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Bangladesh’s economic growth is expected to rebound to 4.7 percent in both FY26 and FY27 following a recent slowdown but the economy continues to face mounting macro-financial challenges, the International Monetary Fund (IMF) has said.
The IMF’s assessment came after its Executive Board completed the Article IV Consultation for Bangladesh recently. The authorities have consented to the publication of the Staff Report prepared for the consultation, it said on Thursday.
According to the IMF, Bangladesh’s GDP growth slowed to 3.7 percent in FY25 from 4.2 percent in FY24 and 5.8 percent in FY23, reflecting production disruptions during the popular uprising, a tighter policy mix, and sluggish private investment.
Inflation, though easing from double-digit levels earlier in FY25, remained elevated at 8.2 percent year-on-year in October.
The IMF noted that tax revenue collection weakened significantly in FY25, with the tax-to-GDP ratio falling sharply.
However, the fiscal deficit was contained due to under-execution of capital and social spending. Foreign exchange reserves have started to rebuild, supported by improvements in the current account balance.
Looking ahead, the IMF said the economy is expected to recover gradually over the medium term, provided policies are implemented to mobilise tax revenue and address financial sector vulnerabilities.
Growth is projected to gradually accelerate to around 6 percent over the medium term, while inflation is expected to remain high at 8.9 percent in FY26 before easing to around 6 percent in FY27.
However, risks to the outlook remain tilted to the downside, mainly due to potential delays or inadequacies in policy implementation, reversals in exchange rate reforms, and weakening fiscal discipline, the IMF warned.
In its Executive Board assessment, IMF Directors acknowledged the interim authorities’ efforts to stabilise the economy following the 2024 uprising and ahead of upcoming national elections.
At the same time, they stressed that Bangladesh faces serious macroeconomic and financial challenges, including weak revenue mobilisation, banking sector vulnerabilities, incomplete implementation of the new exchange rate framework, and persistently high inflation.
The Directors emphasised the need for decisive and sustained policy actions, noting that bold fiscal and financial reforms are essential to restore macroeconomic stability and support long-term development.
They also highlighted that full ownership of the IMF-supported programme by the new administration would be critical, along with early engagement with IMF staff and efforts to secure stakeholder support.
On fiscal policy, the IMF urged the authorities to undertake ambitious tax reforms, simplify the tax system, and strengthen tax administration and compliance.
The Directors also underscored the importance of rationalising subsidies, prioritising growth-enhancing investments, improving public financial and investment management, and strengthening social safety nets to promote inclusive growth. Improving the financial viability of energy state-owned enterprises was also flagged as a priority.
The IMF further stressed the urgent need for a credible banking sector reform strategy aligned with international standards.
This should include comprehensive asset quality reviews of systemic and state-owned banks, estimates of undercapitalisation, clearly defined fiscal support, and legally robust restructuring and resolution plans.
Strengthening risk-based supervision, governance, and balance sheet transparency was also emphasised.
On monetary policy, the Directors agreed that maintaining a tight policy stance is necessary to rebuild foreign exchange reserves and reduce inflation.
They stressed the importance of fully and consistently implementing exchange rate reforms and allowing greater exchange rate flexibility, while cautioning against unsecured liquidity support to weak banks.
Monetary policy, they said, should remain tight until inflation is firmly on a downward trajectory.
The IMF also underscored the need for comprehensive structural reforms to unlock Bangladesh’s economic potential as it prepares to graduate from least developed country (LDC) status.
Priority areas include strengthening governance and transparency, enhancing anti-corruption and AML/CFT frameworks, ensuring central bank autonomy, creating jobs—particularly for the youth—and promoting export diversification.
Continued reforms under the Resilience and Sustainability Facility (RSF) were seen as key to building climate resilience and mobilising climate finance.