An IMF ceiling with teeth
The IMF's newly instituted ceiling on Bangladesh’s external borrowing is distinct in both scope and intent. It encompasses all forms of external borrowing, irrespective of their concessional nature.
In a quiet but consequential move, the International Monetary Fund (IMF) has imposed a quantitative ceiling on Bangladesh's external borrowing. As part of its fourth and fifth tranche review in June 2025, the IMF capped total foreign loan intake at $8.44 billion for FY26, with quarterly limits starting at $1.91 billion. This is not just a technical benchmark—it's a strategic inflection point.
The first of its kind
Historically, Bangladesh has been subject to borrowing ceilings, particularly targeting nonconcessional loans under previous IMF arrangements. These earlier restrictions primarily aimed to curb the accumulation of high-interest commercial debt and thereby safeguard long-term debt sustainability. However, the newly instituted ceiling is distinct in both scope and intent. It encompasses all forms of external borrowing, irrespective of their concessional nature, including loans from multilateral institutions such as the IMF, World Bank, Asian Development Bank (ADB), Japan International Cooperation Agency (JICA), as well as publicly guaranteed obligations incurred by state-owned enterprises (SOEs).
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The enforcement mechanism relies on quarterly performance benchmarks and is informed by comprehensive external vulnerability diagnostics, rather than being limited to traditional debt-to-GDP ratios. This development signals a transition from a framework centered on pricing discipline to one focused on controlling the aggregate volume of external borrowing, underscoring the IMF's heightened concerns regarding foreign exchange liquidity, repayment capacity, and the adequacy of international reserves.
Why the ceiling, and why now?
The IMF's most recent Debt Sustainability Analysis (DSA) has downgraded Bangladesh's risk rating from "low" to "moderate" for two consecutive years. This reassessment was not prompted by the overall level of debt, but rather by indicators evaluating the country's capacity to service its obligations in foreign currency. Notably, the 2024 White Paper (WP) also highlighted this issue, cautioning that an undue reliance on the ostensibly low debt-to-GDP ratio has engendered a misleading sense of security regarding debt distress. The WP observed that projections of a favorable debt-to-GDP ratio were compromised by overly optimistic assumptions about GDP growth.
Furthermore, the White Paper issued a warning that rising debt service obligations, combined with a shortage of dollar liquidity, have become a significant source of concern. According to the WP, the external debt burden—measured by the ratio of external debt to foreign-exchange earnings—has reached a level that warrants pre-emptive policy action. The report recommended adopting metrics that account not only for the size and cost of debt, but also for the availability of liquidity in both taka and dollars necessary to manage debt obligations seamlessly.
Two specific indicators prompted the IMF's recent concerns and its shift away from GDP-based metrics. First, the present value of external debt-to-exports rose to 162.7% in FY24. Although this remains below the IMF's stress threshold of 240%, the ratio has stayed elevated due to downward revisions in export data and an increasing debt stock. Second, the debt service-to-revenue ratio increased to 23.9% in FY25, surpassing the IMF's stress threshold of 23%. This rise reflects the growing repayment obligations on foreign exchange-denominated loans, including those obtained by state-owned enterprises (SOEs) and backed by sovereign guarantees.
Given the combination of limited foreign exchange reserves and weak export growth, the IMF no longer finds comfort in GDP-based debt indicators. Instead, its focus has shifted to assessing repayment capacity, the adequacy of foreign exchange liquidity, and the resilience of reserves. Consequently, the imposition of a borrowing ceiling serves as a proactive macro-fiscal safeguard, signaling the imperative for Bangladesh to align its external borrowing with its ability to generate foreign exchange.
Will it bite?
Indeed, the borrowing ceiling imposed by the IMF is binding, rather than merely symbolic. In FY25, Bangladesh's total external borrowing reached $11.2 billion, as reported by the Ministry of Finance. The newly established cap is 25% lower than this figure, representing a significant constraint. The IMF will oversee quarterly disbursements, which will restrict the practice of concentrating borrowing toward the end of the fiscal year or accelerating financing for large-scale projects.
It is important to recognize that the external borrowing landscape in Bangladesh is fragmented across three principal official datasets. Bangladesh Bank's Balance of Payments records $9.92 billion in medium- and long-term loan receipts for FY25, capturing actual foreign exchange inflows while reporting short-term trade credit and grant flows separately. The Economic Relations Division (ERD) reports $8.11 billion in foreign "aid" disbursements, primarily consisting of concessional project loans and excluding IMF and commercial sources. In contrast, the Ministry of Finance documents $11.2 billion in total external borrowing, which encompasses IMF tranches, commercial loans, and state-owned enterprise (SOE) borrowing backed by sovereign guarantees.
These discrepancies stem from differences in scope, timing, and classification across the agencies: ERD monitors project aid, BB accounts for foreign exchange inflows, and the MoF aggregates fiscal liabilities. Achieving reconciliation among these datasets necessitates the development of a consolidated debt dashboard that integrates inflows, commitments, and contingent liabilities across institutional boundaries. Notably, the IMF's borrowing ceiling applies specifically to the MoF debt coverage.
Beyond the ceiling
This borrowing ceiling represents a critical juncture for Bangladesh, compelling the country to systematically evaluate and prioritize its $42 billion plus loan pipeline. Government ministries must focus on projects that either generate foreign exchange or are of strategic significance. Borrowing by SOEs will require heightened oversight. Public guarantees can no longer be assumed as automatic approvals. Instead, careful assessment of foreign exchange risk and repayment capacity is essential.
To adapt effectively, Bangladesh must strengthen institutional discipline, even as the ceiling may incentivize a shift toward domestic financing mechanisms such as T-bills, Sukuk, and local bonds. These alternatives carry risks of inflation and financial crowding-out. Treating the ceiling as a strategic safeguard, rather than a mere bureaucratic constraint, offers the opportunity to transform fiscal limitations into drivers of meaningful reform.
Ultimately, this situation necessitates a fundamental shift in perspective: the emphasis should move from the volume of borrowing to the quality and prudence of borrowing decisions. This moment calls for a narrative reset. Bangladesh must move from "how much can we borrow?" to "how wisely can we borrow?"
Zahid Hussain is a former lead economist of the World Bank Dhaka office.
