Without reforms, Bangladesh's GDP growth could slow to 3.5% in FY27: IMF

Highlights

• IMF projects Bangladesh's GDP growth at 3.5% in FY2027.
• Growth could fall below 3% over the medium term without reforms.
• Banking sector weaknesses and fiscal constraints remain key risks.
• IMF team visits Dhaka after Bangladesh seeks a new lending programme.
• Finance minister says reforms under a new IMF programme will be implemented in phases

The International Monetary Fund (IMF) has projected Bangladesh's GDP growth to slow to 3.5% in 2026-27, warning that it could weaken further to below 3% over the medium term unless the country undertakes decisive fiscal and banking sector reforms.

"Staff projects economic growth to slow to 3.5% in FY27 and weaken further to below 3% over the medium term in the absence of decisive reforms to strengthen revenue mobilisation and create fiscal space, and to address weaknesses in the banking sector," IMF Mission Chief for Bangladesh Ivo Krznar said in a statement today (16 July).

Krznar warned that risks to the outlook remain tilted to the downside due to the combined impact of banking sector strains, fiscal challenges and external pressures.

An IMF staff team led by Krznar visited Bangladesh from 12 to 16 July after the government requested a new IMF-supported programme. It described the mission as a "fact-finding staff visit" to review Bangladesh's economic and financial developments, and reform priorities.

During the five-day visit, the delegation held discussions with government officials and other stakeholders. The team also participated in a separate roundtable on the banking sector.

The mission described its discussions as "constructive" and said talks on the possible size of a new loan programme and its associated reform commitments would continue.

Their findings will form the basis of the IMF's internal assessment of Bangladesh, including its macroeconomic outlook and policy assumptions, before formal negotiations on a possible new loan begin. The visit will also help identify areas requiring technical assistance.

Reforms will be phased under govt's priorities, Khosru tells IMF

After a meeting with the IMF team today, Finance Minister Amir Khosru Mahmud Chowdhury said the IMF had been informed that reforms under the proposed loan programme would be implemented in phases, in line with the priorities of the government.

Discussions have already taken place on the framework of the proposed programme, he told reporters after the meeting with the IMF delegation at his ministry today.

"The programme will be built on the policy directions already discussed. Reforms will be carried out with due respect to the elected government," he said.

He added that changes will be introduced in phases, depending on priorities. "Many reforms have already been implemented, while the remaining ones will be rolled out gradually."

IMF's recommendations

The IMF in its statement called for stronger revenue mobilisation and subsidy rationalisation to create fiscal space for higher social and development spending. It also stressed well-targeted social protection to shield vulnerable households from the impact of reforms.

It also urged Bangladesh to maintain tight monetary and prudent fiscal policies to curb inflation and rebuild foreign exchange reserves, while implementing the crawling peg exchange rate regime to strengthen exchange rate flexibility and external stability.

On the financial sector, the IMF said bank restructuring should be guided by a credible, comprehensive strategy, with a well-managed clean-up to preserve macro-financial stability.

The IMF said Bangladesh continues to face major challenges in revenue mobilisation, the financial sector and inflation, with the Middle East conflict driving up import costs and subsidy spending and adding to inflationary pressures amid persistent banking sector stress.

It said the medium-term outlook could improve if Bangladesh accelerated reforms to boost revenue collection and address banking sector vulnerabilities.

Fresh loan programme

Bangladesh entered a $4.7 billion IMF programme in 2023 to address a foreign exchange reserve crisis. The package was later expanded to $5.5 billion under the interim government.

After taking office, the BNP government opted not to continue the programme, arguing that several reform conditions agreed by the previous administration were no longer feasible.

On 1 June, the government asked the IMF to suspend the existing programme and begin talks on a new one. The IMF accepted the request. Bangladesh has so far received $3.595 billion under the previous arrangement.

The government is now seeking $4-4.5 billion under a new programme aligned with current economic realities. Finance officials hope formal negotiations can begin after the IMF-World Bank Annual Meetings in October, subject to a positive assessment of the ongoing mission.