B Mirror Report: The International Monetary Fund (IMF) has warned Bangladesh against injecting unsecured funds into struggling banks, emphasising the importance of maintaining a strict monetary policy and implementing strong financial sector reforms to ensure economic stability.

The caution followed the conclusion of the IMF Executive Board’s 2025 Article IV Consultation with Bangladesh on Sunday (26 January). The authorities agreed to publish the IMF staff report, according to a statement issued on 30 January.

The IMF noted that the country’s economic momentum has weakened in recent years, while inflation remains stubbornly high.

Gross domestic product (GDP) growth declined to 3.7% in FY25, down from 4.2% in FY24 and 5.8% in FY23. The slowdown was attributed to disruptions caused by the 2024 uprising, tighter policy measures and reduced investment activity.

Although inflation has eased from earlier double-digit levels, it remained elevated at 8.2% year-on-year in October FY25.

The IMF also observed a sharp drop in Bangladesh’s tax revenue-to-GDP ratio in FY25. However, the fiscal deficit was kept under control due to lower-than-planned spending on development and social programmes.

Meanwhile, foreign exchange reserves have begun to improve, supported by a stronger current account position.

Looking ahead, the IMF forecast a gradual economic recovery if reforms move forward as planned. Growth is expected to rise to 4.7% in FY26 and approach 6% in the medium term, driven by higher revenue collection and efforts to strengthen the financial sector.

Inflation, however, is projected to remain high at 8.9% in FY26 before easing to around 6% in FY27.

IMF directors recognised the interim government’s efforts to stabilise the economy following the 2024 unrest and in the lead-up to national elections. Still, they cautioned that Bangladesh faces growing macroeconomic risks, including weak revenue mobilisation, fragile banks, incomplete exchange rate reforms and persistently high prices.

They stressed that strong and consistent policy actions would be essential to restore stability, and that the next government must fully commit to reform programmes while working closely with IMF officials and stakeholders.

Regarding the banking sector, the IMF called for an urgent and credible reform plan aligned with global standards. This should include accurate assessments of capital shortfalls, clear fiscal support measures and legally sound restructuring strategies.

The fund recommended asset quality reviews for all major and state-owned banks, stronger risk-based supervision and improved governance and transparency.

In this context, the IMF warned that unsecured liquidity support to weak banks could worsen financial risks.

The organisation also highlighted the need to maintain tight monetary policy to curb inflation and rebuild foreign reserves, alongside full implementation of exchange rate reforms and greater flexibility in the currency market.

On fiscal matters, the IMF urged bold tax reforms, simpler tax structures and improved compliance to boost revenue. It also advised rationalising subsidies, prioritising productive investment and strengthening social protection systems.

The IMF further noted that improving the financial health of energy sector state enterprises would help reduce fiscal pressures.

Beyond short-term economic management, the fund emphasised broad structural reforms as Bangladesh prepares to graduate from least developed country status. These include stronger governance, anti-corruption efforts, enhanced financial safeguards and central bank independence.

The IMF also supported initiatives for job creation, especially for youth, export diversification and better economic data systems.

Additionally, it said continued reforms under the Resilience and Sustainability Facility could help Bangladesh strengthen climate resilience and attract climate-related financing.