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Bangladesh’s economic growth is expected to rebound to 4.7 percent in both FY26 and FY27 after a recent slowdown, though macroeconomic and financial pressures remain elevated, the International Monetary Fund (IMF) said following its latest Article IV Consultation.

The IMF noted that GDP growth slowed to 3.7 percent in FY25, down from 4.2 percent in FY24 and 5.8 percent in FY23, citing production disruptions linked to the 2024 uprising, a tighter policy stance and weak private investment. Inflation has eased from earlier double-digit levels but remained high at 8.2 percent year-on-year in October.

Fiscal performance weakened as tax revenue collection fell sharply in FY25, dragging down the tax-to-GDP ratio. The fiscal deficit, however, stayed contained due to lower-than-planned capital and social spending. On the external front, foreign exchange reserves have begun to recover, supported by improvements in the current account balance.

Looking ahead, the IMF expects a gradual recovery, provided authorities succeed in mobilising tax revenue and addressing vulnerabilities in the financial sector. Over the medium term, growth could accelerate to around 6 percent, while inflation is projected at 8.9 percent in FY26 before easing to about 6 percent in FY27.

Risks remain tilted to the downside, the IMF warned, pointing to potential delays in policy implementation, reversals in exchange rate reforms and weakening fiscal discipline.

IMF Directors acknowledged the interim authorities’ efforts to stabilise the economy amid political uncertainty and ahead of national elections. At the same time, they highlighted persistent challenges, including weak revenue mobilisation, banking sector fragilities, incomplete exchange rate reforms and stubbornly high inflation.

They called for decisive fiscal and financial reforms, stressing that sustained policy action is critical to restoring macroeconomic stability and supporting long-term growth. Full ownership of the IMF-supported programme by the next administration, early engagement with IMF staff and broad stakeholder support were also flagged as essential.

On fiscal policy, the IMF urged ambitious tax reforms, simplification of the tax system and stronger administration and compliance. It also emphasised rationalising subsidies, prioritising growth-enhancing investments, improving public financial management and strengthening social safety nets. Improving the financial health of energy state-owned enterprises was cited as a priority.

The IMF further stressed the need for a credible banking sector reform strategy, including asset quality reviews of major and state-owned banks, clearer estimates of undercapitalisation, defined fiscal support and robust restructuring and resolution plans. Stronger risk-based supervision, governance and transparency were also underscored.

On monetary policy, Directors agreed that a tight stance should be maintained to rein in inflation and rebuild reserves. They stressed the importance of fully implementing exchange rate reforms, allowing greater flexibility and avoiding unsecured liquidity support to weak banks.

Finally, the IMF highlighted the need for deep structural reforms as Bangladesh prepares to graduate from least developed country status. Priorities include better governance and transparency, stronger anti-corruption and AML/CFT frameworks, safeguarding central bank autonomy, job creation—especially for youth—and export diversification. Continued reforms under the Resilience and Sustainability Facility were seen as vital to boosting climate resilience and mobilising climate finance.