While Bangladesh is making progress in its IMF program, it will continue to face risks including political uncertainty, low foreign exchange reserves, high U.S. tariffs on its vital garment sector, and weakened investor confidence — factors that will collectively threaten export earnings, fiscal stability and economic recovery. On June 23, the International Monetary Fund's executive board approved a $1.3 billion disbursement to Bangladesh under a combined third and fourth review of its loan program. The IMF also approved an expansion of the program, bringing the total support package to $5.5 billion, up from the $4.7 billion agreed in 2023.

• In January 2023, Bangladesh secured a $4.7 billion IMF loan facility to address a sharp decline in foreign exchange reserves and ballooning current account deficits. 
• In June 2024, Bangladesh passed the second IMF review. But this happened just before the July 2024 student-led protests that ultimately led to the ousting of former Prime Minister Sheikh Hasina. An interim government has been in power since then, vowing to restore democracy, combat corruption and implement IMF-requested economic reforms. However, critics have warned that the institutional reforms have been slow and that the government has been delaying the call for a general election.

The IMF's approval of the disbursement was driven by Bangladesh's tighter monetary policy, exchange rate adjustments, and fiscal discipline that kept the budget deficit within targets despite revenue shortfalls. The disbursement follows the staff-level review reached on May 14 and comes amid modest reform measures undertaken by Bangladesh's interim government. These measures include tightening monetary policy by raising interest rates and reducing foreign exchange sale interventions to preserve reserves. The central bank gradually lowered the value of Bangladesh's currency, the taka, to move toward a more flexible exchange rate, which helped make exports more competitive. However, these benefits were partly offset by unregulated money injections into struggling banks and continued financial stress from looming debt repayments, making it harder to build up foreign currency reserves. Despite lower-than-expected tax revenues, due to weaker economic activity and limited improvements in compliance, the government managed to keep its budget deficit within agreed targets for FY 2024 and the first half of FY 2025, mainly by sharply cutting public spending and reducing domestic borrowing. This offset the revenue shortfall and brought the primary fiscal deficit down to 1.5% of GDP in 2024, well below the 2.8% target, and resulted in a 0.6% primary surplus in the first half of 2025.

• In the first half of FY 2025, exports showed signs of recovery, rising 11% year-on-year and breaking the downward trend seen in FY 2023 and FY 2024. Remittance inflows also remained strong, jumping nearly 28% compared with the same period last year, more than double the 11% growth recorded in FY 2024. Both of these developments likely helped bolster Bangladesh's foreign exchange reserves. In contrast, imports grew slowly at just 3.5% year-on-year. This muted import growth reflects weak foreign direct investment (FDI)-linked imports and continued limitations on foreign exchange availability imposed by the government to curb external spending. Although exports and remittances improved, about $2 billion in unrecorded financial outflows, likely from the banking sector and debt repayments, left the country in the first half of FY 2025. These unaccounted outflows weakened the balance of payments. As a result, Bangladesh still faces a $3.8 billion financing gap for the full fiscal year, meaning it needs to secure that amount to meet its external payment obligations.
• While Bangladesh's foreign exchange reserves have modestly increased from $19.96 billion in January 2025 to $20.54 billion in May 2025, they remain relatively low, limiting the country's buffer against external shocks and its ability to finance imports. 

To meet IMF conditions and ease fiscal and external pressures, Bangladesh must broaden its tax base, sustain recent exchange rate reforms, clear arrears to state-owned enterprises, phase out costly subsidies, and tighten fiscal controls to safeguard economic stability and unlock further funding. To meet IMF requirements to unlock new funding and address growing fiscal and external pressures, Bangladesh will need to advance several key reforms. These include improving and broadening tax collection by FY 2026 to reverse the decline in the tax-to-GDP ratio, alongside broader efforts already underway to modernize the tax system through digitalization, tighter auditing and reduced exemptions. The country is also expected to sustain its recently implemented exchange rate reforms, which include allowing more flexibility in currency pricing, letting banks set rates freely, reducing market distortions caused by earlier price controls, and removing administrative measures that restrict market functioning. Sustaining these reforms will require the government to avoid returning to earlier practices, such as applying informal pressure on banks or intervening excessively in foreign exchange markets. At the same time, Bangladesh must clear overdue payments linked to state-owned enterprises, particularly in the power and fertilizer sectors, where subsidies continue to strain public finances. Medium-term recommendations include bringing electricity tariffs closer to actual supply costs while expanding social protections for vulnerable households. To foster economic stability and investor confidence, the IMF is also urging Bangladesh to manage its public finances more carefully, including by implementing stricter budget discipline, ensuring timely payments, and limiting external borrowing to prevent unsustainable debt levels.

Bangladesh's interim government will likely advance and sustain reforms on tax collection, exchange rate flexibility and repaying state-owned enterprise (SOE) arrears, but it will delay more sensitive measures to avoid unrest and increased political instability. The interim government is not seeking long-term office and is therefore well-positioned to take on politically sensitive reforms. However, concerns about escalating instability in an already volatile political environment will likely limit its ability to advance such controversial measures. This has already contributed to some delays and will likely continue to do so. The government will likely move ahead with digital tax reforms, steps to reduce tax exemptions and the repayment of SOEs. It will likely also continue to implement the exchange rate reforms already announced in May. Additionally, the government may move ahead with electricity pricing adjustments and plans to restructure the National Board of Revenue, which aims to improve efficiency and transparency in tax collection. However, more politically sensitive actions — such as transitioning to a more targeted fertilizer subsidy regime or fully removing Bangladesh's remittance subsidy — may be postponed until after general elections set for April, as the interim government seeks to avoid controversy and triggering unrest that could jeopardize the country's economic recovery. 

• Bangladesh's economy has been weakened by the instability stemming from the 2024 protests, the institutional disruptions following the interim government's subsequent takeover (e.g., administrative delays and staff turnover in tax authorities), and reduced economic activity from austerity measures. These factors have decreased tax revenue and undermined investor confidence. Although conditions have somewhat improved, political uncertainty, particularly over the timing of upcoming elections, persists, raising concerns about the durability of Bangladesh's economic reforms. 
• Bangladesh's remittance subsidy includes incentives like lower transaction fees and tax exemptions to encourage overseas workers to send money to Bangladesh through official channels. 

Despite this progress on reforms, Bangladesh still faces economic challenges, including low foreign exchange reserves and a deep reliance on garment exports (now threatened by high U.S. tariffs, along with ongoing political uncertainty ahead of upcoming elections. According to IMF projections, Bangladesh's foreign exchange reserves stand at $21.7 billion, which is enough to cover just 3.2 months of projected imports. To prop up those reserves, Bangladesh also heavily relies on export earnings tied to its crucial garment sector, which generates about 10% to the country's GDP and 80% of its exports, and employs over four million workers, mostly women. This, in turn, leaves the Bangladeshi economy particularly vulnerable to external shocks, like those posed by high U.S. tariffs. The United States purchases roughly 18% of Bangladesh's total exports and is the largest market for its ready-made garments. Washington's move to increase tariffs on Bangladeshi goods from 10% to 35% on July 7 thus threatens to hit the South Asian country's garment exports hard, reducing Bangladesh's export earnings while increasing pressure on its already limited foreign reserves. While slightly lower than the initially proposed 37% rate, the 35% tariff also places Bangladesh at a competitive disadvantage, especially compared to rival garment producers like Vietnam, which secured a more favorable 20% U.S. tariff on its goods. Bangladesh will likely attempt to increase its exports to Europe, Canada and Japan, though this may not fully offset reduced access to the U.S. market. The combined effects of these tariffs and ongoing political instability risk leading to factory closures and large-scale layoffs, as well as a loss of market share as U.S. and European buyers diversify sourcing to countries with lower tariffs like as India and Latin America — something that will further constrain Bangladesh's ability to attract new buyers. In response to this threat, Bangladesh's interim government has begun negotiations with the United States to seek deeper tariff reductions, and is also reviewing its own tariffs on imported U.S. goods. Although details of the trade talks remain limited, the recent increase in U.S. tariffs will likely put pressure on the Bangladeshi government to reach an agreement. In exchange for U.S. tariff relief, Bangladesh has expressed willingness to remove certain non-tariff barriers on the United States, purchase more U.S. goods (such as agricultural products and machinery), and lower tariffs on select U.S. exports. However, the government will likely be hesitant to offer concessions when it comes to the textile sector, given Bangladesh's heavy reliance on garment exports. 

• Foreign direct investment remains critically low and could decline further due to ongoing political unrest and uncertainty ahead of national elections in April. The IMF projects growth to slow to 3.8% in FY 2025 from 4.2% in FY 2024, driven by political disruptions, weak investment and tighter macroeconomic policies. While a recovery to 5.3% is projected in FY 2026, it will likely be constrained by both domestic instability and weakening global demand. If elections are perceived as fair, inclusive and timely, they will likely reduce political uncertainty and improve investor and public confidence. This could stabilize the domestic environment and support economic recovery. Inflation is projected to remain elevated, averaging 10% in FY 2025, due to earlier supply shocks and currency depreciation, with only a gradual decline expected by end-FY 2026. These challenges — alongside limited reserves, strained investor confidence and shifting buyer preferences — present a fragile and uncertain path forward for the Bangladeshi economy.
• Bangladesh's competitive advantage stems from its low labor costs, growing pool of skilled workers, and relatively quick production and delivery times. However, persistent challenges, such as incomplete compliance with international labor and safety standards, frequent strikes, infrastructure limitations and ongoing political uncertainties, offset some of these advantages.