Key facts
- Bangladesh plans to allocate $3.2 billion in its next budget to support troubled banks.
- Economists warn that financial aid alone will not resolve deep governance failures and non-performing loans.
- The IMF mission noted GDP growth decelerated to 3.7% in FY25 and inflation remained elevated at 8.2% in October.
- Bangladesh has committed to a three-year roadmap for financial sector reform, including legislative changes.
- New laws are planned, including a Bankruptcy Act and amendments to the Money Loan Court Act, by the first quarter of FY2026.
Bangladesh has earmarked 400 billion taka ($3.2 billion) in its upcoming budget to support its troubled banking sector, a move intended to avert a broader financial crisis. However, economists and the International Monetary Fund (IMF) warn that these cash injections alone are insufficient to address the deep-seated governance failures and high levels of non-performing loans that have plagued the sector for years.
The IMF, in its end-of-mission statement following the 2025 Article IV consultation, noted that Bangladesh's GDP growth decelerated to 3.7% in fiscal year 2025, with headline inflation remaining elevated at 8.2% in October. While foreign exchange reserves have begun to rebuild after an exchange rate reform, significant macro-financial challenges persist, including weak tax revenue and undercapitalization in the financial sector.
To tackle these issues, the IMF has urged ambitious tax reforms and comprehensive financial sector reforms. These include developing a government-wide strategy for weak banks, conducting expanded Asset Quality Reviews, improving governance and transparency, and strengthening frameworks for recovering non-performing loans. The IMF has linked future disbursements under its $5.5 billion program to the steadfast implementation of these policies.
As part of a three-year roadmap, Bangladesh has committed to a sweeping overhaul of its financial sector, supported by the World Bank and Asian Development Bank. This plan involves legislative, supervisory, and institutional changes. Key initiatives include establishing a Banking Sector Crisis Management Council (BCMC) to coordinate responses and enacting new laws by the first quarter of fiscal year 2026. These laws will include a new Bankruptcy Act for corporate insolvency and restructuring, and amendments to the Money Loan Court Act to expedite loan recovery. A Distressed Asset Management Act is also planned to facilitate the trading of non-performing loans.