatives. Sustained progress in reducing government subsidies to a fiscally sustainable level, along with enhanced public financial management, is essential to improving spending efficiency and mitigating fiscal risks, Nigel Clarke observed.
'Financial sector policy should prioritise safeguarding stability and addressing rising vulnerabilities. Developing a comprehensive, sequenced strategy to guide reforms is an immediate priority, followed by the swift implementation of the new legal frameworks to enable orderly bank restructuring while protecting small depositors,' he said.
'Sustained structural reforms are essential for Bangladesh to achieve its goal of attaining upper middle-income status. Key priorities include diversifying exports, attracting greater foreign direct investment, strengthening governance, and enhancing data quality.'
Bangladesh's real GDP is expected to rise gradually in the medium term, if backed by critical reforms. Inflation is expected to gradually subside in the medium term on the back of tight monetary policy, fiscal consolidation and easing import restrictions on key food commodities. Rising trade uncertainties are expected to put pressure on the external sector.
'Bangladesh will need bold and urgent reforms to bolster the financial sector, facilitate trade, and enhance domestic revenue mobilisation,' said Gayle Martin, World Bank Interim Country Director for Bangladesh.
Dhruv Sharma, World Bank Senior Economist, added, 'The risks to the outlook are on the downside as uncertainties related to trade, persistent inflationary pressure, weak demand in Bangladesh's major export markets, and intensifying financial sector vulnerabilities could weigh on growth.'
Also published on Medium.
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