Has IMF experiment delivered?
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economic challenges remain formidable. Inflation continues to bite, contrasting sharply with Sri Lanka, where IMF-backed measures have tamed spiralling prices and steadied the economy.
MISSED OPPORTUNITIES AND DELAYED ACTION
Economists argue that Bangladesh’s crisis was never as severe as Sri Lanka’s, but poor policy choices exacerbated its vulnerabilities. For years, the Hasina-government maintained rigid controls on interest and foreign exchange rates, which stifled economic flexibility and delayed necessary reforms.
In April 2020, the central bank capped lending rates at 9 percent and deposit rates at 6 percent to spur cheap borrowing and boost GDP growth. While global interest rates surged over the past two years, Bangladesh clung to these caps, fuelling excessive credit growth and weakening monetary discipline. At the same time, the government leaned heavily on the central bank to finance its deficits, undermining its purported contractionary monetary stance.
Adding to these internal missteps, the country faced an unprecedented series of external shocks. “When the programme started, we didn’t have the effects of Russia’s war on Ukraine. We didn’t have the financial inflationary pressures, which became much larger as the programme progressed. Commodity prices soared, and as we know, Bangladesh imports a lot of its food and commodities. These are three shocks, almost one after the other,” Chris Papageorgiou, head of the IMF staff team for Bangladesh, said at a media briefing in Dhaka on Thursday.
Papageorgiou further highlighted the socio-political turmoil that disrupted progress. “As we were making progress and the shocks were hitting, we then had the uprising in the months of July and August, which is, as you can imagine, another major socio-political shock,” he noted.
The IMF programme has forced a reckoning. By mid-2023, Bangladesh abandoned its fixed interest rate regime and began transitioning to market-driven mechanisms. Similarly, long-standing inefficiencies tied to multiple exchange rates were addressed, unifying rates under IMF directives. While necessary, these steps were long overdue, said Zahid Hussain, former lead economist at the World Bank’s Dhaka office.
REFORMS FALL SHORT OF AMBITION
Despite progress in some areas, Bangladesh has struggled to meet key targets set under the IMF programme. During its first review, the government fell short of its revenue collection target. This shortfall forced greater reliance on domestic bank borrowing, exacerbating money supply growth and keeping inflation elevated.
Tax reforms -- a central pillar of the IMF’s agenda -- have been half-hearted at best. Adjustments to electricity tariffs and steps toward liberalising fuel prices are underway but remain incomplete. Zahid Hussain noted that while unifying the exchange rates and lifting interest rate caps were significant achievements, the absence of broader fiscal reforms continues to hinder progress.
LESSONS FROM SRI LANKA
Sri Lanka’s experience offers a sharp contrast. After its IMF bailout, the country enacted sweeping reforms, including granting independence to its central bank. These measures brought inflation under control, restored financial stability, and bolstered confidence in its banking system.
In Bangladesh, however, meaningful reforms have been limited. Public expenditure remains inefficient, and financial sector overhauls have been more cosmetic than substantive, said Professor Selim Raihan, executive director of the South Asian Network on Economic Modelling. “The previous government failed to seize the opportunity to enact decisive reforms. What we’ve seen so far are surface-level changes, insufficient to yield meaningful outcomes,” he said.
THE ROAD AHEAD
While foreign exchange reserves have stabilised somewhat, the broader economic benefits of the IMF programme remain elusive. The current government faces a formidable dual challenge: reining in inflation and tackling structural inefficiencies. Monetary tightening has shown early signs of progress, but inflationary pressures are deeply entrenched and linked to systemic issues.
The IMF, too, has drawn criticism for its role in the programme’s uneven execution. “The IMF’s reviews often offered a rosier picture than reality, failing to hold the government accountable for unmet reforms,” said Raihan. He called for greater vigilance and transparency in future evaluations.
Bangladesh’s decision to approach the IMF early in its crisis was commendable, experts agree. But the programme’s potential remains unfulfilled without comprehensive reforms. “The country sought help at an early stage, which was wise,” said Raihan. “But without sustained reforms, the programme risks becoming a missed opportunity.”
As Bangladesh navigates its economic future, the urgency of reform looms larger than ever. Whether the country can translate IMF prescriptions into lasting stability will determine whether this chapter is remembered as a turning point -- or a temporary reprieve.