IMF ties uniform 15% VAT, turnover tax to new loan package
Deal could be signed in December
The International Monetary Fund has sought a time-bound action plan covering reforms in revenue mobilisation and the banking sector, in light of Bangladesh's new loan proposal.
According to finance officials, the global lender has proposed that Bangladesh introduce a single value-added tax (VAT) rate of 15%, and impose a turnover tax as part of broader fiscal reforms.
On the banking side, the IMF has called for a clear roadmap to reduce non-performing loans, merge weak financial institutions, and end government interference in bank management.
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A senior official said Bangladesh supports a unified VAT system, but prefers a rate not exceeding 10-12%. The government is also not ready to introduce a turnover tax immediately, he said, arguing that improvements in accounting systems should come first.
"The government is also interested in reforms in the banking sector and has passed the Bank Resolution Act. However, the IMF has raised objections to a new provision in the law related to the return of ownership of merged banks. The government has, however, taken a policy decision to remove this provision in order to satisfy the IMF," the official said.
Loan deal likely in December
In 2023, the then Awami League government signed a $4.7 billion loan agreement with the IMF. The interim government later increased the programme to $5.5 billion. The loan was to be disbursed in seven installments, of which the IMF released $3.7 billion in five tranches.
However, the IMF withheld further installments, citing unmet conditions. In response, the BNP government proposed cancelling that agreement and signing a new loan deal on 1 June.
To review the proposal, an IMF delegation is due to visit Bangladesh mid-July, officials said. Final discussions are expected at the IMF and World Bank Group's Annual Meetings in Thailand on 12-18 October, based on the mission's findings.
If both sides agree on the terms, the deal could be signed in December.
Finance ministry sources said Bangladesh's current quota at the IMF stands at 1,066.6 million Special Drawing Rights (SDR), the IMF's internal reserve asset.
Under IMF rules, a country can access up to 435% of its quota under standard lending arrangements. This means Bangladesh could borrow about 4,640.71 million SDR, or roughly $6.15 billion at current exchange rates, over the long term.
Bangladesh has already utilised 2,886.57 million SDR under various IMF programmes. After accounting for outstanding obligations, the country can still access up to 1,754.14 million SDR, or around $2.32 billion.
Officials said the government is seeking an additional $1.68 billion from the IMF to support climate resilience and broader efforts to strengthen economic capacity. This would bring the total proposed new programme size to around $4 billion.
IMF loans serve as benchmark
An official said the scale of IMF financing is not the only consideration. He noted that IMF programmes serve as a benchmark for a country's economic credibility and rating.
Such assessments are also used by other international lenders and development partners when making financing decisions. In the absence of an IMF programme, countries rely on the IMF's Article IV consultations, which are less detailed than programme-based reviews.
"This is why the government is keen to enter a programme," he said.
He added that the proposed new fiscal budget has projected a deficit of Tk243,000 crore. To finance this gap and repay existing obligations, the government expects Tk155,850 crore from external sources. Of this, Tk43,841 crore has been earmarked as budget support.
In the current fiscal year, Bangladesh has received about $2.5 billion in budget support. This includes $1 billion from the Asian Development Bank, $300 million from the Japan International Cooperation Agency, $600 million from the Asian Infrastructure Investment Bank, and $600 million from the World Bank. However, a significant portion of the World Bank and AIIB funding was repurposed from project loans and counted as budget support.
