The International Monetary Fund (IMF) has formally begun discussions with Bangladesh on a potential new lending program, emphasizing that stronger revenue mobilization, comprehensive banking sector reforms, and prudent macroeconomic policies are essential before a new financing package is finalized.

An IMF mission led by Ivo Krznar visited Dhaka from July 12 to 16 at the government’s request to assess the country’s economic conditions, review reform plans, and explore the framework for a possible IMF-supported program. The delegation concluded its visit with a meeting on Thursday with Finance Minister Amir Khasru Mahmud Chowdhury

In a statement issued after the visit, the IMF said Bangladesh is facing significant challenges, including a persistent revenue shortfall, elevated inflation, weaknesses in the banking sector, and growing external pressures stemming from the ongoing conflict in the Middle East.

The Fund noted that higher global energy and commodity prices, along with supply chain disruptions, have intensified inflationary pressures. Rising subsidy costs have further strained the government’s already limited fiscal capacity, while increased import bills continue to weigh on the country’s external balance despite strong growth in remittance inflows.

The IMF stressed the need to substantially increase tax revenue, rationalize subsidies, maintain a tight monetary policy, and pursue comprehensive banking sector reforms. It also called for targeted social protection measures to shield vulnerable groups from the impact of fiscal reforms.

The discussions were based on policy priorities identified in the IMF’s 2025 Article IV Consultation. The Fund recommended maintaining prudent fiscal and monetary policies to curb inflation and rebuild foreign exchange reserves. It also encouraged the continued implementation of Bangladesh’s crawling peg exchange rate system, introduced in 2025, to enhance exchange rate flexibility and strengthen external stability.

On the banking sector, the IMF said Bangladesh should adopt a credible and coordinated restructuring strategy to address longstanding vulnerabilities. Such reforms, it said, would help safeguard macroeconomic and financial stability while encouraging private investment.

The IMF warned that without meaningful reforms, Bangladesh’s economic growth could slow to 3.5% in fiscal year 2027 and fall below 3% over the medium term if revenue generation, fiscal resilience, and banking sector weaknesses are not effectively addressed.

The Fund added that risks to the economic outlook remain tilted to the downside, as pressures in the banking sector, fiscal challenges, and external vulnerabilities could reinforce one another.

According to the IMF, detailed negotiations on the size of the new lending program, financing amount, and associated reform commitments will continue over the coming months. The mission also expressed appreciation to the Bangladesh government and relevant institutions for their hospitality and constructive engagement during the visit.