IMF Loan Tranches: Deal Finally Reached with IMF

The government has reached a staff-level agreement with the International Monetary Fund (IMF) for the disbursement of the fourth and fifth tranches—worth approximately $1.3 billion—under the $4.7 billion loan programme, ending months of uncertainty. In addition, it has requested an extra $762 million to help address significant macroeconomic challenges, the IMF announced yesterday.

These disbursements, along with the proposed top-up, now await approval from the IMF Executive Board. Approval hinges on the government’s completion of prior actions, including enhanced tax revenue mobilisation and full implementation of a flexible exchange rate regime, said Chris Papageorgiou, IMF mission chief for Bangladesh.

"The authorities reaffirmed their commitment to the reform programme’s goals—such as fiscal reforms to close the external financing gap, tighter monetary policy to reduce inflation, and a flexible exchange rate system," the statement noted. Key areas of focus include streamlining tax exemptions, improving tax compliance, separating tax policy from administration, and controlling electricity sector subsidies.

The IMF emphasised that the full and sustained implementation of the new exchange rate framework will be vital.

According to a separate statement from the finance ministry, both parties carefully evaluated macroeconomic priorities and reached consensus on reforms in revenue management, exchange rate policy, and broader structural areas.

This breakthrough is expected to unlock further external financing, with Bangladesh anticipating $3.3 billion in total foreign funds from bilateral and multilateral partners by June.

Beyond the $1.3 billion from the IMF, the government expects another $2 billion in budget support from partners including the World Bank, Asian Development Bank (ADB), Asian Infrastructure Investment Bank (AIIB), Agence Française de Développement (AFD), and the OPEC Fund for International Development.

These funds are expected to bolster the country’s foreign exchange reserves, which stood at $20.29 billion as of May 7, according to Bangladesh Bank data, and help stabilise the exchange rate.

The finance ministry stressed that all reform measures tied to budget support have been adopted solely at the government's discretion and serve the national interest.

As part of the new tax plan agreed with the IMF, the government will collect an additional Tk 30,000 crore in the upcoming fiscal year. This will involve raising the value-added tax (VAT) on several goods to the standard 15 percent rate, reducing tax holidays, and eliminating various exemptions.

The IMF initially recommended raising taxes equivalent to 0.9 percent of GDP. After negotiations, both sides agreed to a slightly lower target of 0.7 percent—roughly Tk 40,000 crore in additional revenue—of which Tk 10,000 crore is expected to come from improved administration.

Among the $2 billion in budget support, $500 million is expected from the World Bank, which was facilitated by the government's decision to dissolve the National Board of Revenue (NBR), following IMF recommendations. Earlier this week, the interim government replaced the NBR with two new bodies under the finance ministry: a revenue policy division and a revenue management division.

“This was not only an IMF requirement—it was also a condition set by the World Bank,” said a finance ministry official who requested anonymity.

The ADB is slated to contribute $900 million—$500 million for banking sector reforms and $400 million for climate change mitigation. The AIIB will provide $400 million, and AFD another $100 million in co-financing with the ADB. The OPEC Fund will lend $100 million to support improved economic management and governance.