Bangladesh's economy on a Knife-Edge

Even as the interim government strikes an assured note on reform momentum, the International Monetary Fund (IMF) has issued a blunt counter-warning: Bangladesh's next elected government will inherit an economy burdened by deep structural flaws, rising macro-financial risks and a rapidly shrinking margin for policy error.

In its latest Article IV assessment, released on Saturday, the IMF said the post-election administration taking office after February 2026 will face a "clouded outlook", warning that reform fatigue, delayed banking clean-ups and any reversal of exchange-rate liberalisation or fiscal discipline could swiftly erode recent gains.

The cautionary tone contrasts sharply with the narrative emerging from the 7th meeting of the Investment Coordination Committee, held on Thursday at the Chief Adviser's Office in Tejgaon, where senior policymakers and regulators reviewed steps to ease bottlenecks, expand digitisation and speed up investment execution.
"The rules are already in place. What is missing is disciplined implementation," said Lutfey Siddiqi, Special Envoy of the Chief Adviser, who chaired the meeting.

Highlighting customs inefficiencies, he termed it "unacceptable" that less than 5 per cent of cargo is pre-cleared, when the rate should exceed 50 per cent. Officials also conceded that parallel manual processes persist despite digital platforms, reflecting weak monitoring and enforcement.

The IMF's assessment, however, is far more sobering.

While acknowledging limited progress by the interim government following the 2024 mass unrest-driven by inequality and public frustration-the Fund stressed that a durable recovery hinges on urgent, credible reforms across revenue mobilisation, banking, monetary policy, exchange-rate management and governance.

The first 12-18 months of the next government, the IMF said, will be decisive.

"Growth is projected at 4.7 per cent this fiscal year, constrained by tight policies, financial-sector fragility and election-related uncertainty, with a rise towards 6 per cent over the medium-term contingent on effective reform delivery. Inflation, though easing, is expected to remain elevated at 8.9 per cent in FY26", the IMF said.

According to the IMF report, Bangladesh's chronically weak tax effort remains a central risk. The tax-to-GDP ratio fell sharply in FY25-among the lowest in the region-while deficits were contained largely by cutting capital and social spending.

The IMF called for "ambitious fiscal reforms", including tax simplification, a uniform 15 per cent VAT, higher duties on tobacco and imported fuel, and reduced energy subsidies to create fiscal space for growth-supporting investment.

The Fund was equally blunt on banking sector vulnerabilities, warning that unresolved weaknesses would restrict credit, deter investment and heighten instability. It urged an end to unsecured liquidity support and regulatory forbearance, advocating asset-quality reviews, recapitalisation and stronger governance.

Bangladesh is set to receive the sixth tranche-about $800 million-of its $5.5 billion IMF programme after the elections, having already received $3.6 billion. But the Fund warned that programme success hinges on the "new administration's full ownership" of reforms amid stubborn inflation and weak institutions.

External risks, including potential declines in foreign aid and rising trade barriers, further darken the outlook. Beyond near-term stabilisation, deeper structural constraints-particularly limited job creation for a growing pool of graduates-pose longer-term challenges.

As officials speak of rules and readiness, the IMF's message is unequivocal: without swift, disciplined and politically backed reform, Bangladesh's economic promise risks being overtaken by its vulnerabilities.