Dhaka to seek swift WB, IMF disbursement, soft loans at IMF Spring Meetings

Bangladesh will urge the World Bank to expedite the remaining $500 million in committed budget support and secure additional concessional loans under the lender's new three-year soft-lending scheme, starting in July.

During the World Bank-IMF Spring Meetings (April 21-26), Bangladesh will present concrete reform plans addressing exchange rate and revenue management—key conditions set by the IMF for its $4.7 billion loan package, according to officials preparing for the discussions.

So far, the IMF has disbursed $2.3 billion, half of the pledged amount, in three installments until June last year. An IMF mission left Dhaka last week without confirming the release of the next $1.3 billion, expected by June 2025.

Push for additional funding

Besides requesting the early disbursement of committed funds, Bangladesh will seek additional financing for growth-driven infrastructure projects, health, education, and human development, according to Economic Relations Division (ERD) officials.

A $650 million loan agreement is set to be signed with the World Bank to develop marine infrastructure for the proposed Bay Terminal deep-sea project, a senior official told The Business Standard. Approved in June last year, the loan will fund the construction of a 6-km climate-resilient breakwater, shielding the harbor from tidal impacts.

Discussions will also focus on the World Bank's previous commitment of over $1 billion for river protection around Dhaka. If negotiations progress, agreements may be signed by October.

Key officials attending the Washington meetings include Financial Advisor Salehuddin Ahmed, Bangladesh Bank Governor Ahsan H Mansur, ERD Secretary Md. Shahriar Kader Siddiky, and Finance Division Secretary Khairuzzaman Mozumder.

Bangladesh eyes more concessional loans

While Bangladesh now qualifies for blended financing, given the prevailing macroeconomic challenges, it will push for more concessional loans under the IDA-21 soft-lending phase, which runs until June 2028.

According to the World Bank's portfolio update, total IDA commitments stand at $14.5 billion across 51 ongoing projects, with $9.2 billion yet to be disbursed. Actual disbursements for FY25 reached $979 million as of April 10.

Alongside World Bank discussions, Bangladesh delegates are scheduled to meet with US Treasury and Federal Reserve officials.

Macroeconomic challenges & policy measures

A briefing prepared by the Finance Division for the meetings underscores critical macroeconomic challenges, necessitating strategic policy interventions. While the exchange rate remains stable, volatility could resurface if remittance inflows or exports decline. Rising import costs may further pressure the economy as it targets higher growth.

To curb inflation, authorities have implemented contractionary monetary and fiscal measures, affecting household purchasing power and economic stability. Policy rates have been increased, import prices monitored rigorously, and austerity measures enforced to contain inflation.

Recent data indicates that inflation-controlling policies are yielding results, with low inflation in China and India—Bangladesh's primary import sources—and a stable taka-dollar exchange rate reducing import-related inflation risks.

However, broader challenges persist. Supply chain disruptions, excessive profit margins, high transport costs, bribery, and extortion are diminishing the effectiveness of government interventions.

Since the Russia-Ukraine war, Bangladesh has struggled with high inflation, coupled with tight fiscal and monetary policies. Economic growth is expected to remain below 6% next year, but projections indicate recovery beyond 6% by FY28.

Structural weaknesses & LDC graduation strategies

The report acknowledges that fiscal space is narrowing, as revenue collection falls short while debt servicing costs mount. Private sector investment remains sluggish, hindered by:

• Energy shortages
• High borrowing costs
• Global economic uncertainties
• Financial sector weaknesses, including poor lending standards, high non-performing loans (NPLs), liquidity shortages, weak governance, and regulatory inefficiencies.

Adding to these concerns, climate risks continue to threaten key sectors, especially agriculture. As Bangladesh prepares for LDC graduation, robust medium- and long-term strategies are crucial for market access and concessional financing to support sustainable and inclusive growth.

Infrastructure development & corruption concerns

Recognizing the importance of infrastructure investment, the government has prioritized large-scale projects to unlock Bangladesh's economic potential. However, these megaprojects have been marred by corruption allegations.

The interim government aims to eliminate politically motivated projects, shifting focus toward social investments, particularly in health and education.

To improve tax revenue, the government has introduced a three-pronged approach:

1. Digital transformation
2. Expanding direct tax net
3. Strengthening administrative capacity while reducing tax exemptions

Bangladesh's tax-to-GDP ratio remains below 8%, significantly lower than other Asia-Pacific nations, highlighting the need for comprehensive tax reforms.

Country performance will matter

Zahid Hussain, former lead economist at the World Bank's Dhaka office, said any increase in IDA allocation for Bangladesh will largely depend on the country's performance on the Country Policy and Institutional Assessment (CPIA).

"There are 16 key indicators under the CPIA. If Bangladesh can improve its scores, particularly in the governance cluster, the country allocation is likely to increase. That's why Bangladesh may focus on reforms in this area during discussions," he said.

He pointed out that some reforms have already been undertaken.  

"For instance, the special law in the power sector has been repealed. Whether this has been reflected in the CPIA is something to consider. The Anti-Corruption Commission has been restructured – this is a governance issue. Reforms have also been made to the Bangladesh Financial Intelligence Unit," he added.

"If Bangladesh can demonstrate both what has already been done and what's in the pipeline, the World Bank will make a favourable decision regarding enhanced allocation. That's the path forward."

On the issue of budget support, Zahid Hussain said securing such assistance from the World Bank will be difficult without a green light from the IMF.

Bangladesh's representatives need to explain their clear plans to resolve pending issues—such as separating tax policy and tax administration, and reducing tax exemptions--- as part of reforms committed for IMF loans, the economist suggested. "Seeking further time (to comply with IMF guidelines) instead of taking visible steps will give the wrong signal."