The disbursement of a $1.0-billion tranche from the International Monetary Fund’s (IMF) $4.7-billion lending package to Bangladesh may face delays due to persistent issues with non-performing loans (NPLs) and mounting arrears in the power sector, officials said on Tuesday.

The IMF’s latest reform-reappraisal mission, which concluded its fact-finding visit on December 17, flagged concerns over Bangladesh’s inability to meet some of the structural conditions tied to the loan.

Specifically, the IMF underscored the need for immediate reductions in the high volume of NPLs and arrears owed to private power producers, which pose significant challenges to economic stability.

According to the latest data from Bangladesh Bank (BB), non-performing loans in Bangladesh’s banking sector reached a record Tk 2.11 trillion by the end of June 2024, with an increase of Tk 290 billion in just three months, up from Tk 1.82 trillion in March.

The IMF has set stringent conditions for Bangladesh to reduce its NPL burden within a shorter period, as these bad loans undermine the banking sector’s health and pose risks to the country’s financial stability.

During the recent IMF-government negotiations, the Bangladesh Bank presented a roadmap for cutting NPLs, outlining strategies to address the problem. However, the IMF mission remains cautious about these measures’ feasibility and pace.

In addition to NPLs, mounting arrears to private power producers have emerged as a key concern for the IMF. The previous government’s reliance on Independent Power Producers (IPPs) and rental power plants, coupled with capacity payment obligations, has resulted in massive unpaid dues. These arrears are now obstructing the release of the IMF tranche.

The Bangladesh Power Development Board (BPDB) has reportedly presented an arrears-reduction roadmap to the IMF as part of efforts to address the issue. The IMF has also recommended increasing electricity tariffs to offset the dues to private power producers.

The government allocated Tk 360 billion for electricity subsidies in the current fiscal year’s national budget, with most of the funds being used to clear payments owed to IPPs and rental power plants. Despite these measures, officials acknowledge that the outstanding amounts remain substantial.

Despite these challenges, the government remains optimistic about securing the combined 4th and 5th tranches of the IMF loan, amounting to $1.0 billion, before the end of the fiscal year in June 2025.

The official added that Bangladesh remains on track with many IMF-set conditions, including structural reforms, though the higher NPLs and power-sector dues remain critical areas requiring attention.

The IMF previously released the 1st tranche of the loan package, worth $447.8 million, in February 2023, followed by the 2nd tranche of $681 million in December 2023. In June 2024, the lender disbursed the 3rd tranche, amounting to $1.115 billion.

The $4.7-billion loan agreement, structured to be disbursed in seven installments over three and a half years, aims to stabilize Bangladesh’s economy by supporting critical reforms in fiscal policy, the banking sector, and energy management.