Bangladesh Turns to IMF as Middle East Conflict Cripples Energy and Garment Exports
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Dhaka seeks emergency lifeline as energy costs spike
Bangladesh has formally requested a new assistance program from the International Monetary Fund (IMF), as the economic fallout from the ongoing US-Israel war on Iran pushes the South Asian nation toward a severe financial squeeze. The move comes as the country grapples with a dual crisis: a soaring energy bill and a crippled export engine.
Ivo Krznar, the IMF’s mission chief for Bangladesh, confirmed Tuesday that staff are currently in discussions with government authorities to determine a reform agenda and policy priorities. While the precise valuation of the requested package remains undisclosed, the urgency is underscored by a March announcement from the Bangladeshi government, which revealed it was seeking $2 billion in loans from various donors to mitigate an escalating energy crisis.
The Strait of Hormuz bottleneck
The catalyst for the current instability is the conflict that erupted on February 28, when US and Israeli forces launched strikes on Iran. Despite a fragile ceasefire reached on April 8, the geopolitical landscape remains volatile. The critical point of failure is the Strait of Hormuz, the artery through which one-fifth of global oil and gas supplies typically flow. With Iran maintaining control over the strait and the US enforcing a naval blockade of Iranian ports, energy shipments to Asia have been severely disrupted.
For Bangladesh, which imports 95% of its oil and liquefied natural gas (LNG), the impact has been immediate. Global crude prices have surged to approximately $100 a barrel, a sharp climb from the pre-war average of $66. To manage the shortfall, Dhaka has been forced to halt production at the majority of its fertilizer factories to curb fuel consumption.
Consumers are feeling the pinch directly. On April 19, the government hiked fuel prices by 10% to 15%, pushing petrol from $0.95 to $1.10 per litre. These increases are particularly hazardous during the summer months, when electricity demand for cooling reaches its peak.
Collateral damage in the garment sector
The crisis extends beyond the fuel pump. Bangladesh’s ready-made garment (RMG) industry, which provides over 80% of the nation’s export earnings, is facing a systemic logistics failure. Because factories rely heavily on raw materials from China—shipped via the Red Sea and Middle Eastern corridors—import costs have skyrocketed.
Sayeed Ahmed Chowdhury, director of Square Denim, told The Financial Express that he anticipates work orders to drop by 20% to 25% in the coming season. This forecast is backed by the reality of March’s flight cancellations, which left massive shipments destined for global retailers, including Inditex (the parent company of Zara), stranded at airports across Bangladesh and India.
Plastic and petrochemicals under pressure
The volatility in crude oil is also triggering a domino effect in the plastics industry. Resin, a petroleum-derived raw material essential for plastic production, has seen its price climb from roughly $900 per tonne to as high as $1,600, according to reporting by The Daily Star.
A precarious debt trajectory
Bangladesh is already operating under a $5.7 billion IMF program initiated in 2023. However, the sheer scale of the current external shocks has rendered the existing framework insufficient. Recent data from ISI indicates that Bangladesh’s foreign debt rose to $113.5 billion by December, up from $112.2 billion the previous quarter.
While the World Bank previously classified Bangladesh as being at “low risk” of external debt distress—with debt representing about 22% of gross national income—that assessment may soon be obsolete. The country is now mirroring the early warning signs seen in Sri Lanka’s 2022 financial collapse, where unsustainable borrowing and external shocks led to a total economic breakdown.
In a move to provide immediate relief, the World Bank recently approved a $350 million loan specifically to help Dhaka manage fuel import costs and strengthen energy security. However, with global government debt now hovering at 94% of world GDP, the IMF warns that the Iran war could trigger a broader systemic increase in debt levels worldwide, leaving emerging economies like Bangladesh particularly vulnerable.
