Bangladesh's new government to face major economic challenges: IMF

The International Monetary Fund (IMF) has cautioned that Bangladesh’s new government, taking office after the February 2026 elections, will face significant structural and policy challenges to sustain economic stability and accelerate reforms.

The IMF’s 2025 Article IV staff report highlighted that while the interim government made some progress following the 2024 mass unrest—sparked by long-standing inequality and public frustration—sustained recovery will require urgent and credible reforms in revenue collection, banking, exchange rates, monetary policy, and governance.

The report identified the first 12–18 months of the new government as a critical period.

Key findings:

Growth Potential and Risks: Bangladesh has strong growth prospects, but rising inequality and exclusion remain major risks. IMF forecasts 4.7% growth this fiscal year, potentially reaching 6% if reforms are implemented effectively.

Inequality and Social Protection: The IMF stressed strengthening social safety nets, targeting subsidies to the truly needy, and enhancing transparency and participation in policy-making.

Revenue Mobilisation: Weak tax collection remains a key challenge. IMF recommends simplifying the tax system, setting a 15% VAT rate, increasing duties on tobacco and imported fuel, and reducing unnecessary expenditures.

Banking Sector Reform: Restoring confidence requires credible reform measures, including assessing state-owned and major banks’ asset quality, recapitalising weak banks, recovering defaulted loans, and strengthening governance and anti-corruption frameworks.

Monetary Policy & Inflation: Controlling inflation is critical. The IMF advised continuation of contractionary monetary policy, market-based interest rates, competitive product markets, and transparent foreign exchange management.

Expenditure Priorities: IMF urged prioritising health, education, and human resource development while curbing wasteful spending to boost investment and growth.

IMF Loan Programme: Bangladesh is set to receive the sixth tranche of its $5.5 billion IMF programme after the elections, with about $800 million allocated. So far, $3.6 billion has been disbursed.

The IMF delegation, which met Bangladeshi leaders last November, emphasised that while the country’s economic potential is strong, progress hinges on consistent reforms and political commitment.