The International Monetary Fund (IMF) has reaffirmed its commitment to Bangladesh following a dramatic turn of events that saw Prime Minister Sheikh Hasina ousted from office by widespread protests. The IMF’s support comes as the nation faces unprecedented political and economic uncertainty.

Political Upheaval

On Tuesday, Bangladesh's President dissolved parliament, setting the stage for new elections. This move followed the resignation and subsequent departure of Prime Minister Sheikh Hasina on August 5, amid student-led protests that have tragically resulted in hundreds of casualties.

The IMF, which approved a substantial $4.7 billion loan program for Bangladesh in January 2023, expressed deep concern over the violence and loss of life. In a statement, an IMF spokesperson emphasized, "We remain fully committed to Bangladesh and its people and support efforts to ensure economic stability and deliver inclusive growth."

Multilateral Support Crucial

Multilateral institutions play a vital role in Bangladesh’s economy. According to emerging market analysts Tellimer, long-term loans from organizations like the IMF, World Bank, and the Asia Development Bank constitute about 25% of Bangladesh’s GDP. The World Bank, which had commitments totaling $2.85 billion for the fiscal year ending June 30, is currently assessing the impact of recent events but has also reaffirmed its commitment to Bangladesh’s development.

Despite political turmoil, Bangladesh's external debt remains manageable, with short-term external debt constituting only 5% of GDP. However, the economy has been struggling with high inflation, a shrinking reserve of foreign currency, and high youth unemployment.

Risks and Credit Ratings

The recent political upheaval has not gone unnoticed by credit rating agencies. S&P Global Ratings downgraded Bangladesh’s long-term sovereign credit rating to B+ on July 30, citing increased risks to economic growth, fiscal performance, and external stability. The agency’s bulletin today notes that while current credit metrics are under strain, they may remain stable if the political situation stabilizes and a new government is formed.

S&P highlighted that prolonged political instability could further dampen economic growth, reduce government revenues, and impact export levels. This could, in turn, weaken foreign exchange reserves and affect the central bank’s ability to stabilize the currency. Remittances from abroad and a smooth flow of financial transactions will be critical to mitigating these risks.

Looking Ahead

As Bangladesh navigates through this period of uncertainty, multilateral lenders, including the IMF and World Bank, will be closely monitoring the country’s political and economic developments. The international community’s support will be crucial in helping Bangladesh stabilize its economy and continue its path towards sustainable development.