IMF Concerned Over Revenue Shortfall as Government Fails to Control Reserves and Inflation

Staff Correspondent

The International Monetary Fund (IMF) has once again questioned the government’s failure to control Bangladesh’s foreign exchange reserves and inflation. The organization says that structural weaknesses are deepening behind the temporary stability. In particular, the low tax-to-GDP ratio, revenue collection shortfalls, and political uncertainty are putting the country’s macroeconomic stability at risk.

During the first day of the IMF’s fifth review mission, the team led by the organization’s representative Chris Papageorgiou expressed concerns about various aspects of the government’s economic management. Although the government claimed that reserves and inflation are now under control, the IMF did not fully accept this claim.

An executive director of Bangladesh Bank said that the IMF has apparently expressed satisfaction with the amount of reserves, but it has basically called it an accounting manipulation or a “temporary status.” He said, “Although the net reserves are shown at $20.5 billion, there are large amounts of money attached to them for short-term loans, import liabilities and interest payments. In real terms, the usable reserves are much less.”

He also said that the IMF has clearly stated that Bangladesh has still failed to implement the desired monetary and fiscal policies. Although inflation has decreased slightly, it is still much higher than the South Asian average.

The IMF delegation said, “Data from Bangladesh Bank shows that inflation has been slightly lower in recent months. But this is not a policy success, but rather the effect of reduced demand in the market. In reality, the prices of food and daily necessities have not stabilized.”

Meanwhile, the IMF has identified Bangladesh’s tax-to-GDP ratio as one of the key weaknesses in economic stability. The delegation said, “The government is repeatedly failing to collect revenue. This has limited the country’s fiscal capacity and will deepen the debt-dependent economy in the future.”

In the meeting chaired by Deputy Governor Nurun Nahar, the IMF also expressed concern over the fragile state of the banking sector, liquidity crisis and financial distress of merged banks. In particular, they cited the imposition of restrictions on deposit withdrawals in some banks as a “clear indication of economic uncertainty.”

The same criticism was voiced at the Finance Ministry meeting. IMF officials, in discussions with Finance Secretary Md. Khayeruzzaman Majumder, wanted to know why such a shortfall in revenue collection continued, and whether the government was planning to fill it by increasing domestic and foreign debt.

“The IMF believes that Bangladesh is choosing a debt-based path instead of increasing revenue. Electoral uncertainty and policy instability are creating further obstacles to revenue collection,” said a finance ministry official on condition of anonymity.

According to their observations, there is also an extreme slowness in the implementation of the Annual Development Program (ADP) in the current fiscal year, which is threatening the economic growth target.

A senior IMF staff member commented, “Bangladesh’s economy is currently suffering from a policy dilemma. On the one hand, the government is adopting contractionary policies to curb inflation, while on the other hand, it is increasing unnecessary development spending—this contradictory position is dangerous in the long run.”

Analysts say the IMF’s observation actually calls into question the government’s propaganda of ‘economic success’. They believe that Bangladesh is now at a sensitive economic juncture – where the reserve crisis and inflationary pressures will increase further in the coming year if the right steps are not taken.