Bangladesh’s economy has faced uncertainty since the end of 2022. Although two governments have been in office for more than four years, the new government is also facing a challenge: how to address these anomalies and streamline the overall economic and financial systems.
In recent times, the country has seen a setback in poverty reduction and slow industrial growth. However, export growth remains satisfactory, alongside positive progress in social development. Factors that may help strengthen the economy include the garment industry, remittances from overseas workers, agricultural production, and an expanding domestic market. Yet, despite these achievements, persistent economic vulnerabilities remain: pressure on foreign exchange reserves, inflation, weak tax collection, financial-sector irregularities, non-performing loans, and rising debt-servicing obligations.
The GDP outlook may not brighten in the days ahead, according to the International Monetary Fund (IMF). The government has set a growth target of 6.5% for 2026-27, slightly higher than the World Bank’s target of 6.1%. In this context, budgetary support from the IMF can provide valuable assistance. Such support can help Bangladesh manage external payment pressures and restore confidence by obligating the country to undertake necessary economic reforms.
Many countries have obtained IMF loans, but countries such as Pakistan, Argentina, Greece and Ghana have yet to overcome their economic difficulties. An IMF loan can provide foreign currency that helps the government meet external obligations and finance essential imports. It can also encourage other development partners to continue providing financial assistance. However, the money must eventually be repaid according to the agreed terms. An IMF loan, therefore, is not a permanent solution to structural weaknesses. Reforms are needed, but if they go beyond people’s ability to pay, questions may arise about the government’s policies and its ability to govern.
Furthermore, an IMF loan creates an additional repayment obligation and must be accompanied by policies that strengthen the economy’s capacity to generate income, foreign exchange, and government revenue.
The central question, therefore, is not simply whether Bangladesh should borrow from the IMF or other international institutions. It is whether the country can use borrowed money productively, reform its banking sector, manage both foreign and domestic debt responsibly, and ensure that future generations are not burdened by today’s financial decisions.
The then Awami League government first approached the IMF during a serious period of difficulty, amid external payment pressures, declining foreign exchange reserves and economic uncertainty. After approval of a $4.7 billion loan package, the government received three disbursements totalling $2.1 billion. It could not show any positive results before the transition of power on 5 August 2024. During the 18-month interim period, only one disbursement was made, amounting to $1.3 billion. After assuming power, the new government resumed talks with the IMF and pursued revised financial arrangements, resulting in the approval of $5.5 billion. To date, the country has received $3.8 billion, leaving $1.7 billion undisbursed.
Earlier, the programme included financing through the Extended Fund Facility (EFF), the Extended Credit Facility (ECF), and the Resilience and Sustainability Facility (RSF). At a discussion in Bangkok on 8 October 2026, the Bangladesh delegation raised the issues of exchange-rate management, banking reforms, electricity and fertiliser subsidies, and revenue collection. This could be seen as a recurrence of the same discussion, given the IMF’s January 2026 assessments that Bangladesh continued to face challenges related to weak revenue mobilisation, high inflation, banking-sector vulnerabilities, and incomplete exchange-rate reforms.
Bangladesh’s banking sector is central to the country’s economic health. Banks collect savings, provide working capital to businesses, finance investment and help the government borrow from domestic sources. When banks are financially sound, they support economic growth. When they are burdened by bad loans and poor governance, the consequences spread throughout the economy.
One of the most serious concerns is the scale of non-performing loans (NPLs). According to the IMF’s January 2026 report, the banking system’s reported NPL ratio had risen to approximately 24% by March 2025. By June 2026, the NPL ratio had reached 32.78%, amounting to Tk6,06,555 crore (June 2026). Factors that have weakened the banking sector through NPLs include political influence, corruption and loan fraud involving fake or inflated collateral, family domination of bank management, weak credit-risk management, loan rescheduling and weak regulation. In addition, loan recipients also face difficulties due to high inflation and interest costs, exchange-rate depreciation, higher import costs, global economic shocks, political instability, and business disruptions.
Bangladesh’s Islamic banking sector has fallen into several defaults and liquidity crises. A few conventional banks have also extended loans without following proper procedures. Several Islamic banks have suffered severe loan defaults, capital shortages and liquidity crises. The situation has worsened due to large loans being approved without proper assessment of borrowers’ repayment capacity, avoidance of Advance-to-deposit Ratio (ADR), recipients’ tendency to divert loans to other businesses and purposes, weak monitoring, and overvaluation of mortgaged properties.
The government cannot solve this problem simply by injecting public money into struggling banks. Recapitalisation may sometimes be necessary to protect depositors and maintain financial stability, but it should follow transparent assessments of each bank’s actual financial condition. A comprehensive banking reform programme should include independent asset-quality reviews, stronger loan-classification rules, effective supervision, recovery of illegally diverted funds where legally possible, and transparent enforcement against financial misconduct.
Bank directors and senior executives should be held accountable for serious governance failures. The recent increase in the number of family members on bank boards may have a negative effect by increasing their influence over bank management. Bangladesh Bank must have sufficient operational independence and supervisory capacity to enforce regulations consistently across public and private institutions.
Domestic borrowing increases when the government faces a shortfall in revenue to cover budget deficits and development expenditure. Many countries, including Bangladesh, use deficit budgets, in which expenditure exceeds its total revenue earned i.e. it gives emphasis on expenditure than income. In FY2025-26, domestic borrowing accounted for 15.8% of the total budget, amounting to Tk1,25,000 crore and 55.3% of deficit financing.
The IMF’s January 2026 debt sustainability analysis estimated that total public and publicly guaranteed debt stood at around 41% of GDP in FY2025, with the outstanding amount estimated at $188.8 billion. The report also estimated domestic debt-service payments at 4.2% of GDP in FY2025, equivalent to 89.4% of government revenue, compared with 1.2% of GDP for external debt service.
Domestic borrowing may avoid immediate public attention, but it deserves equal scrutiny. Borrowing in local currency also avoids the direct foreign-exchange risk associated with foreign-currency debt. However, the problem becomes more serious when domestic borrowing is expensive, excessive or poorly managed. Economists call this the crowding-out effect. If banks allocate too much of their funds to government borrowing, fewer resources may remain available for entrepreneurs, small and medium-sized enterprises, exporters and industrial investors. Excessive domestic borrowing can leave banks undercapitalised or burdened with bad loans.
To address these issues, Bangladesh should reduce its dependence on expensive borrowing, improve the maturity structure of domestic debt, broaden the investor base for government securities and strengthen non-bank capital markets. Better fiscal planning would also help the government avoid sudden borrowing requirements that push up interest rates.
Foreign borrowing can be essential for a developing economy. It is not only a cause of saving economy but it helps transferring latest technology and network connectivity among different nations. After its independence in 1971, Bangladesh was fully dependent on grant support from different donors. But as the economy started getting bigger, export and remittance along with agriculture sector showed positive move, grant portion became smaller, letting loan programming capture almost 90% of the total aid channelled to Bangladesh both from bilateral or multilateral financial institutions.
The country had always been favouring loan as a concessional form with longer maturity period but Middle-Income Country hypes brought non-concessional loan projects rather than concessional. During 2020s, a wrong decision of the Finance Division turned concessional loan into non-concessional to a big portion of the project aid funding to Bangladesh. Earlier, the Economic Relations Division (ERD) measured loan’s nature by comparing the proposal by weighing Grant Element (GE) along with grace and maturity plus discount factor. Bangladesh followed IMF scale to measure any proposal with having grant element of 38% but the Finance Division in 2020 brought down GE to 25%, so concessional loan became non-concessional making the loan proposal much harder.
On the other hand, most of the lending agencies or partners due to the global economic sluggish nature lessen maturity period along with enhanced interest rate. So, the size of debt due to mega project funding and squeezing nature of concessions push Bangladesh to reach on the state of bigger debt figure. The country has been with ever biggest size of total external debt including private sector as of June 2026 is $113.5 billion where government external debt accounts $79 billion besides domestic debt of $106.1 billion. According to the ERD, during 2025-26, Bangladesh received $8.07 billion as foreign assistance repaying $4.49 billion. It can be said half of the total receipt goes back for repayment of principal and interest.
Further IMF budgetary support with more or less $5 billion can create another huge pressure on the county’s economy as IMF financing is not the same as grant or interest free. The government must consider repayment schedules which generally is 10 years, interest and other applicable charges, exchange-rate movements, and the economic costs of implementing reforms. The real benefit will depend on whether the financing creates enough economic stability and reform momentum to outweigh these costs.
Bangladesh does not have any threat yet to facing an imminent debt crisis. Debt sustainability depends on factors including economic growth, interest rates, repayment schedules, export performance, fiscal revenue, and the terms of individual loans. However, it does mean that new borrowing decisions require careful assessment.
Before putting consent to any foreign-funded project, the government should evaluate its economic and social returns, total lifecycle costs, implementation risks and expected contribution to future productivity. Projects that generate export earnings, reduce costly imports or improve national productivity may strengthen future repayment capacity. Projects with weak economic returns can leave the public with substantial repayment obligations without corresponding benefits. The government should always explore opportunities to secure concessional loan facilities with longer repayment periods and more favourable financing terms. In this regard, it is encouraging news for Bangladesh that the country’s graduation from the Least Developed Country (LDC) category has been deferred by three years, potentially allowing international lenders to consider extending concessional financing facilities for a longer period.
Bangladesh’s tax collection remains significantly low compared to that of many other developing countries, including its neighbouring countries. The tax-to-GDP ratios of India, Sri Lanka and Pakistan stand at approximately 7.4%, 9.9% and 10.5%, respectively, all of which are higher than Bangladesh’s current ratio. The World Bank, in its assessment for FY2025, emphasised the need to increase Bangladesh’s tax-to-GDP ratio to 15%, compared to the prevailing ratio of approximately 6.7%, to meet the country’s essential development financing requirements.
Bangladesh should initially aim to increase its tax-to-GDP ratio to 10%, followed by a gradual rise to 12-15% through broadening the tax base, strengthening enforcement mechanisms and introducing a more progressive taxation system. When revenue collection remains weak, the government has limited fiscal options. It may be compelled to reduce development expenditure, delay payments, increase borrowing or raise taxes and fees. Each of these options carries potential economic and social costs.
A more sustainable approach would be to broaden the tax base, eliminate unjustified tax exemptions, improve customs administration, strengthen digital tax systems, and ensure equitable treatment of taxpayers. Greater transparency in public procurement and the effective utilisation of public funds would also contribute to improved value for money and greater accountability. Stronger domestic revenue mobilisation would enable Bangladesh to finance a larger share of its public investment from its own resources, thereby reducing its dependence on repeated borrowing and external financial assistance.
Ultimately, the value of a loan should be judged not by the amount received but by the benefits it creates. If borrowed money finances productive investment, improves public services, and strengthens economic institutions, it can support development. For Bangladesh, the real test is whether today’s borrowing can build an economy capable of meeting tomorrow’s obligations without sacrificing the prosperity of its people.
Finally, IMF assistance can help Bangladesh remove existing economic challenges and manage fiscal pressures, the long-term success of such assistance will ultimately depend on the country’s willingness and ability to address the structural weaknesses that have made additional external financing necessary for addressing financial crisis.
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