In a meeting with Bangladesh’s central bank governor, Dr. Ahsan H. Mansur, the IMF raised serious concerns about the country’s financial stability. The discussions, held on Sunday in Dhaka, focused on several key issues, including the management of the dollar market and the troubling liquidity crisis in Bangladesh’s weaker banks. The IMF delegation was led by Chris Papageorgiou, Head of the Development Macroeconomics Research Division, and included senior officials from Bangladesh Bank such as Deputy Governor Nurun Nahar, Dr. Habibur Rahman, Zakir Hossain Chowdhury, Dr. Kabir Ahmed, and Dr. Ejazul Islam from the Research Division.
A major point of discussion was the control of the dollar market, with the IMF questioning Bangladesh Bank’s approach. Governor Mansur explained that the market price of the dollar is determined based on a reference rate. However, the IMF warned that this reference rate does not reflect the true market value, and in order to make the market more realistic, it must be left entirely to market forces.
The reference rate, typically set by central banks, is used in foreign currency transactions. The IMF believes this method distorts the actual market value of the dollar and can negatively affect import-export and remittance flows. The meeting also addressed the liquidity issues of struggling banks, many of which have received significant loans from Bangladesh Bank. Over the past year, Bangladesh Bank has provided nearly 52,000 crore Taka in loans to several distressed banks, most of which were issued on the basis of promissory notes. These loans remain unpaid, and the IMF described the practice as “extremely risky,” urging it to be stopped immediately.
The IMF also questioned why Bangladesh Bank is acting as a guarantor for these loans and sought clarification on the increased state risk involved. However, the central bank did not provide a direct answer to this query. On a more positive note, the IMF acknowledged that the true extent of non-performing loans, which had been kept hidden by previous governments, has now been revealed. Despite this, the IMF stressed that the ratio of non-performing loans in state-owned banks must be reduced to below 10% as part of the $4.7 billion loan agreement signed in January 2023.
At the end of June, the total amount of non-performing loans in Bangladesh stood at 667,000 crore Taka, up by almost 400,000 crore Taka in just one year. The rate of bad loans in state-owned banks exceeded 40%, while in the private sector, it stood above 10%. The IMF also raised concerns over Bangladesh’s export development fund (EDF) and other refinancing programmes, questioning their impact on the country’s foreign exchange reserves and overall financial stability.
While the IMF welcomed the recent success in controlling inflation, it warned that a prolonged contractionary monetary policy could have a negative impact on investment. The delegation also gathered detailed financial information on the six state-owned banks, focusing on their liquidity crisis, provisioning shortfalls, foreign exchange shortages, and climate-resilient investment initiatives.
Bangladesh joined the IMF’s loan programme in January 2023, signing a $4.7 billion agreement, which was later increased to $5.5 billion. So far, the country has received nearly $3.65 billion in four instalments.
At the conclusion of the meeting, the IMF made it clear that the value of the dollar must be determined entirely by market forces and that the practice of granting collateral-free loans to struggling banks must be halted. Failure to address these issues could undermine both the financial stability of the country and international confidence in its economy.