IMF Warns on Funding Weak Banks in Bangladesh

The International Monetary Fund (IMF) has issued a stern warning to Bangladesh against providing unsecured liquidity to financially weak banks, stressing that such actions could undermine the country’s macroeconomic stability. The Fund also called for the comprehensive and consistent implementation of foreign exchange rate reforms.

Following the political upheaval in 2024 and ahead of the forthcoming national elections, the IMF acknowledged the interim government’s efforts to maintain economic stability. The statement was issued on Friday upon the conclusion of Bangladesh’s Article IV consultation, which reviews the nation’s progress in meeting the conditions for a pledged $5.5 billion financial support package.

The IMF highlighted the urgent need for a credible bank sector reform strategy aligned with international standards to restore financial stability. Such a strategy should include: the identification of capital shortfalls, the design of a structured fiscal support framework, and the establishment of legally robust restructuring and resolution plans for struggling banks.

In addition, the Fund urged state-owned banks to undertake thorough asset quality reviews, strengthen risk-based supervision, and enhance governance and balance sheet transparency. It emphasised the necessity of reinforcing monetary policy coordination to rebuild foreign exchange reserves and curb inflation. Exchange rate reforms, the IMF stated, must be fully implemented and made more flexible, while support to weak banks should be carefully calibrated to avoid exposing public funds to unnecessary risk.

The IMF cautioned that monetary policy should remain tight until inflation shows a clear downward trend. Although headline inflation declined from double-digit levels earlier, it remained at 8.2% in October 2024–25. Forecasts indicate inflation will rise slightly to 8.9% in 2025–26 before falling to around 6% by 2027.

The Fund also noted that weak tax revenue collection and vulnerabilities in the financial sector pose rising macro-financial challenges. Delays in implementing bold fiscal and financial reforms could expose Bangladesh to significant downside risks.

Bangladesh’s economic growth is projected at 4.7% in 2025–26, with the medium-term outlook suggesting a gradual recovery to nearly 6%. The IMF underscored the importance of preserving fiscal stability, reinforcing macro-financial resilience, promoting employment, and implementing structural reforms to enhance economic diversification.

Key macroeconomic indicators for Bangladesh are summarised below:

Furthermore, the IMF advised the Bangladeshi government to rationalise subsidies, prioritise growth-enhancing investments, strengthen social protection systems, and improve public financial and investment management to foster inclusive development and sustainable economic growth.