IMF Warns Bangladesh Faces Major Reform Challenges After 2026 Election

Bangladesh’s 2024 mass uprising was largely the result of long-standing public frustration over inequality and deprivation, and the interim government that took office afterward has faced severe challenges in stabilizing the economy and advancing a reform agenda, the International Monetary Fund (IMF) has said.

In its 2025 Article IV Country Staff Report on Bangladesh, the IMF said that while some progress has been made under the interim government, the next elected government—expected to take office after the February 2026 national election—will confront deep structural and policy challenges. Without faster and more credible reforms, economic recovery could be undermined, the IMF warned.

The report said inflationary pressures and external-sector stress could persist if reforms are delayed, adding that the first 12 to 18 months of the new government will be “critical.”

According to the IMF, durable economic recovery will be impossible without consistent and firm reforms in revenue mobilization, banking, exchange rate management, monetary policy, and governance during this period.

Growth Potential, But Rising Risks

The IMF said Bangladesh still has strong growth potential, but risks are now greater than ever. The inequality and deprivation that erupted in 2024 must be addressed decisively if the economy is to return to a sustainable path, the report noted, stressing that strong political commitment and policy discipline are essential.

The IMF projects Bangladesh’s economic growth at 4.7% in the current fiscal year, with the potential to gradually rise to 6%—provided reforms are implemented at a credible pace.

Inequality and Inclusion Among Key Challenges

One of the core challenges identified in the report is widening inequality and weak inclusion. The IMF said rising barriers to political participation and unequal access to economic opportunities had intensified social tensions. Inflation and market volatility have disproportionately affected poor and low-income households.

To address this, the IMF recommended restructuring social protection spending to ensure benefits reach the truly poor, reducing waste and inefficiencies in subsidy programs, expanding targeted assistance, and increasing transparency and participation in policymaking.

Weak Revenue Mobilization a Major Risk

The IMF said boosting government revenue is essential to finance development and maintain fiscal stability. It called for bold measures, including enforcing a 15% value-added tax (VAT) rate, simplifying the tax system, and increasing excise duties on tobacco and imported fuel.

The report warned that weak revenue collection poses one of the biggest risks to macroeconomic stability. Bangladesh’s tax-to-GDP ratio remains among the lowest in South Asia, leading to significant revenue losses.

To address this, the IMF recommended simplifying the tax structure, modernizing VAT and income tax systems, strengthening the administrative capacity of the National Board of Revenue, rationalizing subsidies, and cutting non-priority spending. It also stressed the need for a roadmap to reduce losses in the power sector through energy subsidy reform and electricity tariff adjustments.

Banking Sector Reforms Urged

The IMF said restoring stability in the banking sector requires a credible reform strategy. It recommended comprehensive asset quality reviews of state-owned and systemically important banks and recapitalizing weak institutions.

The report highlighted deep capital shortfalls in state-owned banks and rising non-performing loans, which continue to undermine financial stability. It noted that a high-level strategy for bank restructuring has yet to be approved.

The IMF urged authorities to complete mandatory asset quality assessments for all banks, implement strong restructuring plans for undercapitalized institutions, strengthen governance and management accountability, halt indiscriminate liquidity support to weak banks, and reinforce legal frameworks for loan recovery and asset repatriation.

The report also said corruption and weak governance are harming the investment climate, calling for stronger anti-corruption measures, enhanced financial-sector oversight, and compliance with international standards on anti-money laundering.

Advice on Monetary and Exchange Rate Policy

Noting that inflation has eroded purchasing power—especially among low-income groups—the IMF recommended maintaining a tight, contractionary monetary policy stance.

It also advised strengthening market-based interest rate mechanisms, reinforcing competition and supply chains in commodity markets, allowing greater exchange rate flexibility, improving transparency in foreign exchange market operations, rebuilding foreign exchange reserves gradually, and limiting intervention to cases of excessive volatility.

Spending Priorities and Fiscal Discipline

To support macroeconomic stability, the IMF advised continued expenditure restraint. While the interim government managed to keep the budget deficit within targets by cutting infrastructure, social, and development spending, the IMF warned that prolonged underinvestment could weigh on long-term growth.

The next government, the report said, should prioritize spending on health, education, and human capital, increase public investment, strengthen project management, and address governance and transparency gaps that hinder investment and growth.

Next IMF Loan Tranche After Election

The IMF indicated that the sixth tranche of Bangladesh’s $5.5 billion loan program—worth about $800 million—is likely to be released after the next national election. The disbursement was initially expected by late December or early January.

The IMF approved a $4.7 billion loan package for Bangladesh in January 2023. In June last year, the total amount was increased to $5.5 billion with the approval of the fourth and fifth tranches. The funds are scheduled to be released in eight installments, of which Bangladesh has so far received $3.6 billion.

An IMF mission led by Bangladesh Mission Chief Chris Papageorgiou visited Dhaka last November to review economic conditions. At a press conference on November 13, Papageorgiou said the mission had also met leaders of the BNP and Jamaat-e-Islami to discuss their reform agendas, economic visions, and policy plans.