The International Monetary Fund and Bangladesh have failed to reach a staff-level agreement on the next tranche of a $4.7 billion loan programme, after two weeks of talks ended amid disagreements over revenue measures and exchange rate flexibility.

The IMF has insisted on a clear path to raising the country's chronically low revenue-to-GDP ratio and demanded greater flexibility in the exchange rate regime.

Now, talks are expected to continue next week on the sidelines of the IMF-World Bank Spring Meetings in Washington, with the goal of securing a deal.

While Bangladesh and the IMF had previously reached staff-level agreements during the first, second, and third reviews of the loan programme, the third review ultimately stalled before reaching the IMF Executive Board due to continued differences on these two thorny issues.

An IMF team led by Chris Papageorgiou, the mission chief to Bangladesh, visited the country on April 6-17 to discuss economic and financial policies in the context of the combined third and fourth reviews of the IMF programme.

Despite the setback, Papageorgiou said the IMF remains committed to supporting Bangladesh during what he described as "a challenging period", citing slowing growth, persistent inflation, and mounting external financing pressures.

GDP growth fell to 3.3 percent in the first half of the 2024-25 fiscal year, down from 5.1 percent a year earlier, while inflation stood at 9.4 percent in March, still well above Bangladesh Bank's 5-6 percent target.

"The Bangladeshi economy continues to face multiple challenges amidst elevated global uncertainty," Papageorgiou said in a statement yesterday.

At a media briefing in Dhaka, IMF Resident Representative Jayendu De confirmed that negotiations will resume in Washington next week.

"If all goes well, we expect to make a disbursement before the end of the fiscal year. So, by the end of June, we will try to complete the disbursement. That is our current baseline," he said.

"Discussions are continuing with the objective of reaching a staff-level agreement in the near term -- including during the April 2025 IMF-World Bank Spring Meetings in Washington," Papageorgiou said. "We reaffirm our commitment to support Bangladesh and its people at this challenging period."

To tackle the growing external financing gap and bring inflation down further, the IMF said Bangladesh needs to tighten policies in the near term.

It urged the government to focus on tax reforms by removing widespread exemptions and simplifying the tax system.

The IMF also advised the central bank to avoid loosening monetary policy too soon, and called for a more flexible exchange rate to improve export competitiveness, rebuild reserves, and make the economy more resilient to external shocks.

"A comprehensive strategy to boost revenue and reform expenditures is crucial for supporting increased social spending and infrastructure investment," Papageorgiou said.

REVENUE TARGET

The IMF has raised alarms over Bangladesh's stagnating revenue performance.

"Indeed, over the last year or so, we've seen that the revenue-to-GDP ratio has not performed very well, partly due to the continuous shocks that Bangladesh has endured," said SeokHyun Yoon, senior economist at the IMF.

"At the beginning, it was external shocks, then the uprising, and then the transition to where we are today.

"What I want to emphasise is that our assessment is not only for the present, which is very challenging, but also for the future."

Bangladesh is scheduled to graduate from the Least Developed Countries (LDC) status in November 2026. That ambition must be accompanied by higher revenue-to-GDP ratios, Yoon said.

He said Bangladesh's current ratio, hovering around 7-8 percent, is "extremely low" even by developing country standards.

"Just to give you a statistic: over the last 10 years, most developing economies have had ratios between 10 and 15 percent. With Bangladesh at 8 percent, we see a lot of value in making progress," Yoon said.

The IMF is working with authorities to build momentum for reform. "We try to create momentum and shift public mindset and community attitudes toward the need for a higher revenue-to-GDP ratio," Yoon said. "We are exploring different approaches."

EXCHANGE RATE FLEXIBILITY

On the external side, the IMF acknowledged steps taken on exchange rate reform but called for further flexibility.

"Right now, we also see that the difference between the illegal exchange rate and the official exchange rate is very small, and we praise the authorities for this," Papageorgiou said at the media briefing in Dhaka.

"There is, I think, an agreement between us and the government -- specifically the government and Bangladesh Bank -- on flexibility. There is no doubt that we all want to move in the same direction. We see more flexibility in the exchange rate regime in Bangladesh.

"From the IMF's perspective, and looking at the reform and its history, we have been discussing this crawling peg for at least one or two years. This is, in fact, the right time to move toward this flexibility. Again, this is not full flexibility; this is a crawling peg, which allows for some guidance around the band, but also allows for full flexibility in the future."

The IMF also pushed for legal and regulatory reforms in the financial sector.

It said the authorities must move quickly to operationalise new frameworks that enable orderly bank restructuring while protecting small depositors.

The lender called for improved asset quality reviews, risk-based supervision and stronger governance at Bangladesh Bank.

On structural reform, the IMF urged efforts to expand exports beyond garments, improve governance, and accelerate climate-related investment.

"Enhancing resilience to climate change is key for mitigating macroeconomic and fiscal risks," Papageorgiou said.

In Dhaka, the IMF delegation met Finance Adviser Salehuddin Ahmed, Bangladesh Bank Governor Ahsan H Mansur, Finance Secretary Khairuzzaman Mozumder and NBR Chairman Abdur Rahman Khan.