A clear shift is under way in Bangladesh’s economic policy under the International Monetary Fund (IMF) loan programme, with decisions on the dollar, fuel, subsidies, and financial sector now directly tied to conditions of the global lender.
Officials say the government is moving towards policy changes to secure the next loan tranches and fresh budget support, with some election pledge projects now under review.
The government aims to secure $1.3 billion from the ongoing IMF loan package and an additional $2 billion in budget support by June.
The clearest shift has come in fuel pricing. To ease subsidy pressure, diesel, octane, petrol, and kerosene prices have been raised by Tk15 to Tk20 per litre from Sunday.
The Power, Energy and Mineral Resources Division said the move aligns with global markets. However, officials say the adjustment is also part of meeting IMF conditions by cutting subsidies.
Despite rising global prices amid the Middle East crisis, the government had held domestic prices steady by increasing subsidies. But 51 days after the Iran war began, it reversed course and raised prices.
Analysts warn the move will raise the cost of living.
Economists argue that maintaining prices through subsidies in the long term would be unsustainable. Policy Exchange Bangladesh Chairman M Masrur Reaz told TIMES of Bangladesh that raising fuel prices is difficult but largely “inevitable” under current conditions.
Without adjustment, rising global oil and gas prices would have pushed subsidy costs beyond the government’s capacity.
He warned the impact would quickly pass through to transport, production, and commodity prices, increasing inflation.
“Pressure on low- and middle-income groups will increase,” he said.
He added that stronger supply chains and targeted support for vulnerable groups would be needed to manage the impact.
Meanwhile, even before the fuel hike, Bangladesh Bank moved to stabilise the foreign exchange market.
After a one-and-a-half-month pause, it bought dollars for two consecutive days. By purchasing $120 million at a cut-off rate of Tk122.75, it aimed to rebuild reserves and signal an effective exchange rate.
An official familiar with the matter told TIMES, on condition of anonymity, that the rate was meant to guide interbank transactions.
Sources said the move was not driven by market demand but by IMF requirements. The IMF has asked Bangladesh to keep net international reserves above $20 billion.
Rising import costs for fuel and fertiliser, a record trade deficit, and debt repayments have pushed net reserves below that level.
During IMF talks in Washington, the issue was raised with the Bangladesh delegation.
Sources said Governor Md Mostaqur Rahman instructed Bangladesh Bank to buy dollars to restore reserves and keep the exchange rate within a set corridor.
The IMF requires the exchange rate to remain within a defined band. If it moves outside that range, Bangladesh Bank must intervene. The Tk122.75 purchase has effectively set a “signal rate” for interbank transactions.
At the same time, the government is moving to reduce quasi-fiscal activities, or indirect public spending.
Officials say the IMF has long pressed for limiting such practices.
Plans for a large refinancing scheme for cottage, micro, small, and medium enterprises (SMSME) are being scaled back.
Similarly, Bangladesh Bank has stepped back from plans to raise the Export Development Fund (EDF) to $5 billion, despite strong demand from businesses.
Expansion of refinancing schemes is also being restrained to avoid pressure on the government’s balance sheet.
Social protection programmes, including family cards, agricultural support, and assistance for small entrepreneurs, will expand gradually rather than through large, immediate increases.
Officials say this reflects a strategy to maintain fiscal discipline and signal “tight adjustment” to the IMF.
Officials involved in IMF engagement told TIMES the steps aim to send a clear message ahead of the IMF mission. “We have to show the IMF that we are serious. Not just discussions, but concrete actions,” one official said.
Pressure rising on fuel imports
Data show rising import costs have driven the fuel price hike. LNG imports rose from about 495,000 tonnes in January to 517,000 tonnes in February and more than 546,000 tonnes in March.
Costs increased from $222 million to around $259 million over the same period. Petroleum imports also surged in March, jumping from about 44,000 tonnes in February to over 214,000 tonnes, while costs rose from $21 million to more than $116 million.
Officials said the increase reflects advance purchases amid supply risks and expectations of further price rises.
Diesel imports also rebounded sharply, rising to over 404,000 tonnes in March after falling to around 75,000 tonnes in February from 456,000 tonnes in January.
Policy sources say the combined trend shows fuel imports have become more expensive and volatile. The Middle East situation and global price swings are pushing up import bills and increasing subsidy pressure.
Overall, Bangladesh’s economy stands at a critical juncture. To secure external financing and manage pressure on the external sector, the government is being forced to take difficult domestic policy decisions.
Officials say the pace and effectiveness of these adjustments will determine the release of the next IMF tranches and prospects for further financing.
