IMF staff-level agreement with BD hangs over major dos

Striking a staff-level agreement between the International Monetary Fund (IMF) and Bangladesh hangs over major sticking-points like exchange-rate flexibility and higher revenue-generation target, and the fund-release negotiations extend to the Fund's headquarters.

A visiting team of the International Monetary Fund (IMF), headed by Chris Papageorgiou, the agency's Mission Chief for Bangladesh, made the announcement Thursday at a press conference in Dhaka to wrap up their review mission.

"Discussions are continuing with the objective of reaching a staff-level agreement in the near term-including during the April 2025 IMF-World Bank Spring Meetings in Washington, DC- to pave the way for the completion of the combined third-and fourth- programme review," Mr Papageorgiou said.

"We reaffirm our commitment to support Bangladesh and its people at this challenging period," he told reporters-in an indication of fund release in the end.

However, Jayendu De, Resident Representative of the IMF in Dhaka, said the agency would try to release the fourth and fifth tranches of the $4.7-billion loan before the end of the current fiscal year.

He said the IMF delegation would go back to Washington, DC, this weekend and a team of the Bangladesh authority would also visit the capital city of the United States to get engaged in discussions there.

"If all goes well, we are expecting by end of the fiscal year (FY'25), we will do the disbursement. So, by the end of June next, we'll try and do the disbursement. That is our baseline," Mr De informed.

The two instalments, amounting to over a billion dollars, are crucial for Bangladesh's economy nowadays amid low foreign-currency reserves which hinders the country's import trade in particular.

Replying to a query Mr Papageorgiou said they agreed with the Bangladesh authorities that they would continue the discussion beyond Dhaka to Monday when the IMF-World Bank Spring Meetings will be held over there.

Referring to the nearly two-week-long discussions with the Bangladeshi officials, he said a lot of progress had been made on two priority areas--one on revenue mobilisation and another on flexibility of the exchange rate. "So, I can assure everybody that the discussions are going on track."

Regarding the exchange-rate conundrum, the IMF mission chief said their approach--the reform they recommend--is not full flexibility.

"It's an intermediate regime that allows for full flexibility in the future, and, maybe, in the medium term, not even in the short term. It allows for the ability of the country to sustain some big shocks because of the thin financial markets."

Mr Papageorgiou said the IMF does not want to put those financial markets into a big risk. But in the future, it allows for the flexibility - full flex, as they call it.

He said the authorities have some concerns about the time and timing issues have been discussing, but also some issues about possible volatility in the market after the reform is implemented.

"So this is the kind of difficult discussions that we have, but we are in a very good path and we are hoping that we will be reaching a staff-level agreement in the near future," he said.

About the buildup of non-performing loans (NPLs), IMF Deputy Mission Chief to Bangladesh Ivo Krznar said the NPLs exert pressures on stability of the banking sector and also limit new loans.

"To deal with NPLs, the authorities have been making efforts to improve recovery and enforcement of NPLs."

In that context, the new legal framework to improve corporate insolvency framework and also to identify and remove impediments to recovery of NPLs are the two steps in the right direction, he notes.

Mustafa K Mujeri, a former Chief Economist of Bangladesh Bank, told the FE later in the day that delay in IMF's conclusion of loan review would send negative message to other development partners about the state of the country's economy.

"The other development partners will act cautiously in taking decision in the days to come," he said.

Mr Mujeri thinks measures need to be taken to raise revenue earnings to carry out development activities of the country. Bangladesh's tax-to-GDP ratio is very low.

Also, the central bank has already made exchange rate flexible a lot compared to the past. "This is not fully market-based, so the government needs to make it more flexible," he suggests.

The IMF in the press statement said Bangladesh's economy continued to face multiple challenges amidst elevated global uncertainty. GDP growth fell to 3.3 per cent year on year in the first half of FY25, down from 5.1 per cent in the same period of FY'24, reflecting economic disruptions caused by the popular uprising, a tighter policy mix, and heightened uncertainty that weighed on investment.

After peaking to a decade-high 11.7 per cent in July 2024, headline inflation eased to 9.4 per cent in March 2025 but remained well above Bangladesh Bank's target range of 5.0 to 6.0 per cent.

"To address the mounting external financing gap and ensure a continued decline in inflation, near-term policy tightening remains essential," the statement mentions.

Also, the lender underscores that the fiscal consolidation should prioritise the swift implementation of tax-policy reform to remove extensive tax-preferential treatments and simplify the tax system.

Carefully calibrating the monetary stance to avoid its premature softening will help anchor inflation expectations, while greater exchange-rate flexibility will support price competitiveness, rebuild foreign-exchange-reserve buffers, and strengthen the economy's resilience against external shocks, the IMF adds to the list of dos.

"A comprehensive strategy to boost revenue and reform expenditures is crucial for supporting increased social spending and infrastructure investment," says the IMF.

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