$4.7bn IMF Loan Hurdles: Revenue Collection Remains Weak

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Bangladesh has made significant progress under the International Monetary Fund (IMF) loan program, but challenges in revenue collection continue to pose a major hurdle. While the country has strengthened foreign reserves, reduced arrears on fuel and fertilizer imports, and set new records in remittance inflows, the tax sector remains underperforming.

The sixth tranche of Bangladesh’s $4.7 billion IMF loan is expected to be released by December, following an upcoming review by a top-level IMF team scheduled to visit Dhaka for two weeks from October 29. The team will assess the country’s progress until June, with revenue collection emerging as the most critical area of concern.

Bangladesh Bank reported that foreign exchange reserves reached $20.73 billion in June, significantly exceeding the IMF’s target of $17.4 billion. By September, reserves remained above $20 billion. Economists attribute the increase to higher remittance inflows through formal channels, controlled imports, and reduced illegal fund transfers.

Dr Zahid Hossain, former World Bank chief economist in Dhaka, explained: “Remittances are now coming largely through legal channels as hundi operations have declined. Lower import demand has reduced pressure on the currency, and Bangladesh Bank is now buying dollars to stabilise the taka, whereas previously it sold dollars.”

In terms of arrears, IMF conditions required fuel and fertilizer import backlogs to stay below $870 million in June. Bangladesh has reduced arrears to $314 million by settling approximately $5 billion with energy sector creditors, including Adani and Chevron, and an additional $200 million for fertilizer bills. Finance Adviser Dr Salehuddin Ahmed said these payments signal renewed financial discipline in state institutions and send a positive message to the IMF.

Despite progress in other areas, revenue collection remains the weakest link. The IMF’s target for the last fiscal year was Tk443,530 crore, but only Tk378,000 crore was collected, leaving a shortfall of Tk65,000 crore. Bangladesh’s tax-to-GDP ratio remains below 8.5%, the lowest in South Asia.

A senior official at the National Board of Revenue (NBR) highlighted multiple causes for the shortfall: “Trade and commerce were disrupted by last year’s mass uprising and political unrest. Restructuring and staff agitation at the NBR affected operations, and customs collections fell due to lower imports. The IMF’s revenue target was ambitious given these circumstances.”

Dr Zahid Hossain emphasised that reducing the budget deficit requires structural reforms in tax administration. “Concessions from the IMF on revenue deficits may be necessary, but these cannot be repeated indefinitely,” he warned.

While Bangladesh has met most of the IMF’s six mandatory criteria, the organization may express concerns over the central bank’s dollar-buying policy and recent guidelines on default loan rescheduling. IMF scrutiny will focus on whether Bangladesh Bank’s market interventions are consistent with a market-determined exchange rate policy and whether rescheduling could encourage past irregularities.

Economists identify administrative weakness and slow policy implementation as the main obstacles to improving tax collection. The proposed Revenue Policy and Revenue Management Ordinance aims to separate the NBR into two departments—Revenue Policy and Revenue Management—to increase efficiency, transparency, and accountability. The IMF expects this framework to be operational by the start of fiscal 2026.

The release of the next IMF tranche will largely depend on three indicators: foreign reserves, revenue collection progress, and banking sector discipline. While Bangladesh has achieved positive results in reserves and arrears payments, revenue collection remains a key concern.

Finance Adviser Dr Salehuddin Ahmed noted, “Filling the revenue deficit requires not just new taxes but restoring taxpayer confidence. Sustainable reform in the revenue system is essential for long-term loan program success.”

Bangladesh is gradually meeting IMF conditions, with reserves rising, remittance inflows at record levels, and arrears being addressed. However, without substantial reform in the revenue sector, economists warn that the progress may not be sustainable, potentially delaying future loan tranches.