‘Time for ambitious reforms’

The new BNP government with its two-thirds majority should push through with reforms needed to stabilise the economy, said the International Monetary Fund yesterday.

“A new government with a significant majority has come in and this is the right time to undertake ambitious reforms,” said Krishna Srinivasan, director of the IMF’s Asia and the Pacific department, at a virtual briefing on the region’s local economic outlook.

A lot of reforms are needed in the fiscal side, the revenue side and the exchange rate and to rehabilitate the financial sector.

“There is work to be done on all the three pillars on which the programme is based.”

Earlier on March 25-26, an IMF team led by Srinivasan was in Bangladesh and met with Prime Minister Tarique Rahman, Finance Minister Amir Khosru Mahmud Chowdhury, Bangladesh Bank Governor Mostaqur Rahman and other stakeholders.

“We had a good discussion in terms of the challenges the country faces. So they heard us and now we will wait to see how they react to that.”

Bangladesh particularly needs to get its act together in mobilising revenue, he said.

“They need to really work towards improving their revenue intake, which is among the lowest in the world. I would say that in terms of revenue intake, Bangladesh has not done well -- it’s on the lower side. Actually, revenue intake has slipped over the last three years.”

The revenue-GDP ratio dropped to 7.81 percent in fiscal 2024-25 from 8.17 percent in fiscal 2022-23, when the three-and-a-half-year IMF programme began.

Srinivasan went on to compare Bangladesh’s progress under the programme with Sri Lanka’s.

“In the case of Sri Lanka, over the last three years, they made significant improvements in boosting their tax revenues as a share of GDP, so they have gradually built up fiscal buffers. So, in some sense, I would say they are better placed to provide support to people who are hurting from this energy shock.”

Bangladesh, on the other hand, is much more hard-pressed to provide support to those affected by the energy shock brought on by the Middle East war, he said.

“People are hurting in Bangladesh, so it is even more important to use whatever resources you have to make it as targeted as possible. We are working with the authorities in terms of policy support and on the programmes,” Srinivasan added.

Bangladesh will need an additional $2.61 billion in foreign exchange between March and June to cover the surging energy and fertiliser import costs because of the ongoing Middle East war.

Over the four-month period, the total import cost for oil, liquefied natural gas (LNG) and fertiliser is estimated to be about $5.62 billion, up 86.7 percent from a year earlier, according to a finance ministry impact analysis.

In March, the diesel price surged by 250 percent, while the LNG price doubled and the fertiliser price rose by 50 percent.

Bangladesh will require an additional Tk 38,542 crore (about $3.2 billion) in subsidies between March and June to cover energy and fertiliser imports.

Of this, around Tk 18,000 crore would be needed for fuel oil alone, an extraordinary requirement not seen in previous years. Gas subsidies are estimated at Tk 13,930 crore, electricity at Tk 4,612 crore and fertiliser at Tk 2,000 crore.

This will take the total subsidy bill for this fiscal year, originally budgeted at around Tk 59,000 crore, to Tk 97,542 crore, the report said.

Subsequently, the government is aiming to secure about $3 billion in emergency assistance from development partners, including the IMF and the World Bank (WB).

Earlier this week, Khosru placed the request for more funds during a meeting with officials of the two multilateral lenders on the sidelines of the ongoing IMF-WB Spring Meetings in Washington DC.

The WB has assured Bangladesh of both policy guidance and financial support, Khosru told reporters after meetings in Washington.

“I hope we will receive the additional funds by June and in the next budget. Overall, the discussions have been successful,” he said.

Srinivasan though said the negotiations are ongoing.

“Discussions are ongoing, so we will have to just wait and see how those things pan out.”

The government also needs to work towards financial sector reforms.

“They also need to take into account the other impediments in the financial sector and so on, so that they can get growth going over the near term and over the longer term,” Srinivasan added.