Bangladesh is seeking a new IMF bailout as the Iran war triggers an energy crisis, soaring fuel costs, and supply chain disruptions, compounding existing economic vulnerabilities in the South Asian nation.
Bangladesh has formally requested a new financial assistance programme from the International Monetary Fund (IMF) as it grapples with the severe economic repercussions of the ongoing US-Israel war on Iran, which has disrupted global energy supplies and inflated costs across key sectors.
The announcement came from IMF Mission Chief Ivo Krznar last week, confirming that Bangladeshi authorities are in discussions with the Fund on a reform agenda aimed at securing macroeconomic stability, strengthening resilience, and fostering inclusive growth. Neither party has disclosed the potential size of the new package, but the request underscores the depth of the crisis triggered by events in the Middle East.
This move comes as Bangladesh continues under an existing $5.5 billion IMF programme approved in 2023 (sometimes cited as $5.7 billion), which was originally designed for a different economic reality. Finance and Planning Minister Amir Khosru Mahmud Chowdhury held a virtual meeting with IMF Deputy Managing Director Nigel Clarke last week, where both sides agreed to expedite the new arrangement.
How the Iran War Has Devastated Bangladesh’s Energy Sector
The war, which erupted on February 28, 2026, with strikes on Iran, has caused oil prices to surge dramatically. Brent crude has climbed toward or beyond $100 per barrel from pre-war levels around $66, exacerbated by disruptions in the Strait of Hormuz – a critical chokepoint for global oil and LNG shipments – and a US naval blockade.
Bangladesh, with a population of over 170 million, imports nearly 95 per cent of its oil and liquefied natural gas (LNG) requirements, primarily from the Middle East. The country has responded with austerity measures, including halting production at most fertiliser factories and imposing a 10-15 per cent hike in fuel prices in April. Petrol prices rose from $0.95 to $1.10 per litre, with similar increases for diesel and kerosene.
These steps aim to curb consumption amid summer peaks in cooling demand, but they have strained households and industries. Additional measures include limits on refuelling, early university closures to save electricity, and restrictions on non-essential travel and decorative lighting. The World Bank has approved a $350 million loan to bolster energy security and manage rising import costs.
Analysts note that a prolonged conflict could force Bangladesh to spend an extra $1.07 billion on LNG subsidies in the April-June quarter alone. Growth projections have been downgraded, with the World Bank forecasting a slowdown to around 3.9 per cent for the fiscal year ending June 2026 in adverse scenarios.
Ripple Effects on Garments, Manufacturing, and Debt Burden
The ready-made garment (RMG) sector, which contributes over 80 per cent of Bangladesh’s export earnings and employs millions, faces significant headwinds. Factories rely on raw materials imported from China via disrupted Red Sea and Middle Eastern routes, driving up costs. Industry insiders predict a 20-25 per cent drop in work orders for the next season. Shipping delays have also affected garment exports to major retailers.
Other sectors, such as plastics manufacturing, are hit by spiking resin prices – derived from crude oil – which have jumped from $900-950 per tonne to $1,500-1,600. Supply chain issues and higher input costs are eroding competitiveness.
Bangladesh’s external debt stands at approximately $113.5 billion as of late 2025 data, representing a moderate but rising burden. The IMF and World Bank had previously assessed the country at low risk of debt distress, with debt at about 22 per cent of gross national income. However, higher borrowing costs, currency pressures, and war-induced shocks are worsening the outlook. In March 2026, the government sought around $2 billion in loans from multilateral donors specifically for energy security.
The current $5.5 billion IMF programme has faced implementation challenges, including slow progress on revenue mobilisation, banking reforms, subsidy rationalisation, and exchange rate flexibility. Reports indicate the IMF has withheld some tranches, pushing for a more comprehensive new deal with stricter conditions.
Broader Global Context and Regional Vulnerabilities
The Iran war represents the latest in a series of shocks following COVID-19, the Russia-Ukraine conflict, and climate-related events. The IMF has warned that prolonged disruptions could push global government debt toward 100 per cent of GDP by 2029 – the highest since World War II – and trigger adverse scenarios with global growth falling to 2-2.5 per cent and inflation rising sharply.
South Asian nations like Bangladesh and Pakistan are particularly exposed due to heavy reliance on Gulf energy. Similar pressures are evident regionally, with calls for diversified sourcing, renewable energy acceleration, and fiscal discipline.
Bangladesh’s interim or current administration faces the dual task of immediate crisis management and long-term structural reforms. Key priorities include boosting domestic revenue, improving the business environment, and enhancing export diversification beyond garments.
Economists emphasise that while external support is crucial, sustainable recovery depends on addressing governance issues, infrastructure bottlenecks, and vulnerability to global commodity swings. The country’s youthful population and growing digital economy offer potential, but these require stability to flourish.
As negotiations with the IMF progress, Bangladesh’s request highlights the interconnectedness of geopolitics in the Middle East and economic fortunes in South Asia. An official of the country’s finance ministry said that a swift resolution could provide breathing room, but failure to implement reforms risks deeper instability.
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