The next elected government will inherit an economy with a “clouded outlook” and rising macro-financial risks requiring urgent action, according to the International Monetary Fund’s latest assessment.
One of the dangers, the IMF said, is the possibility of delayed banking reforms -- or, more seriously, “reversals of exchange rate reform and fiscal discipline”.
While a gradual recovery remains possible, the report argues that the balance of risks is skewed sharply to the downside.
“Since the completion of the combined review in June 2025, the near-term growth outlook has deteriorated, and the pace of the decline in inflation is projected to slow,” the IMF said.
Tight policies, weak investment amid financial sector strains and election-related uncertainty are expected to limit FY26 growth to 4.7 percent, which is projected to accelerate to around 6 percent over the medium term, according to an IMF forecast.
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Foreign exchange reserves have begun to rebuild, but the IMF cautioned that “buffers have yet to fully recover”.
The report, released yesterday, comes as Bangladesh’s interim government works to stabilise the economy ahead of elections scheduled for February.
Recent data show a strengthening external position, supported in part by continued IMF disbursements. Total purchases under the IMF4supported programme reached $798 million in January, taking fiscal year-to-date purchases to about $4 billion.
This inflow, alongside improvements in the current account, has helped strengthen financial buffers. Gross international reserves rose to $32.62 billion as of January 18.
Even so, the IMF urged the next administration to commit to “greater exchange rate flexibility” and the “full and consistent implementation” of the new exchange rate regime.
Any failure to do so, it said, remains a major risk that could trigger renewed foreign exchange market imbalances and instability.
Inflation, while easing from double-digit peaks, is expected to remain high. Annual average inflation is projected at 8.9 percent in FY26 before falling to around 6 percent in FY27, provided there is no premature loosening of policy or further supply-side shocks.
Bangladesh is implementing a $5.5 billion IMF loan programme, which was launched with $4.7 billion in January 2023 and later expanded by $800 million in 2025. The programme aims to bolster foreign exchange reserves, reduce inflation and support climate resilience.
But the IMF warned that stability depends on the “new administration’s full ownership of the programme,” which will be tested by “stubbornly high inflation” and a banking sector marked by “weak governance”.
The “unresolved banking issues would restrict credit, suppress investment and dampen growth,” the IMF said. It also flagged the risks of further emergency support to fragile lenders.
“Significant additional liquidity support to weak banks -- assumed to avert a loss of confidence -- would compress short-term interest rates, raise exchange rate risk premium and fuel capital outflows, triggering significant and rapid depreciation and inflation,” the report said.
The IMF called for an “urgent need for a credible banking sector reform strategy”, arguing the authorities should move away from the “unsecured liquidity injections” and “regulatory forbearance” of the past. It recommended asset quality reviews of lenders.
External conditions add further risks. The IMF highlighted a potential decline in international aid and escalating trade measures as high-probability threats that could worsen public finances and erode foreign market share, particularly for garments, Bangladesh’s main export sector.
Beyond near-term stabilisation, the IMF said the country faces deeper structural constraints, including the “limited capacity” of industry to absorb the growing number of graduates. With youth unemployment a factor in recent unrest, the IMF argued that “comprehensive structural reforms” were increasingly unavoidable.
Fiscal policy, meanwhile, offers little room to respond. “Persistently weak revenue and large subsidies would squeeze public capital and social outlays,” the IMF said.
The tax-to-GDP ratio fell sharply in FY25, leaving Bangladesh with one of the weakest revenue collection performances in the region. The IMF noted the fiscal deficit was contained largely by curbing capital and social spending, effectively balancing the books by cutting investment needed to sustain long-term growth.
To reverse that pattern, the IMF recommended “ambitious fiscal reforms” to simplify the tax system, reduce non-essential expenditure and cut subsidies, especially in the energy sector.
“Creating fiscal space,” the report said, “is essential for development spending to sustain job-friendly growth and support the banking sector cleanup”.
