Sri Lanka raised fuel prices by up to six percent on Sunday, in line with IMF plans to recover energy costs and phase out subsidies to stabilise the economy.

Petrol was raised to 434 rupees ($1.33), up from 410, while diesel increased to 407 rupees a litre from 392, the state-run Ceylon Petroleum Corporation said.

The price hike came days after the International Monetary Fund released a $695 million instalment of a $2.9 billion bailout loan, agreed in early 2023 to stabilise the cash-strapped South Asian nation.

The IMF wants Sri Lanka to ensure cost recovery for both fuel and electricity tariffs, which have been subsidised by the government since the start of the conflict in the Middle East in February.

President Anura Kumara Dissanayake, in a letter to the IMF made public by the Washington-based international lender, said fuel subsidies will be phased out by September.

Since the United States and Israel began attacking Iran on February 28, triggering a global energy crisis, Sri Lanka has raised petrol and diesel prices by about 48 percent. Electricity has increased by a third.

The Strait of Hormuz, a key waterway through which about 20 percent of global oil exports pass in peacetime, has been effectively closed by Iran.

Sri Lanka imports all its oil and also buys coal for electricity generation.

Colombo has warned that the fighting in the Middle East, and any prolonged conflict, could seriously undermine its efforts to emerge from the economic meltdown of 2022.

Sri Lanka defaulted on its $46 billion foreign debt in 2022 after running out of foreign exchange. Since then, Colombo has been drawing down the IMF bailout loan to stabilise the country.

The government has raised the retail price of octane, petrol and kerosene prices by Tk5 per litre for June though diesel price remain unchanged.

The energy division said the June price was adjusted in line with the international oil market movements.

According to a notification issued by the Energy and Mineral Resources Division on sunday, the price of octane has been set at Tk145 per litre effective from 1 June, up from Tk140 per litre in the previous month.

Petrol prices have also been increased by Tk5 per litre to Tk140, while kerosene has risen by the same amount to Tk135 per litre.

However, the price of diesel, the country's most consumed fuel, has been retained at Tk115 per litre.

The government said the revised rates were determined in line with changes in global petroleum product prices.

Under the new pricing structure, octane remains the most expensive fuel in the domestic market, costing Tk5 more than petrol and Tk30 more than diesel.

The latest increase marks the first upward adjustment oil prices in recent months.

The revised fuel prices will come into effect from Monday (1 June).

The government's proposed 0.20% source tax on retail shopkeepers -- designed to net an additional Tk6,000 crore annually -- relies on a collection mechanism that experts and corporate leaders warn will directly inflate consumer prices through compounded supply chain costs.

Rather than targeting retailers directly, the National Board of Revenue (NBR) plans to shift the entire administrative and financial burden onto wholesale distributors and dealers, creating a compliance chain that might ultimately push up the retail prices of daily necessities.

The inflationary pressure begins at the point of distribution.

Under the proposed framework, green-lit by Finance Minister Amir Khosru Mahmud Chowdhury for the upcoming national budget, a consumer goods manufacturer does not pay this tax; instead, their network of local dealers must calculate and collect a levy of Tk2 for every Tk1,000 worth of product value at the exact moment goods are supplied to a retail shop, a senior revenue official told The Business Standard.

For a distributor managing a vast network -- such as Pran-RFL Group's 22,000 dealers or Nestlé Bangladesh's supply lines -- this would require an immediate overhaul of billing systems to calculate micro-levies across hundreds of thousands of daily item deliveries, severely driving up corporate operational and logistical costs.

The mechanism further compounds because the tax applies at each independent distribution point.

If a small, informal grocer sources fast-moving consumer goods, packaged foods, and pharmaceuticals from multiple corporate distributors, the 0.20% tax would be deducted transaction-by-transaction by every single supplying dealer.

These automated deductions would be processed via a digital application linked to the government's "A-Challan" system, which would route the money from the dealer straight to the state treasury, tracking the small shopkeeper via their mobile number and sending them quarterly SMS updates.

The primary catalyst for consumer price hikes lies in the informal nature of Bangladesh's retail sector.

Business representatives point out that the vast majority of the country's estimated one crore small shopkeepers operate completely without Tax Identification Numbers (TIN) or formal accounting software.

Because these micro-traders cannot easily navigate the formal tax system to claim year-end refunds from the NBR -- which is only permissible if they register a formal TIN and file comprehensive tax returns -- they will view the Tk2 deduction per Tk1,000 as a direct, unrecoverable cut to their profit margins.

To insulate themselves from this multi-layered revenue deduction, small shopkeepers are highly likely to treat the source tax as an immediate overhead expense, say experts.

To cover the cost, retailers may adjust the final shelf prices of everyday goods upward.

Consequently, ordinary shoppers will absorb the final financial impact at the counter through pricier fast-moving consumer goods, food items, furniture, steel, cement, and essential medicines.

The revenue board plans to aggressively roll out this system in its first phase to target 50 lakh retailers, aiming to formalise an economy where currently only 15 lakh individuals effectively pay taxes out of 1.3 crore TIN holders.

Oil futures fell more than 2 percent on Friday, closing out their steepest ​weekly decline since early April as traders awaited word that the US, Israel and Iran had reached agreement on a ceasefire.

Brent crude ‌futures for July, which expired on Friday, settled at $92.05 a barrel, down $1.66, or 1.8 percent. WTI US oil futures finished at $87.36 a barrel, down $1.54 or 1.7 percent.

“Obviously, the market thinks the ceasefire will be all easy-peasy and is done and dusted,” said John Kilduff, partner with Again Capital.

The three-month war between the US and Iran has been marked ​by frequent chatter of an impending end to the conflict that would open the crucial Strait of Hormuz, used to ​transit one-fifth of the world’s oil and gas supply. Even with both sides suggesting an agreement was forthcoming, their characterisations of the deal were still somewhat different.

Iran’s Fars news agency said the agreement - which it has not decided yet to approve - ​required Iran to open the strait without restrictions but the Islamic Republic would reopen the waterway “according to its own pre-determined arrangements.”

Iran has said ​after the conflict that it would regulate traffic through the strait, charging fees to transit.

US President Donald Trump has said called again on Iran to immediately re-open the strait. The closure of the waterway has driven energy prices sharply higher worldwide. Recent sessions have been volatile, with swings by as much as $6 for both ​benchmarks on conflicting signals over a potential reopening of the strait.

“The questions are when are we going to open the strait? I wonder ​when are we going to hit the bottoms of the tanks,” Kilduff said. “I’m surprised prices aren’t higher.”

Brent has plunged by about 11 percent this week, its steepest ‌weekly decline ⁠in seven weeks. WTI has dropped by more than 9 percent for its biggest weekly loss in six. Both benchmarks hit their lowest price since mid-April.

“While oil flows through the Strait of Hormuz remain restricted and oil inventories keep falling, the market focus remains on the possibility of a deal between the US and Iran,” said UBS analyst Giovanni Staunovo.

President Trump has long treated the stock market like his personal scoreboard, but his latest financial disclosure suggests something far more active.

“The price drop could be forcing some market players to close ​their long positions.”

The US and Iran reached ​a tentative agreement on Thursday ⁠to extend a ceasefire and lift restrictions on shipping through the Strait of Hormuz, sources told Reuters.

Traffic through the maritime chokepoint remains a small fraction of levels before the conflict. Analysts at ING said a reopening ​of the waterway would offer some immediate relief to the oil market, but a recovery is ​still uncertain.

Japan, which relies ⁠heavily on oil from the Middle East, last month registered a 66 percentdop in crude oil imports compared with April last year.

Commerzbank raised its Brent forecasts to $90 a barrel by the end of September and $85 by the end of the year, based on a scenario in which the ⁠strait remains ​closed to normal shipping for another two months.

US crude, gasoline and distillate stockpiles fell ​last week, the Energy Information Administration said on Thursday, as demand from refiners and consumers rose, while exports fell by 1.16 million barrels per day to 4.4 million ​bpd.

The banking sector on the Dhaka bourse yesterday experienced a mixed response from investors following the central bank's latest stringent directives on dividend distribution.

The Bangladesh Bank has directed that commercial banks must maintain a minimum paid-up capital of Tk2,000 crore to declare any cash dividends. The policy, aimed at strengthening the sector's capital base, is expected to significantly restrict cash payouts for most listed lenders.

Under the new framework, which is set to take effect from 31 December 2026, even banks meeting the capital threshold and other regulatory requirements will be allowed to pay a maximum of 50% of declared dividends in cash.Market data shows an immediate impact: out of 36 listed banks, 12 declined, 14 remained unchanged, and five advanced as investors assessed the implications of the new directive

Currently, the room for cash dividend distribution appears extremely limited. Only BRAC Bank meets the Tk2,000 crore paid-up capital requirement while also being in a position to offer cash returns. Although National Bank has adequate capital, its elevated non-performing loan burden continues to constrain dividend eligibility under the new rules.

A senior analyst of a brokerage firm noted that banks below the Tk2,000 crore threshold will need to raise equity—either through rights issues or repeat public offerings—if they aim to comply with the requirement by 2026.

The market reaction was reflected in price movements across key players. NCC Bank led the decliners with a 2.67% fall, followed by Dutch-Bangla Bank down 2.01% and Dhaka Bank slipping 1.77%.

Other notable losers included Eastern Bank, NRB Commercial Bank, and Southeast Bank, all declining more than 1%.

On the gainers' side, ICB Islamic Bank surged 3.85%, while One Bank and BRAC Bank rose 2.67% and 1.05% respectively.

Trading in five other listed banks remained suspended due to ongoing merger proceedings involving Sammilito Islami Bank.Commenting on the policy shift, Mashrur Arefin, managing director and CEO of City Bank, said the regulation may help prevent weaker banks from eroding capital through excessive cash payouts, but warned that a blanket approach could be counterproductive.

He argued that treating strong and weak banks alike could weaken investor confidence in well-managed institutions.Instead, Mashrur Arefin suggested using the Capital Adequacy Ratio (CAR) as a more effective benchmark, noting that banks maintaining CAR levels of 17–18%, well above the 12.5% regulatory minimum, should have greater flexibility in rewarding shareholders.Market analysts echoed similar concerns, suggesting that a more sophisticated approach would involve linking dividend approvals to a bank's broader financial health indicators rather than just a fixed capital amount.

While they acknowledged the move as a step toward long-term financial stability, they cautioned that restricting cash dividends from otherwise strong banks could reduce the sector's appeal to institutional investors.

The government has officially decided to opt out of the existing loan agreement signed between the International Monetary Fund (IMF) and the erstwhile Awami League administration, moving instead to negotiate a fresh $5 billion credit package under modified terms.

This major policy shift was confirmed during a high-profile virtual meeting held on 21 May, between a Bangladeshi delegation led by Finance and Planning Minister Amir Khosru Mahmud Chowdhury and an IMF team headed by its Deputy Managing Director Nigel Clarke.

According to an official press release issued today (25 May) by the Ministry of Finance, the digital session focused on Bangladesh's macroeconomic stability, the progress of ongoing IMF programmes, and future institutional cooperation.

During the discussions, the finance minister recalled the fruitful talks held during the latest IMF-World Bank Annual Meetings in Washington DC, noting that the government had since reviewed the reform packages internally.

While the minister reiterated that the current administration remains fully committed to macroeconomic stability and structural overhauls, he explicitly noted that the existing IMF programme had been formulated under a completely different economic and policy context.

He explained that subsequent domestic developments, political economy considerations, and global uncertainties have created severe implementation challenges for certain structural reforms.

The minister emphasised that the government does not want to retreat from economic reforms entirely. Instead, the administration aims to execute a realistic, well-sequenced reform agenda that aligns closely with the ground realities of the country, the release added.

In light of these points, the virtual meeting focused heavily on launching a brand-new IMF credit facility under the newly elected government. The alternative framework proposes a realistic three-year timeline incorporating attainable, priority reforms structured around practical sequencing.

IMF's Nigel Clarke welcomed Bangladesh's updated reform initiatives and its proposal for a new facility, expressing hope for a continued close and constructive engagement between the lender and the state.

Both sides reached a consensus on the necessity of a realistic, implementation-focused loan package, agreeing to fast-track the preparatory activities.

Concurrently, high-level ministry sources revealed that the decision to exit the ongoing package stems from a prolonged gridlock over stringent conditionalities.

The global lender has been putting mounting pressure on Dhaka to implement a uniform 15% VAT rate, eliminate tax exemptions, and replace universal state subsidies on electricity and fertiliser with targeted cash transfers.

Furthermore, international development partners have expressed dissatisfaction with the new government's recent amendment to the bank resolution framework under the Bank Resolution Act, 2026, viewing it as a regressive step for transparency.

The finance minister has publicly asserted that as an elected government accountable to the public, the administration cannot comply with donor demands that run counter to public interest or the BNP government's election manifesto.

High-level financial bureaucrats maintain that an active IMF programme remains vital as an essential institutional seal of approval, which is critical to unlocking an estimated $3 billion to $4 billion in parallel annual budget assistance from the World Bank and the Asian Development Bank.

An IMF mission is expected to arrive in Dhaka this July or August to finalise the specific volume, timeline, and terms of the new alternative framework.

As people return to the capital after the Eid holidays, the Dhaka-Mawa-Bhanga Expressway is greeting travellers not with its usual green surroundings and fresh earthy air, but with an unmistakable stench: rotting rawhides.

After sacrificing cattle on Eid day, many people have dumped hides along the highway this year as prices continued their long decline.

Images of discarded hides, hides buried in the ground, and rawhides thrown into rivers first made national headlines in 2017, when tanneries began relocating from Dhaka’s Hazaribagh area to the Savar Tannery Estate. Nearly a decade later, the same scenes continue to recur with little sign of improvement.

The relocation from Hazaribagh, on the banks of the Buriganga river, came after years of delays by tannery owners and repeated government deadlines. International buyers had increasingly raised concerns about the industry’s environmental record. At Savar, tanners were supposed to receive a fully functional central effluent treatment plant (CETP), but the facility remains underperforming almost a decade after the move.

The Eid-ul-Azha season provides around 50-60 percent of the rawhide local tanneries need for production throughout the year. Proceeds from the sale of sacrificial animal hides traditionally go to charities, madrasas and orphanages.

For years, the government has fixed prices at which small traders are meant to buy hides from the public. Yet those rates have done little to change the overall picture.

Apart from official prices largely remaining on paper and the CETP incomplete, at least half a dozen other factors help explain why rawhides continue to rot each year.

They include a surge of rawhide supply arriving within a few days of Eid-ul-Azha, weak demand, a tannery sector struggling with environmental compliance, softer global demand for leather, cash shortages across the supply chain, poor preservation practices that reduce quality, and allegations of price manipulation by a small group of tannery owners.

Md Shaheen Ahamed, chairman of the Bangladesh Tanners Association, said the leather sector has been in decline since the relocation of tanneries to Savar.

There are now more than 115 operational tanneries in Savar estate, but only five hold Leather Working Group (LWG) certification.

The LWG is a global body that sets environmental and compliance standards for the leather sector. Certification is required for access to markets in Europe, the United States and parts of developed Asia.

Most local tanneries do not have this certification, due mainly to compliance issues and the underperforming CETP.

Ahmed said the industry cannot grow while it fails to meet international environmental and quality standards.

With most tanneries lacking certification, rawhide demand remains weak this year as usual, according to small and medium traders.

Md Anwar Hossain, a rawhide trader in the Posta area of Dhaka, said demand from tanneries is currently low.

He said the prices traders can offer are dictated by what tanneries are willing to pay.

“That is just how the chain works. An official price does not change that,” Hossain said, adding that markets do not move simply because the government puts out a number.

Tipu Sultan, general secretary of the Bangladesh Hide and Skin Merchants’ Association, said rawhide collection this year is around 20 percent below expectations, and trading has not followed the government’s price announcement.

In his view, the core problem is cash.

He said businesses do not have sufficient working capital to buy at the government fixed rates during the peak collection period.

Mohammed Abu Eusuf, professor of development studies at Dhaka University, said Bangladesh’s leather sector is trapped in a cycle of low prices, weak demand and missed export potential.

He said the country stays in the loop because the compliance and governance problems have not been addressed.

Government price-setting has not been effectively enforced, he said, leaving seasonal traders to absorb losses. Unless the sector generates stronger demand and meets international environmental standards, conditions are unlikely to change.

He noted that tanneries with LWG certification are picking up solid export orders. However, much of the industry is excluded from such opportunities because the Savar Tannery Estate remains non-compliant, leaving most leather produced there tied to lower-priced markets, including China.

Md Mizanur Rahman, professor and director of the Institute of Leather Engineering and Technology at Dhaka University, traced the pressure on rawhide prices back to 2012, when international buyers began enforcing stricter environmental and compliance requirements.

Before that, Bangladeshi tanneries exported wet blue leather with fewer restrictions. As buyers in Europe and North America tightened standards, access to those markets increasingly depended on certification and environmental performance.

Rahman said the government moved tanneries from Hazaribagh to Savar to address environmental concerns, but the CETP has not delivered the level of compliance required by global buyers. As a result, many tanneries have shifted towards lower-priced markets, limiting what they can pay for rawhides.

The main driver of falling rawhide prices is weak tannery demand, not a cartel, Rahman said. “If there were strong demand, prices would naturally rise.”

Md Abdur Rahim Khan, additional secretary and head of the Export Wing at the Ministry of Commerce, said price issues in the rawhide market are mainly linked to quality, handling and coordination across the supply chain rather than administrative factors.

He said that during Eid-ul-Azha, large-scale slaughtering by unskilled butchers often leads to torn or damaged hides, reducing their value even when salt is applied.

He added that salt-treated hides generally receive government-fixed prices, but unsalted or poorly handled hides do not fetch expected rates.

Commerce Minister Khandakar Abdul Muktadir said the decline in rawhide prices in recent years is mainly due to structural problems within the industry.

He said the relocation of tanneries from Hazaribagh was the right decision, but the process was poorly managed, leaving many tanneries unable to restart operations properly.

He pointed out that the CETP at Savar, designed for a capacity of 25,000 cubic metres, is currently operating at only 14,000 to 17,000 cubic metres, around 60 percent of capacity.

According to the commerce minister, this shortfall, combined with limited processing and compliance infrastructure, has weakened overall efficiency in the sector.

Muktadir said compliance has become essential for accessing better international prices, measured through the LWG certification.

“Without this certification, factories are considered non-compliant and are excluded from reputable international buyers, including those purchasing finished leather goods and crust leather.”

He added that compared with the Hazaribagh period, there are now fewer processors and manufacturers. As a result, the sector cannot absorb the large volume of hides generated during Eid-ul-Azha, creating a supply and demand imbalance and pushing prices down.

He explained that while CETP capacity constraints prevent immediate full-scale processing, there is no major issue if leather is processed gradually over six to eight months.

The minister said an Italian company is studying the CETP to identify technical solutions for its underperformance. A report is expected in June or early July, after which corrective steps will be taken to restore full 25,000 cubic metre capacity.

Besides, individual effluent treatment plants will become mandatory for large tanneries, with government support through technical assistance and loans, said Muktadir.

Bangladesh is expected to play a significant role in a new US initiative aimed at boosting American cotton exports, as the Trump administration links potential tariff benefits for Bangladeshi apparel exports to the use of US cotton and textile inputs.
The United States Department of Agriculture (USDA) last week launched the Great American Cotton Plan to revitalise the cotton farm economy in the US.
“USDA and USTR secured commitments from Indonesia and Bangladesh that will support future US cotton purchases and textile production using American cotton,” the plan states.

Under the plan, Bangladesh could receive tariff reductions on apparel produced using US cotton and textile inputs, alongside other tariff-related concessions.
A Bangladesh-US reciprocal trade agreement signed on February 9 commits Washington to establishing a mechanism allowing certain Bangladeshi textile and apparel goods to enter the US at a zero reciprocal tariff rate.

However, the volume eligible for this benefit will be tied to Bangladesh’s imports of US-produced cotton and man-made fibre inputs. The US has yet to clarify the textile clause of the deal.Showkat Aziz Russell, president of Bangladesh Textile Mills Association (BTMA), said American cotton’s share of Bangladesh’s nearly $4.0 billion annual cotton import bill has been growing steadily, with local spinners, millers, and traders increasingly turning to US suppliers. He has already held talks with senior US officials on the bilateral cotton trade.
Russell flagged two key obstacles to scaling up US cotton use: the Rules of Origin (RoO) requirements and the long shipping distance between the two countries.He noted that while American cotton offers superior quality, greater clarity is needed on the tariff benefits available to Bangladeshi exporters.

During discussions with US officials, Russell sought clarification on the RoO requirements governing the use of US cotton and man-made fibre in garments eligible for tariff concessions.Based on discussions with US officials, he said the reduced tariff facility may apply only to a specified quota rather than all exports.Russell also stressed the need for warehouse facilities in Bangladesh to store and market US cotton. Imports from neighbouring countries require much shorter lead times, while shipments from the US can take more than 45 days, potentially affecting exporters’ competitiveness.Faisal Samad, a director of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), said the association will meet officials from the US Embassy in Dhaka next week to discuss the RoO requirements for garments made from US cotton and man-made fibre.

BGMEA leaders had previously sought clarification on the issue during meetings with visiting US Trade Representative (USTR) officials, but were told that work on the framework was still underway.

The US currently accounts for nearly 9 percent of Bangladesh’s annual cotton imports, which are valued at nearly $4.0 billion.US goods trade with Bangladesh totalled an estimated $11.8 billion in 2025.

American imports from Bangladesh reached $9.5 billion -- up 13.3 percent from 2024 -- while US exports to Bangladesh were $2.3 billion.The resulting trade deficit stood at $7.1 billion, a 17.9 percent increase from the previous year. Garments account for 86 percent of Bangladesh’s exports to the US.

The International Monetary Fund (IMF) has said that the Bangladesh government has requested a new IMF-supported programme as discussions continue over the country’s reform agenda and policy priorities.

In a statement, IMF Mission Chief for Bangladesh Ivo Krznar said the IMF staff are currently engaged in talks with the Bangladeshi authorities regarding the proposed programme.

“The Bangladeshi authorities have requested a new IMF-supported programme. IMF staff are in discussions with the authorities on their reform agenda and policy priorities,” he said.

Krznar said the IMF remains committed to supporting Bangladesh in maintaining macroeconomic and financial stability amid ongoing economic challenges.

“The IMF remains a committed partner to Bangladesh in its efforts to secure lasting macroeconomic and financial stability, strengthen resilience, and support strong, inclusive growth,” he added.

The development comes as Bangladesh continues efforts to stabilise its economy through fiscal, monetary and structural reforms while addressing pressure on foreign exchange reserves, inflation and the financial sector.

Bangladesh has been implementing various reform measures under its existing IMF loan programme approved in 2023.

The National Board of Revenue is considering raising the specific tax – a form of value-added tax (VAT) – on mild steel (MS) products and related items by around 10% at the production stage, according to sources at the Ministry of Finance.

The proposed change may be included in the Finance Bill accompanying the upcoming national budget. A similar increase in the specific tax on these products was introduced in the previous budget as well.

Industry stakeholders have warned that any further tax hike could dampen demand at a time when the steel sector is already struggling with weak market conditions. They said economic slowdown has reduced infrastructure and construction activities across government, private and individual projects, leading to a sharp fall in demand for steel rods.

Infograph: TBS
Infograph: TBS

According to sources at the NBR, the specific tax on MS products manufactured from re-rollable scrap currently stands at Tk1,700 per tonne, which may be increased by Tk170.

The specific tax on billets and ingots produced from meltable scrap may rise by Tk150 from the current Tk1,500 per tonne. For MS products manufactured from billets or ingots, the tax may increase by Tk160 per tonne. In the case of ingots or billets produced from meltable scrap and MS products manufactured from those ingots or billets, the increase may be Tk220 per tonne.

A senior NBR official, speaking to The Business Standard on condition of anonymity, said the specific tax at the local production stage for MS rods should be higher than the current rate.

"After reviewing the matter, we are preparing a proposal for a reasonable increase in VAT," the official said.

However, Md Shahidullah, managing director of Metrocem Group, believes the current economic climate is not suitable for raising VAT.

Explaining his concerns, he said demand for steel and related construction materials had fallen sharply as infrastructure development activities slowed across the country. "In some cases, we are now forced to sell products below production cost just to stay in business."

"If additional VAT is imposed on these products in such a situation, demand may decline further, which will increase pressure on us," he said.

Industry insiders said steel rod prices were selling between Tk80,000 and Tk85,000 per tonne until March this year, but prices have risen since the outbreak of the conflict in the Middle East.

Shahidullah said rod prices currently range between Tk85,000 and Tk92,000 per tonne.

NBR officials, however, argued that an increase of Tk150 to Tk200 per tonne due to higher VAT would not significantly affect prices.

According to the Bangladesh Steel Manufacturers Association (BSMA), there are around 200 steel mills operating in the country, including approximately 40 large industrial enterprises. The sector's total installed production capacity is about 120 lakh tonnes annually.

Under normal market conditions, annual demand for various steel products – including MS rods, sheets, beams, angles and plates – exceeds 60 lakh tonnes. MS rods, or rebars, account for the largest share of the market and are widely used in the construction sector.

Industry stakeholders said demand for steel rods has fallen by nearly one-third due to a slowdown in real estate and private construction activities, high interest rates and broader economic uncertainty.

In 2015, Bangladesh and Vietnam shared the same S&P sovereign credit rating: BB–. A decade on, Vietnam stands at BB+, one notch from investment grade. Bangladesh has fallen to B+, its banking sector near the bottom of global risk rankings, and Fitch issued a negative outlook just days ago. This is not a sudden crisis. It is the accumulated cost of a decade of governance failures that Bangladesh's policymakers refused to confront while headline growth numbers held up.

Rating record

The table below tracks S&P's sovereign rating trajectory for all five countries over the past decade.

The divergence is unambiguous. Vietnam earned two upgrades from the same starting point; Bangladesh suffered one downgrade. Uzbekistan, unrated until 2019, has already surpassed Bangladesh. Kyrgyzstan – smaller, poorer and landlocked – debuted at B+ in March 2025, level with Bangladesh today despite having no prior rating. Cambodia, which Bangladesh should outrank on every structural metric, sits on exactly the same shelf. Bangladesh and Vietnam were rated identically in 2015. Today they are four notches apart – and the gap is widening.

How a decade was squandered

Three structural failures drove the decline. Forex reserves collapsed from $48 billion in August 2021 to below $20 billion in 2024, compounded by the revelation that headline figures had been inflated for years through inclusion of illiquid instruments. The banking sector failure was deeper: S&P places Bangladesh in Group 9 out of 10 on its Banking Industry Country Risk Assessment.

When Fitch downgraded Bangladesh in May 2024, NPLs stood at 9%; by December 2025 they had reached 30.6% as regulatory forbearance unwound. This is not a banking sector with a problem – it is a banking sector whose problem has finally been measured. A fiscal system generating tax revenue of just 7-8% of GDP provided no cushion, and the interest-revenue ratio hit 29% by end-2025, more than double the B-rated peer median. The student-led uprising of mid-2024, the fall of the Hasina government, and political uncertainty over elections compounded every structural vulnerability.

What peers did differently

Vietnam held to one strategy: export-led industrialisation with consistent macroeconomic management. The China-plus-one manufacturing shift found Vietnam ready; S&P upgraded it twice in six years. Bangladesh had the same garment base and labour cost advantage – and let the window close. Uzbekistan debuted at BB– in 2019 and has since climbed to BB: it brought Franklin Templeton in to manage Uzbekistan National Investment Fund, listed the fund on the London Stock Exchange in May 2026, raised $604 million with four times oversubscription, and made state enterprise governance internationally legible. Kyrgyzstan – smaller and poorer than Bangladesh, unrated until 2025 – raised $700 million in a debut Eurobond with three times oversubscription months after receiving its first rating. Both countries demonstrated institutional credibility and immediately accessed international capital markets. Bangladesh cannot.

Fitch warning of May 2026

On May 13, 2026, Fitch revised Bangladesh's outlook from stable to negative, affirming B+. The proximate trigger is the Middle East conflict – nearly half of Bangladesh's remittances originate there, and crude oil accounts for 15% of imports. But the conflict is the match, not the fuel: limited reform progress is eroding Bangladesh's capacity to absorb shocks.

Revenue fell when the IMF programme required it to rise. Constitutional reform is stagnant. Reserves at $29.5 billion sit below the B-rated median. A negative outlook shifts the burden of proof – Bangladesh must now demonstrate improvement, not merely avoid further deterioration. The three most likely triggers for an unscheduled downgrade to B are a fracture in the IMF programme, reserves falling below three months of import cover, or a major bank failure. At B – Pakistan's cohort – most institutional mandates prohibit exposure to Bangladesh sovereign instruments.

Three scenarios

The base case without decisive action is a downgrade to B within 12 to 18 months. The second scenario – the negative outlook resolved without a downgrade – requires the conflict to de-escalate, reserves to hold above four months of cover, the IMF programme to stay on track, and NPLs to show credible improvement. Every condition must hold simultaneously. The upgrade path toward BB– is a 2028 to 2030 horizon at the earliest, requiring sustained reserve improvement, measurable NPL reduction, and tax revenue approaching 10% of GDP.

What a rating downgrade actually means

Rating downgrades are not abstract. Their consequences are concrete, immediate, and compound across every layer of the economy. Six transmission channels matter most for Bangladesh.

Borrowing costs rise system-wide. Treasury bill yields reached 12% by late 2024 – up from under 7% two years earlier – as investors demanded a higher premium to hold government paper. Higher yields feed the fiscal deficit, which feeds more borrowing, which feeds higher yields still: a self-reinforcing spiral that a further downgrade accelerates.

Trade finance becomes costlier and harder to access. Bangladesh's garment export economy runs on letters of credit. LC confirmation charges levied by foreign correspondent banks are directly linked to the sovereign rating. Exporters operating on 3 to 5% margins absorb those charges or lose orders to competitors whose banks carry no such premium. A move to B would make this materially worse.

FDI dries up. FDI fell 8.8% in FY2024; Standard Chartered Bank Bangladesh's CEO attributed the decline explicitly to rating downgrades reducing risk-adjusted returns. A B rating places Bangladesh alongside Pakistan – no multinational building a medium-term Asia investment case allocates to a B-rated country when BB-rated alternatives exist.

Portfolio capital exits in advance. Many institutional mandates prohibit exposure below BB–. Bangladesh crossed that threshold in 2024. Portfolio investment was already a $111 million net outflow in FY2024. The Fitch negative outlook will have triggered repositioning across mandated investors before any formal rating action occurs.

The sovereign-bank nexus tightens. Public sector credit growth surged to 24% by October 2025 against private sector growth of just 6%. As the sovereign's rating falls, state-owned banks' access to foreign credit lines weakens and their funding costs rise. A sovereign downgrade cascades through the entire banking system the government owns.

LDC graduation compounds the risk. Bangladesh is supposed to graduate from Least Developed Country status in November 2026, losing preferential tariff access that partly underpins its EU garment market. That graduation was designed for a Bangladesh growing at 6 to 7%. Fitch forecasts 3.7% for FY2026. The combination of LDC graduation and rating deterioration creates a double vulnerability with no coherent plan to manage both simultaneously.

A downgrade is not just a signal – it is a tax on every borrower in Bangladesh, from the government to the garment exporter to the bank issuing a Letter of Credit, eventually every individual in Bangladesh.

Conclusion

Bangladesh's rating decline is not irreversible – but it is accelerating. The economic fundamentals remain: a large remittance base, a competitive garment sector, a young labour force. What has been absent is the institutional commitment to make those fundamentals credible to external investors. The rating agencies are explicit about what recovery requires: reserves above the B-rated median, NPLs measurably reduced, tax revenue approaching 10 percent of GDP, and reform continuity through a post-election government. What is absent is not knowledge of what to do. The Fitch negative outlook of May 2026 is a final warning that the window is closing – and that the next action, if nothing changes, will not be an affirmation.

Ershad Hossain, director, Putnam Capital Advisory Pte Ltd, Singapore

This commentary is prepared for informational purposes only and does not constitute investment advice. Putnam Capital Advisory Pte Ltd is a Singapore-incorporated advisory firm active in Bangladesh's capital markets.

Bangladesh generates a significant share of the world’s raw leather each year, yet earns only a fraction of what the material is worth due to compliance failures and decades of neglected infrastructure, according to industry leaders.

They point to shortcomings at the Savar Tannery Industrial Estate that have kept the country locked into low-value exports and shut out of premium global markets.

Bangladesh accounts for around four percent of the world’s rawhide and skin resources and produces an estimated 350-400 million square feet of hides and skins annually, according to Md Mizanur Rahman, professor and director of the Institute of Leather Engineering and Technology at the University of Dhaka.

“The country could generate up to $10-$12 billion in export earnings from its existing raw materials alone if the sector were fully utilised,” he said.

“We are sitting on a huge resource, but we are not using it properly,” Rahman added.

He estimates that nearly 30 percent of the country’s leather is wasted due to poor preservation, inadequate processing capacity and the lack of proper utilisation of tannery by-products.

According to the professor, the leather sector offers one of the highest value-addition opportunities in Bangladesh’s manufacturing industry, with up to 90 percent value addition possible as most raw materials are sourced locally.

He noted that foreign buyers, particularly Chinese firms, often purchase Bangladeshi leather for as little as 40-50 cents per square foot and later sell processed leather in international markets for around $2 per square foot.

Much of the profit from Bangladesh’s leather ends up overseas, while local traders and producers receive low prices for rawhides, he added.

According to Rahman, much of the potential lies in by-products that currently go unused.

He noted that tannery waste can be processed into collagen, gelatin, fertiliser and animal feed – industries that, if formalised, would create new demand for hides and push up their market value. “Nothing from leather should go to waste. Every part has economic value.”

The timing of supply adds another layer of difficulty. Some 40-45 percent of the country’s annual rawhide comes to market within three days of Eid-ul-Azha, placing enormous strain on processing capacity and making efficient handling critical to securing better prices.

The DU professor said the lack of internationally compliant environmental infrastructure at the Savar Tannery Industrial Estate has further limited the sector’s ability to move up the value chain.

Md Tipu Sultan, chairman of the Bangladesh Finished Leather, Leather Goods and Footwear Exporters Association (BFLLFEA), said the country’s leather sector continues to receive lower prices in international markets mainly because many factories have yet to meet globally recognised compliance standards.

“If we can move quickly on these issues, it will make a significant difference,” he said.

The compliance gap is the central obstacle for the sector’s growth, he noted, stating that only a handful of factories currently hold the internationally recognised certifications required by buyers in the United States and European markets.

“One or two compliant factories are not enough. If at least 50 out of around 150 factories can achieve those standards, more compliance-focused buyers will source products from Bangladesh,” Sultan said.

“If we can move quickly on these issues, it will make a significant difference,” he added.

If progress continues, he said, many of the recurring problems facing the leather sector could be resolved before the next Eid-ul-Azha season.

At the factory level, the frustration runs deeper. Md Salauddin Ahmed, managing director of New Kajol Tannery Ltd and treasurer of the BFLLFEA, traces the industry’s current predicament to the forced relocation of tanneries from Hazaribagh to Savar – a move the government promised would come with full infrastructure support.

“The government shifted us to Savar with the promise of providing all necessary facilities. But many factories moved before essential infrastructure was ready,” he said.

Even years after the relocation, several tanneries still face shortages of gas and other utilities, while the central effluent treatment plant (CETP) has yet to operate at the expected standard, he added.

These shortcomings have prevented the sector from obtaining internationally recognised certifications, including approval from the Leather Working Group (LWG), a key requirement for supplying many global brands.

“As a result, major European buyers are not coming to Bangladesh. We are largely dependent on Chinese buyers, who currently dictate prices,” Ahmed said.

That dependence shows in the margins. Processed leather is selling at $0.50–0.55 per square foot, barely enough to cover costs. With most chemicals imported and the dollar strengthening, even cheap raw hides offer little relief.

“We import most of our chemicals, and costs have risen sharply due to the stronger dollar. Even when we purchase raw hides at relatively low prices, we struggle to make a profit,” he said.

According to Ahmed, the lack of buyer diversification has weakened the industry’s bargaining power and contributed to the decline in hide prices.

“If we can ensure proper environmental compliance and secure LWG certification, European and other international buyers will return. Then we can sell leather at much better prices and pay higher prices for raw hides as well,” he said.

Bangladesh Bank yesterday announced a Tk 60,000 crore stimulus package aimed at reviving the struggling private sector amid slowing growth and persistent inflation concerns.

Announcing the package at a press briefing at the central bank headquarters, BB Governor Md Mostaqur Rahman said the initiative was designed to address industrial disruption and financial sector vulnerabilities while supporting employment generation.

The package has two main components.

The first is a Tk 41,000 crore refinancing fund to be mobilised from banks with surplus liquidity through long-term deposits of at least three years at a 10 percent interest rate. Under the arrangement, Bangladesh Bank will provide refinance at 4 percent interest, while the government will subsidise the remaining 6 percent.

The second component is a Tk 19,000 crore fund sourced directly from the central bank’s own resources with a government guarantee.

Under the overall scheme, large borrowers will be able to access loans at around 7 percent interest, while smaller loans may carry slightly higher rates because of administrative and operational costs. Detailed implementation guidelines will be issued through upcoming circulars, the central bank said.

A major portion of the refinancing fund -- Tk 20,000 crore -- has been allocated for reopening closed factories, making it the single largest allocation. Another Tk 10,000 crore has been earmarked for agriculture and rural economic activities.

The cottage, micro, small and medium enterprise (CMSME) sector will receive Tk 5,000 crore, while Tk 3,000 crore each has been allocated for export diversification and the North Bengal Agricultural Hub initiative.

The Tk 19,000 crore BB-funded portion will support 10 targeted schemes, including pre-shipment export financing, CMSME support, overseas employment financing, startup funding, and youth-focused employment programmes.

This is the largest stimulus package since the then government provided Tk 2,37,679 crore under 28 separate programmes to ensure a quick economic recovery from the fallout of the Covid-19 pandemic.

According to the governor, the latest package is expected to generate more than 25 lakh jobs across industries, SMEs, agriculture, exports, startups, and youth employment initiatives.

Mostaqur said Bangladesh’s GDP growth has slowed significantly over the past three years, falling from 5.8 percent to 4.2 percent and likely declining further to around 3.7 percent.

He attributed the slowdown to disruptions in industries including garments, textiles, steel, ceramics, information technology, and broader manufacturing.

He also pointed to mounting stress in the financial sector, including a sharp rise in classified loans, declining depositor confidence, and high borrowing costs that have discouraged SME expansion.

The governor further cited capital flight and alleged illicit financial outflows, saying financial irregularities had weakened the banking system and intensified liquidity pressures.

Despite the central bank’s optimism, bankers and economists have expressed concern over the package’s design, funding structure, implementation feasibility, and possible inflationary impact.

Mashrur Arefin, chairman of the Association of Bankers, Bangladesh (ABB), described the package as “an excellent plan” but said effective implementation would be crucial.

He questioned the sourcing of the fund, arguing that banks’ surplus liquidity is already largely invested in treasury bills and bonds. He also noted that banks need to maintain some idle funds for day-to-day operations, limiting their ability to participate.

Mashrur suggested that instead of relying solely on bank deposits, Bangladesh Bank could inject liquidity by lowering the repo rate against treasury bills and bonds or reducing the cash reserve ratio (CRR).

According to him, such measures would make the package more workable and allow banks to lend at the intended 4 percent spread.

He also acknowledged that the initiative could fuel inflation, but said boosting employment and economic activity was also necessary under current conditions.

Syed Mahbubur Rahman, managing director of Mutual Trust Bank, also supported the intent but warned that implementation would be difficult.

He said banks are unlikely to lend to closed or failed factories because of the high risks involved. Restarting such units would require operational restructuring, management changes, workforce rehiring, and resolution of underlying financial and operational problems.

If revival efforts fail, banks risk losing their funds entirely, he said.

Mahbubur said credit growth has slowed to around 4.7 percent not because of a liquidity shortage, but due to a lack of viable borrowers. He also cited structural bottlenecks -- including inadequate infrastructure, weak law enforcement, and energy shortages -- as major constraints on investment.

Even operational factories are struggling because of gas shortages and rising electricity and energy costs, he said, adding that unresolved Covid-era stimulus loans continue to burden the banking sector.

He warned that because Bangladesh Bank would eventually recover refinance funds from commercial banks when schemes mature, the package could add further pressure on lenders already grappling with high default rates.

Responding to journalists’ questions at the briefing, the governor clarified that the package does not involve printing new money, but rather reallocating idle liquidity already present within the banking system.

He said some banks have excess liquidity while others face shortages, and the objective is to channel idle funds into productive sectors through refinancing mechanisms.

Mostaqur also said Tk 6,000 crore from the Tk 19,000 crore central bank allocation had already been deployed from BB’s surplus funds. He said the central bank earns around Tk 20,000 crore annually in profit, allowing it to finance the initiative without triggering inflation through money creation.

The governor also acknowledged weaknesses in previous stimulus programmes, particularly during the Covid-19 period, when a small number of large business groups reportedly received a disproportionate share of funds.

He said stricter monitoring and safeguards would be introduced this time to prevent concentration of benefits and improve accountability.

Mostaqur further admitted the depth of the banking sector crisis, saying a significant amount of banking funds had been lost through irregularities, loan scams, and financial mismanagement.

Many of these bad loans, he said, were not traditional defaults caused by business failure, but funds siphoned off without adequate collateral.

As part of the overall package, Bangladesh Bank also announced a Tk 500 crore fund from corporate social responsibility (CSR) resources to support creative industries. Unlike the stimulus loans, this fund will not require repayment.

Economists, however, remained cautious.

Abdur Razzaque, chairman of Research and Policy Integration for Development (RAPID), said the package appeared well-intentioned but lacked sufficient evaluation and consideration of alternatives.

He argued that controlling inflation should remain the top priority and warned that such stimulus measures could intensify price pressures and increase public hardship.

He also noted that stimulus alone does not guarantee improvement in underperforming sectors and that global experience shows such measures can sometimes fuel inflation and create additional macroeconomic imbalances.

Zahid Hussain, former lead economist of the World Bank’s Dhaka office, described the package as a countercyclical measure typically suited to periods of weak demand and low inflation.

However, he said Bangladesh currently faces a more complicated situation, with slowing growth alongside persistently high inflation.

Under such conditions, he warned, additional stimulus may not necessarily increase output and could instead push prices up faster than production if supply-side constraints remain unresolved.

The Bangladesh Energy Regulatory Commission (BERC) has further reduced jet fuel prices in May following a series of sharp adjustments in recent months, amid fluctuations in the international oil market.

In a press release issued today (23 May), the energy regulator announced a cut of Tk39.57 per litre in aviation fuel prices, with the revised rates taking effect from midnight.

Under the latest revision, the price of Jet A-1 fuel for domestic flights has been reduced from Tk205.45 per litre to Tk165.88 per litre, inclusive of duty and VAT.

For international flights operated by local and foreign airlines, the price has been lowered from $1.3385 per litre to $1.0823 per litre, excluding duty and VAT.

The latest reduction follows another downward adjustment on 7 May, when BERC cut jet fuel prices by Tk22.35 per litre. Before that, the regulator raised prices by nearly Tk25 per litre on 7 April, while on 24 March aviation fuel prices saw a steep hike of around Tk90 per litre.

According to the commission, jet fuel prices are revised monthly under a market-based pricing mechanism linked to international benchmark rates.

The regulator said the revised prices were determined based on the average Platts rate of Jet A-1 fuel between 5 May and 21 May, the US dollar exchange rate used in BPC's LC settlement process, and prevailing diesel prices in the domestic market.

BERC also considered changes in coastal tanker and pipeline transportation charges before finalising the new rates.

Germany-based industrial sewing and embroidery thread manufacturer AMANN Group plans to expand its factory operations and make fresh investments in Bangladesh, the company's Chief Executive Officer Markus Nicolaus said at a meeting with Bangladesh Garment Manufacturers and Exporters Association (BGMEA) leaders in Dhaka.

The announcement came during a bilateral meeting between BGMEA President Mahmud Hasan Khan and an AMANN Group delegation at the BGMEA Complex in Uttara recently, according to a press release issued yesterday (23 May).

The meeting discussed the capacity of Bangladesh's readymade garment sector, current challenges in the international market and future investment strategies. BGMEA Director Md Hasib Uddin was also present.

Mahmud said Bangladesh's apparel sector was recovering after a slowdown in exports earlier this year caused by global economic uncertainty.

"Bangladesh's readymade garment industry is now going through a major transformation. We are putting strong emphasis on product diversification. But our current goal is not only to increase export volume, but also to produce higher-value garments," he said.

He said AMANN Group could support Bangladesh's apparel sector not only as a thread supplier but also as a strategic business partner.

Mahmud said many reputed German brands were still not sourcing from Bangladesh and requested AMANN to present Bangladesh's transformed apparel industry and production capacity to those brands.

Announcing the company's factory expansion plan in Bangladesh, Markus Nicolaus said Bangladesh's readymade garment sector had strong future potential.

"We are closely observing which other sectors here may attract new investment. There are major investment opportunities, especially in Bangladesh's high-tech textile sector," he said.

He said AMANN wanted to serve the premium segment and meet demand from high-end international brands through its products.

The AMANN delegation asked about global and local risk factors in the apparel sector, Bangladesh's labour standards, current US tariff policy and its impact on international trade.

The meeting also discussed the country's port, energy and logistics infrastructure and future development plans.

AMANN Group operates in Bangladesh through AMANN Bangladesh Ltd.

The European Union and Mexico will on Friday sign a deal reducing tariffs on each other's goods as both seek to lessen their dependence on trade with the United States.

The expansion of an accord dating to 2000 comes as Mexico fights hard to preserve a three-way free trade agreement with the United States and Canada, which is crucial to all three economies.

The EU is Mexico's third-largest trading partner, lagging far behind the United States and China.

Mexican President Claudia Sheinbaum has stressed the importance of "opening other horizons" at a time when both Mexico and the European Union are grappling with US President Donald Trump's tariff offensive.

The updated agreement to be signed by Sheinbaum and European Commission President Ursula von der Leyen during the eighth EU-Mexico Summit removes most remaining barriers to trade and investment.

It facilitates trade in auto parts, a sector particularly affected by Trump's tariffs.

"Mexico wants to reduce its dependence on its northern neighbor, but also on Asian, or rather, Chinese, supply chains, and in Europe we are pursuing the same objectives," an EU official told AFP on condition of anonymity.

On a visit Thursday to Mexico City, the EU's foreign policy chief Kaja Kallas, said the deal would create new opportunities for "both economies to compete globally" and build on the momentum of the past decade, which has seen a 75-percent leap in EU-Mexican trade.

Earlier this week, the European Union moved to end a trade standoff with Trump by agreeing to implement a deal signed last year with the United States, which sets tariffs on most European goods at 15 percent.

Average US tariffs on Mexican goods are a quarter of that -- with many avoiding levies altogether under the USMCA (United States, Mexico, Canada) agreement.

The lower tariffs enjoyed by Mexico will benefit the European Union, according to Sergio Contreras, president of the Mexican Business Council for Foreign Trade.

Mexico will be "the point of convergence, the platform for the European Union and North America to come together," he said.

The implementation of the Revised Annual Development Programme (RADP) recorded a slow pace during the first ten months (July-April) of the current 2025-2026 fiscal year, hitting an execution rate of 41.41 percent.

According to the latest report released by the Implementation Monitoring and Evaluation Division (IMED) of the Ministry of Planning, government agencies spent Tk 86,516.08 crore out of the total RADP allocation of Tk 2,08,935.53 crore earmarked for the fiscal year, UNB reports.

This performance indicates a notable slowdown in project execution compared to previous fiscal years, highlighting persistent challenges in administrative momentum and development spending following recent structural and political changes.

An analysis of the IMED data reveals a consistent downward trajectory in both RADP allocations and execution rates over the last few fiscal years.

In the current FY 2025-2026, out of a reduced RADP allocation of Tk 2,08,935.53 crore, the ten-month expenditure stands at Tk 86,516.08 crore, reflecting an execution rate of 41.41 percent.

During the same July-April period of FY 2024-2025, the expenditure was Tk 93,424.83 crore against an allocation of Tk 2,26,166.88 crore, yielding an implementation rate of 41.31 percent.

In FY 2023-2024, the implementation rate stood significantly higher at 49.26 percent with an expenditure of Tk 1,25,315.68 crore out of a Tk 2,54,391.64 crore allocation.

For FY 2022-2023, the execution rate was 50.33 percent with Tk 1,19,064.39 crore spent out of Tk 2,36,560.67 crore.

In FY 2021-2022, the 10-month implementation reached 54.57 percent, with an expenditure of Tk 1,19,829.74 crore out of Tk 2,19,601.91 crore.

The monthly progress for April also reflected a sluggish development drive.

In April 2026 alone, the government managed to implement only 5.22 percent of the development budget, translating to an expenditure of Tk 10,908.84 crore.

This single-month progress is slightly higher in percentage than the previous year's performance, where April 2025 recorded a 4.66 percent implementation rate with a spending of Tk 10,530.75 crore, but it remains heavily constrained compared to historical trends. Planning Ministry officials cited multiple structural issues contributing to the slower release and utilisation of development funds this fiscal year.

The primary setbacks include the ongoing rigorous review of development projects to realign national priorities, which has temporarily paused funds for several major initiatives.

Furthermore, administrative reshuffles, delays in appointing new project directors, and strict compliance checks on new procurements have extended execution timelines.

The exit or inactivity of several contracting firms following political transitions late last year has also left numerous physical infrastructure projects partially stalled.

With only two months left in the current fiscal year (May and June), ministries and execution agencies face tremendous pressure to fast-track their pending bills and accelerate construction phases if they are to prevent large sums of development funds from returning unutilized.

Twenty-seven countries have moved since the Iran war started to put in place crisis instruments that could quickly access funding from existing World Bank programmes, according to an internal document viewed by Reuters.

The World Bank document did not name the countries or the total amount of funds potentially being sought. The World Bank declined to comment.

The document showed that three countries had approved new instruments since the Middle East conflict began on 28 February while the others were still completing the process.

The war and resulting disruption of global energy markets have hit global supply chains and prevented vital fertiliser shipments from reaching developing countries.

Officials in Kenya and Iraq have confirmed they are seeking rapid financial support from the World Bank to deal with the war's fallout, such as surging fuel prices hitting the African nation and a massive drop in oil revenue for Iraq.

The 27 countries are among 101 that had access to some form of pre-arranged financing instrument that they could tap in a crisis, including 54 that signed up to the Rapid Response Option, which allows countries to use up to 10% of their undisbursed financing.

World Bank President Ajay Banga last month said the bank's crisis toolkit would allow countries to draw on pre-arranged contingent financing, existing project balances and fast-disbursing instruments to access an estimated $20 billion to $25 billion.

He said the bank could also reorient parts of its portfolio to bring the total to $60 billion over six months, with further longer-term changes possible to bring the total to around $100 billion.

At the time, the head of the International Monetary Fund, Kristalina Georgieva, said she expected up to a dozen countries to seek $20 billion to $50 billion in near-term assistance from the global lender. But few requests have been logged, according to three sources familiar with the matter.

"Countries are definitely in wait-and-see mode," said one of the sources, who spoke on condition of anonymity.

Kevin Gallagher, director of the Global Development Policy Centre at Boston University, said countries were more willing to seek World Bank funds than negotiate with the IMF because IMF programmes generally require austerity measures that could compound the social unrest already seen in countries like Kenya.

Amid economic stress triggered by the Middle East war, the government had set a target of securing at least $3.2 billion in budget support from development partners, but the response has so far reached only about half of expectations.

As an alternative, authorities have begun repurposing the remaining funds through loans from ongoing development projects that are not immediately required.

Officials at the Economic Relations Division (ERD) said repurposing could unlock more funds than traditional budget support, allowing flexibility for critical spending for energy and food.

A letter sent by the Finance Division on 12 April asked the ERD to take steps to secure the $3.2 billion. However, the government has so far received assurances of $1.665 billion, ERD officials said.

This includes $1 billion from Asian Development Bank (ADB), $315 million from Japan, $250 million from the Asian Infrastructure Investment Bank (AIIB), and $100 million from Opec.

The government is also working on repurposing around $1.6 billion from development projects, officials said, adding the process is ongoing and the figure is likely to get higher.

An ERD senior official told The Business Standard that low-impact and slow-moving projects are being reviewed for repurposing, in consultation with development partners.

The reallocated funds will be channelled into short-term, one-year interventions in energy, food security and social protection. This, officials said, will help address immediate pressures while improving disbursement efficiency and ensuring more effective use of external loans.

ADB providing $1 billion support

ERD officials said the government had sought the full $1 billion in budget support from the ADB for the current fiscal year, which is now being received. Officials added that two budget support agreements are set to be signed on Monday in the presence of the ADB president.

Under the Second Strengthening Social Resilience Program, the ADB will provide $250 million as budget support. Under the Strengthening Economic Management and Governance, the ADB will extend a further $750 million.

ERD officials also said that $250 million will be reallocated from projects that have long remained stalled in implementation and disbursement.

WB prioritising repurposing

Amid shifting priorities in external financing, the World Bank is leaning more towards loan reallocation rather than fresh budget support for Bangladesh in the current fiscal year.

According to ERD sources, the government had formally sought at least $500 million from the lender under the Green and Climate Resilience Development Policy Credit. However, no final decision on budget support has been received so far.

A senior ERD official said Bangladesh is unlikely to receive budget support this fiscal year. Instead, the focus has shifted to repurposing unused pipeline loans.

A review of ongoing World Bank-financed projects shows that around $1.835 billion could potentially be mobilised through faster disbursement and reallocation for urgent needs.

Of this, a $785 million contingency fund has already been created under the Rapid Response Option (RRO) and Contingent Emergency Response Project (CERP) framework by reallocating funds from eight projects.

These include $239 million from the Gas Sector Efficiency Improvement and Carbon Abatement Project, $30 million from the Jamuna River Sustainable Management Project-1, $60 million from the Learning Acceleration in Secondary Education Operation, $15 million from the Road Safety Project, $95 million from the Resilient Urban and Territorial Development Project, $140 million from the Chattogram Water Supply Improvement Project, $74.4 million from the Regional Waterway Transport Project-1, and $134.6 million from the Environmental Sustainability and Transformation Project.

Officials said the government has decided to use this money under the CERP mechanism, which allows rapid deployment of funds for emergency imports of food, fuel and medicines.

The facility remains valid for up to six years, with individual activities limited to one year. Necessary omnibus amendments will be made to existing financing agreements, while the Finance Division will prepare the implementation framework.

The CERP mechanism allows unused funds from ongoing projects to be quickly redirected during sudden crises, without requiring lengthy new project approvals.

Separately, the government is set to introduce for the first time a $250 million emergency Investment Project Financing (IPF) facility, designed for rapid use similar to the RRO-CERP.

ERD sources said the $250 million IPF is not new borrowing, but a consolidation of cancelled or unused allocations from World Bank projects scheduled to close in FY26.

AIIB to provide $250m against $750m request

The government had sought $750 million in budget support from the AIIB. However, the lender has agreed to provide $250 million under the "Strengthening Economic Management and Governance" programme.

An additional $350 million is set to be reallocated from an ongoing AIIB-financed project. The funds will be diverted from the "Sylhet–Tamabil Road to a 4-Lane Highway" project.

ERD officials said disbursement under the road project has remained stalled for a long time due to complications in land acquisition. As a result, the government has decided to restructure the loan and repurpose the unused funds.

Japan trims support to $315m from $500m

The Japan International Cooperation Agency (Jica) initially agreed to provide $500 million in budget support in the current fiscal. The amount has since been reduced to $315 million.

Finance officials said the loan will be used in line with IMF recommendations. The support is expected to help increase social protection spending, strengthen revenue management.

Meanwhile, the government is set to receive $100 million in budget support from the Opec Fund (OFID) to help meet urgent financial pressures. However, requests for $200 million from France and $150 million from Germany remain uncertain, according to ERD sources.

ERD data show Bangladesh received a record $3.44 billion in budget support in FY25 from development partners. This compares with $2.03 billion in FY24, $1.767 billion in FY23, $2.597 billion in FY22 and $1.09 billion in FY21.

Bangladesh Bank has issued new directives for commercial banks regarding the declaration and distribution of cash dividends to shareholders, apparently to enhance the financial capacity of banks and reinforce the overall capital base of the banking sector.

Banks with a paid-up capital of less than Tk2,000 crore will not be allowed to declare any cash dividends, according to a circular issued by the central bank today (23 May).

Also, the banks that meet all statutory requirements and qualify to distribute profits can pay a maximum of 50% of their total declared dividends in cash.

The directives will come into effect from 31 December 2026.

The central bank clarified that while these new measures introduce stricter caps, all other existing instructions from previous relevant circulars, including the DOS circular issued on 13 March 2025, will remain fully effective.

No bank except BRAC Bank allowed to offer cash dividends

Under the new directives, only BRAC Bank will be allowed to declare cash dividends. Meanwhile, although National Bank has paid-up capital above the required target, it will not be able to provide dividends due to its high volume of non-performing loans.

A review of the data shows that among the currently well-performing banks in the capital market, none of the top-ranked banks in various indices, including The City Bank, Eastern Bank, Mutual Trust Bank, Prime Bank and Dutch-Bangla Bank, will be able to declare cash dividends.

Mashrur Arefin, managing director and CEO of City Bank, told TBS that the move has merit from a financial stability perspective, as some banks distributed high cash dividends despite weak capital positions.

He, however, expressed concern that the policy treats both strong and weak banks equally, which could negatively affect the stock market and investor confidence.

Mashrur said shareholders of well-managed banks deserve cash returns when banks perform consistently well, questioning why the Capital Adequacy Ratio (CAR) was not considered a key factor, arguing that banks with stronger CAR positions, such as 17-18% instead of the minimum 12.5%, should be allowed to provide cash dividends.

He also said he is waiting to see how tax regulations align with the new policy.

The move to strengthen banks' capital base is positive, as some weak banks previously paid excessive cash dividends despite poor financial conditions, said Syed Mahbubur Rahman, managing director and CEO of Mutual Trust Bank.

A better approach would have been linking dividend approvals to the CAR, a practice followed in many countries, he said, notifying that Bangladesh's banking sector remains undercapitalised by global standards, while bank shares often fail to reflect actual performance.

Preventing well-capitalised banks from paying cash dividends could further weaken the stock market and reduce incentives for investors supporting financially stable institutions, added Syed Mahbubur.