The International Monetary Fund announced on Wednesday that it has reached an agreement to expand an existing multi-billion-dollar loan programme with Bangladesh and to authorise a US$1.3 billion payout.

The IMF expects Bangladesh's export-driven economy to grow by just 3.8 percent this year, causing a significant early challenge for the new government of Muhammad Yunus, which took power last year after the toppling of the autocratic ex-premier Sheikh Hasina.

That would be the lowest growth rate outside of the Covid-19 pandemic for more than two decades, according to IMF data.

"Amid significant macroeconomic challenges, the authorities requested an augmentation," of the existing loan programme by around US$762 million, IMF Bangladesh mission chief Evan Papageorgiou said in a statement following a visit to the country.

The IMF has also agreed to combine the third and fourth reviews of three separate loan programmes, which would unlock around US$1.3 billion for Bangladesh as it continues its economic reforms.

Both the augmentation and the reviews are subject to approval from the IMF's executive board, which is largely a formality. No date was given for when the board would meet on Bangladesh.

"To address the emerging external financing gap and support a continued decline in inflation, near-term policy tightening is essential," Papageorgiou said.

"Fiscal consolidation should focus on the prompt implementation of additional revenue measures – such as streamlining of tax exemptions – while containing non-essential expenditures," he added. (AFP)