- Bold policies needed to address weak banks and financial sector vulnerabilities
- Maintain tight monetary policy until inflation falls to 5–6%
- Fully implement the new exchange rate regime
- Expand AQRs to all major and state-owned banks
Bangladesh’s economy continues to face mounting macro-financial challenges stemming from weak tax revenue, financial sector vulnerabilities, and elevated inflation, although the authorities have made progress in maintaining macroeconomic stability and advancing reforms.
For all latest news, follow The Daily Star’s Google News channel. The International Monetary Fund (IMF) said this as its review mission, led by Chris Papageorgiou, concluded today.
The two-week mission in Dhaka discussed economic and financial policies for the fifth review of conditions tied to the $5.5 billion loan the multilateral lender is providing to Bangladesh.
The IMF said Bangladesh’s economic growth in FY25 decelerated to 3.7 percent from 4.2 percent in FY24, reflecting production delays during the popular uprising, a tighter policy mix, and heightened uncertainty.
Headline inflation fell from double-digit levels in early FY25 but remained elevated at 8.2 percent year-on-year in October.
Papageorgiou said Bangladeshi authorities have made notable progress in maintaining macroeconomic stability, especially through the tightening of both fiscal and monetary policies to ease external imbalances and contain inflation.
“Importantly, foreign exchange reserves have begun to rebuild following the exchange rate reform launched in May. However, the economy continues to face significant macro-financial challenges stemming from weak tax revenue and undercapitalisation in the financial sector,” he said.
The IMF said bold policies to address fiscal and financial sector challenges are critical to restoring strong and inclusive growth while safeguarding fiscal sustainability and macro-financial stability.
“Downside risks remain significant, particularly if policy responses are delayed or inadequate,” it added.
The mission underscored the need for financial sector reforms, terming them “critical to address banking sector challenges.”
“A credible, government-wide strategy to comprehensively address weak banks should include estimates of system-wide undercapitalisation, the scope of fiscal support, and legally robust restructuring and resolution options with identified funding sources,” Papageorgiou said in the statement.
He said asset quality reviews (AQRs) of weak banks initiated earlier by Bangladesh Bank need to be expanded to all systemically important and state-owned banks.
As of now, AQRs of six Shariah-based banks have been completed, while three are ongoing.
“Continued efforts are needed to improve banks’ governance and balance sheet transparency, strengthen the financial safety net, and enhance frameworks for recovering non-performing loans. Any approach to dealing with weak banks should ensure healthy balance sheets, sustained profitability, and adequate liquidity without prolonged reliance on forbearance measures.”
The IMF stressed the continuation of monetary policy tightening to bring down inflation.
“The slow decline in inflation warrants maintaining tight monetary conditions until inflation returns to the target range of 5–6 percent. The new exchange rate regime should be implemented fully, including by fostering increased flexibility.”
To improve the effectiveness of monetary policy, the authorities should continue phasing out non-standard monetary and quasi-fiscal operations, he said.
