IMF expects FDI inflows as polls timeline firms up

The International Monetary Fund has expressed optimism that foreign investment into Bangladesh will begin to flow again as the country's election timeline has removed a key source of uncertainty for investors.

"With the elections now being firmed, we believe that the investments will start coming in. This is very important for Bangladesh because it has one of the lowest foreign direct investments in the world," said Chris Papageorgiou, IMF mission chief for Bangladesh.

Papageorgiou made the remarks during an online briefing on the progress of Bangladesh's loan programme with the IMF yesterday, noting that foreign direct investment had slowed considerably in recent months amid concerns over political uncertainty and governance transitions.

"There was an investment summit when we were on mission, and there was a lot of interest in investing in Bangladesh," he said. "But there was this uncertainty of how elections go, how the transition to elections goes."

The IMF, he said, does not take political positions, but said in its staff report that investment decisions, especially from external sources, are sensitive to the timing and perceived credibility of elections.

The IMF believes that with the electoral timeline now firmed, Bangladesh may begin to unlock greater volumes of capital inflows, a much-needed boost for an economy seeking to graduate from least-developed country status and recover from recent economic and political turbulence.

Papageorgiou's comments come against the backdrop of a broader IMF-backed reform programme for Bangladesh. The original loan package, approved in 2023, totalled $4.7 billion. Following the augmentation approved on June 23, the total size of the programme has increased by $800 million to $5.5 billion. Of this, $3.31 billion has been disbursed so far.

In its latest assessment, the IMF cited "broadly satisfactory" performance despite considerable headwinds, including political instability, rising trade barriers, and financial sector stress in the wake of the 2024 popular uprising that unseated the previous government.

LONG ROAD AHEAD

While the investment outlook appears to be improving, Papageorgiou was less upbeat about revenue performance, describing it as "not very encouraging" so far under the IMF-supported programme.

"We have been having targets since the beginning of the programme, and if you look at the performance, it has not been very encouraging," he said. "The authorities are making efforts. Some of these efforts come short."

Each programme review has resulted in new corrective actions aimed at rebuilding momentum. "What we have in mind is always something that is ambitious in terms of a target, but always achievable."

Bangladesh is currently "at a critical juncture", Papageorgiou said, citing both economic and geopolitical headwinds. Still, the IMF believes the revenue targets are within reach, particularly on the VAT and income tax sides, given renewed commitments from the authorities.

He acknowledged the structural nature of the challenge. "This is really an issue that goes back decades. And we really try to turn the corner there, and that is challenging and we recognise this."

To support long-term reforms, the IMF and the World Bank have launched a joint revenue mobilisation initiative built around key pillars, including policy measures and structural changes such as separating tax policy from administration, Papageorgiou said.

He added that if revenue targets are missed, the IMF will continue engaging with the government. "We have to sit together again, look through corrective actions that the authorities have to take for the next review. We look at what are the issues, how can we resolve the issues, so that we can build on this positive momentum."