The upcoming tranches of International Monetary Fund (IMF) loan for Bangladesh has progressed beyond a simple assessment of economic metrics. It has now become a significant test of the government’s credibility regarding its commitment to structural reforms across multiple sectors.
With concerns mounting over the policy continuity of the BNP government and visible gaps in actual progress, the disbursement of the June tranches remains uncertain.
According to sources, the IMF is no longer accepting mere promises; it is now seeking concrete and permanent evidence of reform.
Following the IMF-World Bank Spring Meetings in Washington, Finance Minister Amir Khosru Mahmud Chowdhury expressed “optimism” for the loan’s release but could not offer a definitive guarantee.
In a public briefing, IMF’s Asia and Pacific Department Director Krishna Srinivasan highlighted that Bangladesh still has significant work to do regarding revenue collection, addressing financial sector vulnerabilities, and managing exchange rates.
These remarks indicate that the global lender remains dissatisfied with the current progress. Policy-level sources suggest that the IMF programme has reached a phase where policy declarations are insufficient.
The focus has shifted entirely to the consistency of implementation and tangible results. While previous tranches were released based on promises or partial progress, the IMF has now entered a strict implementation phase where every action is scrutinised against real-world outcomes.
Unfulfilled benchmarks, shifting timelines
To secure the next instalment, the government must meet several new conditions, including the formulation of climate policies for banks, the creation of a central database for state-owned assets, and the development of green finance guidelines.
However, these new requirements are complicated by a history of unfulfilled or only partially implemented commitments.
Key benchmarks – such as raising net foreign exchange reserves to target levels, increasing the revenue-to-GDP ratio, and reducing subsidies in sectors including fuel and fertiliser– were not met within the original timeframes.
The government has struggled to implement a fully market-based exchange rate and to reduce non-performing loans (NPLs). Consequently, the deadlines for these promises have been repeatedly extended.
Recently, the government has taken visible steps to address these concerns. Fuel prices were increased to reduce the subsidy burden, and Bangladesh Bank resumed purchasing dollars from the market to bolster reserves after a six-week hiatus.
The central bank also employed “signalling interventions” to maintain the exchange rate within a specific corridor.
While these measures align with IMF requirements – specifically regarding foreign currency and fuel price adjustments – analysts argue they are not enough. They suggest that while these steps are important signals, the IMF is looking for sustained, permanent reform that cannot be achieved through isolated decisions.
Institutional independence, policy consistency
Zahid Hussain, former lead economist at the World Bank’s Dhaka office, noted that the issue has become a multidimensional crisis of credibility.
He pointed out that the government had promised to ensure good governance in the banking sector, but recent amendments to the Bank Resolution Act allowed former shareholders to return.
This move raises serious questions about the continuity of reform. Hussain explained that the IMF’s primary concern is the stability of these policies and whether frameworks established through reforms will be dismantled by future political decisions.
The economist also questioned the independence of the regulatory body, citing concerns over the appointment and removal of top central bank officials.
He argued that doubts regarding the regulator’s independence damage the credibility of financial sector reforms. Furthermore, he observed signs of continued government control over exchange rates despite agreements to move towards a market-oriented system.
Broader impact of missed commitments
A significant breach of routine occurred in the energy sector; although the government had committed to regular fuel price adjustments since 2023, the scheduled adjustment for early April was missed.
Hussain stated that this failure suggests pricing has become dependent on political decisions rather than administrative practice. This disruption is likely to worry the IMF, which will now seek assurances that other policy continuities will remain intact.
He warned that if the IMF tranche is withheld, the consequences will extend far beyond the specific loan. Major partners like the World Bank, the Asian Development Bank (ADB), and the Asian Infrastructure Investment Bank (AIIB) rely heavily on the IMF’s economic assessments.
Uncertainty regarding the loan could also lead international credit rating agencies to downgrade Bangladesh’s rating. Such a move would impact foreign trade, potentially requiring additional guarantees for Letters of Credit (LCs) and increasing transaction costs.
This would place significant pressure on both the import and export sectors. Ultimately, the release of the funds depends on the government’s ability to demonstrate policy consistency and the sincerity of its political will to reform.
