The Bangladesh Bank (BB) has significantly reduced quasi-fiscal financing to achieve the International Monetary Fund's (IMF) indicative target, which has been set as part of its $5.50- billion lending package to stabilise the country's macroeconomic situation, officials say.
The multilateral lending agency, after its review mission in March this year, set an indicative target to completely phase out quasi-fiscal lending activities involving the Bangladesh Bank by the end of 2027, saying those create obstacles for the monetary policy moves.
As the central bank agreed to the condition, keeping the spirits of the modern monetary policy framework in mind, it keeps downsizing the outstanding volume of quasi-fiscal financing, including refinancing and pre-financing activities.
According to central bank sources, there were some 30 quasi-fiscal financing operations involving over Tk 370 billion until March 2025, and the outstanding amount has dropped to Tk 320 billion now.
The banking regulator plans to further curtail such activities by the end of this year to meet the IMF's indicative target.
Seeking anonymity, a Bangladesh Bank official says the IMF's review mission has hailed the central bank's ongoing stance on gradually phasing out the quasi-fiscal lending activities so that those cannot distort the spirit of the monetary policy actions.
Explaining the reasons behind it, he says they have continued the tight monetary stance to control inflation by keeping the policy rate at 10 per cent.
On the other hand, the central bank keeps financing at subsidised rates, ranging between 0.5 per cent and 5.0 per cent, to promote activities involving key sectors, such as agriculture, small and medium enterprises (SMEs), financial inclusion, green financing, and startups.
"It is expanding the central bank's balance sheet with increased money supply to the market, which is against the modernisation of the monetary policy framework. That is why the IMF made the recommendation to phase out quasi-fiscal activities," the Bangladesh Bank official says.
On condition of not disclosing identity, another central banker says they have so far curtailed the outstanding amount by around Tk 50 billion, and the visiting IMF's review mission has expressed satisfaction with the indicative target.
"But I am concerned about whether we will be able to continue at this pace in the coming days under an elected government. We expressed the concern, and the IMF team said they would handle it with the next government."
Responding to a question, the central banker says they have raised the importance of continuing subsidised financing facilities for key areas like agriculture, SMEs, and startups to attain food security and job creation.
The IMF has also recognised the matter, saying it is the responsibility of the government, not the Bangladesh Bank, the official says.
MA Taslim, a professor of economics at Independent University Bangladesh, says handling quasi-fiscal activities should not be the responsibility of the central bank.
It should concentrate more on the monetary side to contain inflation by ensuring price stability in the market, he says.
"I think the IMF is logical. We should not impose quasi-fiscal operations on the central bank. It is the responsibility of the ministries concerned, such as agriculture and finance," he adds.
But Dr Muinul Islam, a former professor of economics at the University of Chittagong, disagrees, saying Bangladesh seems to be in the financing trap of the Bretton Woods Institution because the IMF's neoliberal thinking may not be appropriate for the country.
"The dependency on multilateral agencies like the IMF continues to grow. We need to try to come out of the dependency and execute things by ourselves that will be suitable for Bangladesh," he adds.
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