IMF’s new $4.5b loan, deal may be signed in December

After cancelling the previous loan programme, the government is moving towards a new loan programme with the International Monetary Fund (IMF). Preliminary discussions are underway on a $4.5 billion loan under the new programme. The new programme will have a three-year term.

A deal on the new loan programme may be signed in December. Negotiations over the conditions are currently underway. The conditions being discussed include reforms in the banking and revenue sectors, as well as reducing government subsidies in various sectors, according to responsible sources at the Ministry of Finance.

A delegation led by Finance Minister Amir Khasru Mahmud Chowdhury will attend the seven-day IMF-World Bank annual meetings, which will begin next Monday in Bangkok, the capital of Thailand. Detailed discussions on the next loan will be held with IMF representatives there. The Ministry of Finance is already making preparations for the meetings.

Earlier, on 30 January 2023, the IMF approved a $4.7 billion loan agreement for Bangladesh. The then Awami League government had sent a letter in July 2022 seeking the loan assistance. Of the seven instalments under that loan, $3.64 billion has been disbursed in five instalments. During the interim government, the size of the loan programme was increased by $800 million to $5.5 billion in June 2025.

However, the current government was not interested in proceeding with the programme because of the changing economic challenges and stringent conditions. The government informed the IMF of this at the IMF-World Bank spring meetings in April this year. On 3 June, the government formally sent a letter seeking a new loan programme. The IMF subsequently welcomed the move towards a new loan programme in a press release.

Zahid Hussain, former lead economist at the World Bank’s Dhaka office, told Prothom Alo that the previous loan programme did not progress because of delays in various reform initiatives, including reforms in the banking and revenue sectors and reducing subsidies. The IMF will call for similar reforms this time as well. Its position will not change. Experts in the country have also called for the same reform priorities. These reforms have to be carried out.

Zahid Hussain further said discussing a new loan programme while holding back these reforms would be a waste of time. These reforms have to be carried out in the national interest. Having an institution like the IMF sets a timeframe and creates pressure for reforms. He said there has been no progress in revenue collection, while pressure to borrow from domestic and foreign sources is increasing to meet expenditure demands.

Several conditions of the new loan programme are being discussed, according to sources. Discussions with the IMF on the new loan programme began in May. The two sides have held meetings both in person and virtually. Reforms have been the main focus among the conditions.

Among the conditions are fully leaving the exchange rate to the market; separating revenue policy from revenue collection; rationalising tax exemptions; enacting a bankruptcy law; and reducing government subsidies.

According to Ministry of Finance sources, these conditions were also part of the previous loan programme. However, there were specific deadlines for fulfilling them. It was not possible to carry out these reforms within those deadlines. Under the new loan, additional time will be available to implement these reforms.

A meeting on the loan will be held at the IMF-World Bank annual meetings in Bangkok, Thailand. An IMF delegation may visit Bangladesh in November, according to sources. The reforms and conditions attached to the loan will be finalised during that visit. Following the final negotiations, the loan agreement may be signed in December.

Under the previous loan programme, Bangladesh was supposed to receive the full $5.5 billion in instalments by 2027. The IMF had also set conditions requiring certain reforms to be completed within specific deadlines to receive the instalments. Many of the reforms were not completed on time.

For example, there was a condition to abolish the National Board of Revenue (NBR) and separate the revenue policy and revenue collection divisions by December 2025. Although the interim government issued an ordinance to this effect, the current government has not turned it into law. A committee led by Ismail Zabiullah, adviser to the Ministry of Public Administration to the prime minister, has been formed to review the matter. The committee has yet to submit its report.

There was also a condition to rationally eliminate all types of tax exemptions by July 2027. That has also made little progress. In addition, the government was supposed to collect additional revenue equivalent to 0.5 per cent of gross domestic product (GDP) every year, which has not happened either.

Meanwhile, the condition to fully leave the exchange rate in the banking sector to the market has also not been fulfilled. However, there has been some progress in the banking sector. The Bank Resolution Act has been enacted, and five banks have been merged. But there has been little progress in reducing or rationalising subsidies in various sectors, including energy; rather, subsidies have increased.

When the government announced its decision to move to a new programme in May, a press release issued by the Ministry of Finance said the previous programme had been adopted under a different economic and policy context. Subsequently, challenges emerged in implementing some reforms because of the domestic context, political economy and global uncertainties. The government does not want to backtrack on reforms; rather, it is interested in implementing realistic, gradual reforms that are aligned with the country’s circumstances.