The International Monetary Fund (IMF) yesterday said that the country’s economic scenario may turn positive in fiscal year 2025-26 with the inflationary pressure easing and economic growth picking up.
The multilateral lender attributed several government measures to their forecast of the positive outlook.
“We’ve seen this in many other countries with corrective measures in place we expect a rebound,” said IMF official Chris Papageorgiou at a press briefing at the finance ministry.
He led a recent two-week mission to Dhaka.
“We are expecting that we would see the inflation decline finally in the next year,” he said.
Earlier on Wednesday, the IMF cut Bangladesh’s growth outlook to 3.8 percent for FY25, which may rebound to 6.7 percent in FY26
Earlier on Wednesday, the IMF cut Bangladesh’s growth outlook to 3.8 percent for FY25, which may rebound to 6.7 percent in FY26.
It also said that inflation is anticipated to remain around 11 percent in FY25 before declining to 5 percent in FY26.
“This is a very important point, when we start seeing inflation coming down to single digits, hitting the target rate of five to six percent, then we’ll see growth start to pick up,” Papageorgiou said.
He said disruptions caused by floods in the northeastern region in August and September, and other disruptions earlier slowed growth this year.
“Frankly, a lot of the growth reduction we see is because of the disruptions in the months of July and August, and also flooding, unprecedented flooding that we’ve seen.”
“From next fiscal year, we expect everything, the growth momentum, to start transitioning, rebounding to better days Bangladesh used to have in the past,” he added.
“We do not see inflation coming down to rates we were expecting,” he said. “Inflation remains in double digits. We have numbers [inflation] as of November, and the price pressures remaining very high comes from two parts,” he added.
He said that high inflation is driven by both supply-side and demand-side factors.
On the supply side, structural issues contribute to persistent food inflation. On the demand side, strong aggregate demand has also contributed to inflationary pressures.
“So inflation remains much higher than our expectations,” he said.
He said this combination of low growth and high inflation has put additional strain on the balance of payments and foreign exchange reserves.
The IMF has long been vocal about the non-performing loans (NPLs) in the banking sector.
Papageorgiou said that historical NPL measures have been biased and that the actual level of NPLs is likely much higher.
The IMF appreciated the interim government’s efforts to prioritise the banking sector. “We applaud them for that. But with that, we see that the banking sector is still in distress,” he said.
He said the country has transitioned from a period of 7 percent growth with low inflation to a period of 3.8 percent growth with high inflation, putting pressure on reserves and the banking sector.
Regarding the IMF’s programme evaluation, the mission chief said they started the programme with a clear request for stopping the decline in foreign exchange reserves.
The reserves have decreased dramatically, from around $50 billion three years ago to mere $20 billion now, he said.
Papageorgiou said the IMF programme has coincided with a series of global shocks. When the programme began, the impact of the Russia-Ukraine war and subsequent commodity price increases was not fully anticipated.
He said these shocks, coupled with domestic challenges such as the July-August unrest, have further complicated Bangladesh’s economic situation.
The mission chief said the main objective of the IMF programme is to stabilise the economy and restore sustainable growth.
“That is number one goal,” he said, adding that Bangladesh would return to a path of healthy growth and low inflation.