The International Monetary Fund has warned that economic growth in Bangladesh could slow down to 3.5 per cent this fiscal year. Without urgent and decisive policy changes, growth is projected to drop even further, falling below three per cent over the medium term.
The stark warning follows a five-day visit to the capital by an emergency delegation. The mission was led by Ivo Krznar, the mission chief for Bangladesh, following a direct request from the government for a new financial rescue package to support fresh economic reforms.
At the end of the visit, Ivo Krznar released a statement highlighting the deep fiscal, financial, and inflationary hurdles the South Asian nation continues to face. The mission chief noted that the ongoing conflict in the Middle East has worsened these internal economic troubles.
Rising global prices for everyday goods and interrupted trade routes have triggered fresh inflation. This has driven up the cost of government subsidies and placed an even heavier burden on the state's limited budget.
At the same time, high levels of stress in the banking system and external pressures are weighing down the economy. These issues persist despite strong money transfers from citizens working abroad.
The delegation warned that the economic outlook remains highly risky, with banking issues, budget constraints, and global pressures potentially feeding into one another.
To protect financial stability, the team recommended a series of priority steps. They urged the government to collect more tax revenue, reduce state subsidies, and direct aid to the poorest households.
They also advised keeping interest rates high and maintaining a cautious budget to control inflation and rebuild foreign currency reserves.
Furthermore, the team stated that the country must stick to the crawling peg exchange rate system introduced last year to keep the currency flexible and stable. The banking sector should also follow a clear and trusted cleanup plan to restore business investment.
The delegation and the government are expected to continue detailed talks in the coming months to decide on the size and terms of a new loan agreement.
