Bangladesh in its own Strait: Caught between war and policy paralysis

The World Bank-IMF Spring Meetings ended with more questions than answers for Bangladesh. There was no firm signal on the size or timing of external financing, no breakthrough on the stalled IMF programme, and no assurance that the expected $3.2 billion in budget support from the World Bank, ADB, AIIB, and Japan can be mobilised within the government's timeline. At a moment when tensions in the Strait of Hormuz are already unsettling global energy and freight markets, this ambiguity could not have come at a worse time.

Yet the government's post-Meeting narrative has been one of calm continuity. Officials insist the IMF programme is not off the table and that external financing will materialise once routine discussions conclude in the coming months. This confidence, however, sits uneasily alongside the fiscal choices now on the table: a record Tk9.3 trillion budget built on an ambitious revenue target that keeps the deficit deceptively modest as a share of GDP. The implicit message is that adjustment can wait – even as the global environment grows more hostile.

That assumption is increasingly difficult to sustain. Bangladesh sits at the wrong end of every transmission channel emanating from the Strait of Hormuz. Even a partial disruption pushes up oil prices, inflating the import bill and expanding subsidy requirements. Disruptions to Saudi and Qatari urea shipments raise fertilizer costs and threaten agricultural cycles. War-risk premiums on Gulf shipping routes increase freight costs for an import-dependent manufacturing base. Each additional dollar spent on fuel, fertiliser, and freight becomes a direct drawdown on already strained foreign exchange reserves.

Crucially, these pressures are not temporary. Even if the conflict were to de-escalate quickly, the lagged effects on prices, supply chains, and risk premiums are likely to persist for months. This is a shock that compounds over time – and it is arriving just as Bangladesh's policy credibility is beginning to fray.

The deeper problem is that the pressure is no longer one-sided. Bangladesh today finds itself caught between a shock it cannot control and policies it has been slow to adjust. The global environment is tightening from one end; policy inertia is tightening from the other. The result is a narrowing policy space – an economy squeezed from both directions.

This is why the stalled IMF programme matters far beyond its immediate financing value. Without an active IMF programme, Bangladesh loses more than access to disbursements – it loses its credibility anchor. And without that anchor, budget support from other multilaterals becomes harder to unlock, with IMF endorsement now effectively the gatekeeper of macroeconomic confidence. If these flows do not materialise, the consequences are immediate: a wider external financing gap, sharper import compression, rising inflation, and further pressure on reserves.

It is also important to recognise the constraints under which the current government is operating. Barely two months into office, it has been forced to navigate a fragile macroeconomic landscape while confronting a global shock that intensified within days of assuming power. Under such conditions, delays in advancing reforms are understandable.

What is harder to justify, however, is not inertia but reversal. The issue is that some have moved backward. The reintroduction of discretion in petroleum pricing, renewed exchange-rate management despite commitments to a market-based regime, and amendments to the bank resolution framework that reopen the door to previously discredited owners all signal a retreat from earlier reform commitments. Meanwhile, larger structural measures – particularly in tax and financial sector reform – remain stalled.

This mix of reversal and inertia creates a credibility problem at precisely the wrong moment. Backtracking signals unreliability; delays signal a lack of urgency. Together, they raise doubts about the government's willingness to adjust, keeping external financing on hold while the global shock intensifies.

The adjustment path itself is not complicated – but it is politically difficult. It begins with restoring exchange-rate credibility, because without that, reserves cannot be rebuilt and external balances cannot stabilise. It requires aligning interest-rate policy with genuine monetary tightening to contain inflation. It demands a shift in fiscal policy from expansionary optimism to targeted consolidation – anchored in realistic revenue expectations, rationalised subsidies, and prioritised expenditure. And it necessitates moving forward on long-delayed structural reforms, from tax administration and banking sector cleanup to energy pricing, port management, and state-owned enterprise governance.

Ultimately, macroeconomic adjustment is never neutral. When policy delays persist, the burden does not disappear – it shifts. Import compression translates into raw-material shortages for industry. A defended exchange rate erodes export competitiveness while diverting remittances into informal channels. Delayed energy pricing reforms inflate subsidies, crowding out social spending. In the absence of timely policy action, adjustment takes place through even higher inflation, stricter and more chaotic rationing, and slower growth – mechanisms that disproportionately affect those least able to absorb the shock.

Bangladesh is now operating in a dangerously exposed position: caught between a volatile global environment, a stalled IMF programme, and a fiscal stance that assumes the storm will pass. But the world is tightening, not easing. External conditions are becoming less forgiving, not more.

The government may have had limited time – but the direction of travel is already visible.

The war delivered the shock, but the distribution of pain is being decided at home. Without timely and credible reforms, the burden of adjustment will not be shared evenly – it will cascade downward, onto households, workers, and small businesses. That is the real cost of delay: not just macroeconomic strain, but a quieter, more unequal adjustment that unfolds as policy continues to look the other way.