Bangladesh faces banking and debt reform test as IMF support continues

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Highlights

Bangladesh received $5.5 billion in IMF support under the new government, with $3.8 billion disbursed, amid IMF warnings on growth and economic vulnerabilities.
The reported non-performing loan ratio in Bangladesh's banking sector rose to 32.78% by June 2026, equivalent to Tk6,06,555 crore, signaling severe credit risk and regulatory challenges.
Bangladesh’s external debt reached $113.5 billion in June 2026, with debt service and domestic borrowing crowding out private sector credit and exposing fiscal sustainability risks.

IMF support comes with reform pressure

The Business Standard reports that Bangladesh has received multiple rounds of IMF support since approaching the lender during a period of external payment pressure, falling foreign exchange reserves and wider economic uncertainty. After a $4.7 billion package was approved under the previous Awami League government, the country received three disbursements worth $2.1 billion, then one further disbursement of $1.3 billion during the interim period, before revised arrangements under the new government led to approval of $5.5 billion, of which $3.8 billion has been disbursed so far.

The government has set a 6.5% growth target for 2026-27, above the World Bank's 6.1% projection, but the IMF has warned that the GDP outlook may remain difficult. Discussions in Bangkok on 8 October 2026 focused on exchange-rate management, banking reforms, electricity and fertiliser subsidies, and revenue collection, echoing concerns the IMF raised in January 2026 over weak revenue mobilisation, high inflation, banking-sector vulnerabilities and incomplete exchange-rate reforms.

The article argues that IMF financing can help Bangladesh meet external obligations and support essential imports, while also encouraging other development partners to maintain assistance. But it says such support is not a lasting answer to structural weaknesses and adds to repayment obligations, making the effective use of borrowed funds central to long-term stability.

Banking weakness and debt costs shape the risk

Banking-sector stress remains a major concern for the economy because lenders channel savings into business investment and government financing. According to the IMF's January 2026 report, the banking system's reported non-performing loan ratio rose to about 24% by March 2025, and by June 2026 it had reached 32.78%, equivalent to Tk6,06,555 crore.

The article links the deterioration to political influence, corruption, weak credit-risk controls, loan fraud, repeated rescheduling and poor regulation. It also says parts of the Islamic banking sector have suffered defaults and liquidity strains, while some conventional banks have extended credit without proper procedures, increasing pressure for stricter supervision, asset-quality reviews and greater accountability for directors and senior executives.

Debt management is emerging as a second major pressure point. The IMF's January 2026 debt sustainability analysis estimated total public and publicly guaranteed debt at around 41% of GDP in FY2025, with domestic debt-service payments at 4.2% of GDP, equivalent to 89.4% of government revenue, compared with 1.2% of GDP for external debt service.

The article says domestic borrowing accounted for 15.8% of Bangladesh's FY2025-26 budget, or Tk1,25,000 crore, and 55.3% of deficit financing. It warns that expensive or excessive local borrowing can crowd out credit for entrepreneurs, exporters and industrial investors, while external borrowing also requires closer scrutiny as concessional financing becomes harder to secure and repayment costs rise.

Bangladesh's external debt, including the private sector, stood at $113.5 billion in June 2026, with government external debt at $79 billion and domestic debt at $106.1 billion, the article says. During 2025-26, the country received $8.07 billion in foreign assistance and repaid $4.49 billion, highlighting how a large share of inflows is already going back out in principal and interest payments.

The article also identifies tax collection as a structural weakness, citing a tax-to-GDP ratio of about 6.7%, below regional peers and far under the World Bank's 15% benchmark for Bangladesh's development financing needs. It says stronger revenue mobilisation, fewer unjustified exemptions, better customs administration and digital tax systems would reduce dependence on repeated borrowing and improve the economy's capacity to absorb future shocks.

As highlighted earlier, Sri Lanka’s 2027 budget plans were framed as a test of post-bailout fiscal discipline under its IMF program.

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