(Bloomberg) -- International Monetary Fund officials will hold talks with Bangladesh authorities this week, with the South Asian nation likely to seek waivers after missing some key targets under a $4.7 billion loan program.

An IMF team is in Dhaka from Oct. 4-19 to hold the first review of the funding program and conduct its annual Article IV consultations, the Washington-based lender said in an email. The officials will meet with the central bank, the Finance Division and the National Board of Revenue, Mezbaul Haque, a spokesman for the central bank, said by phone. 

Bangladesh has missed two key targets — on foreign currency reserves and tax collection — under the loan program, meaning it will need to seek waivers in order to receive the second instalment of funds from the IMF, according to analysts.

“The government will require waivers for these conditions, but waivers require justification,” Ahsan H. Mansur, executive director of Dhaka-based Policy Research Institute, said in an interview. “The completion of the IMF review will be complicated by what is missing.”

Reserves have been steadily falling in recent months, dropping to $21.15 billion in September despite curbs on non-essential imports, below the IMF’s target of $25.3 billion target. Reserves stood at $45 billion at the beginning of 2022. 

Bangladesh secured the IMF loan in January to help cushion the economy after soaring commodity prices pushed up import costs and depleted its reserves. Despite the IMF funds, Fitch Ratings and others have recently lowered their sovereign ratings outlook for Bangladesh, citing a deteriorating external position. 

The central bank also announced an increase in its key interest rate, effective from Thursday, to help bring down inflation. The repurchase rate was boosted by 75 basis points to 7.25%. 

Haque said Bangladesh has met other IMF targets and “one or two indicators don’t tell everything.” 

“Our achievement is a combination of all these steps,” he said. “We shouldn’t be judged on one indicator — reserves. We’ll explain why we fell short on this and project our overall accomplishments.”

Election Pressures

With an election looming in January, the government is finding it difficult to stick to some of the IMF’s goals, including allowing for a more flexible exchange rate. 

Sagarika Chandra, director of Asia Pacific sovereigns at Fitch Ratings, said reserves will remain under pressure going forward.

“Vulnerability to shocks has increased, owing to a deterioration in Bangladesh’s external buffers,” Chandra said in an emailed statement. “Elevated oil prices and a further relaxation of import restrictions, will lead to a widening of the current account deficit through to 2025, and will keep the foreign exchange reserve outlook challenging.”

Reserves will likely cover about 2.6 months of imports in 2024-2025, according to Fitch, below the 3 months of coverage that’s the traditional rule of thumb for adequate reserves. 

The government also missed the IMF’s minimum tax revenue target set for the 2023 fiscal year, falling 150 billion taka short of the goal, according to data from the National Board of Revenue. The agency attributed the shortfall to a loss of tax collection due to curbs on imports. 

The economic pressures have put a spotlight on Prime Minister Sheikh Hasina, who is facing calls to resign and give way to a caretaker government to ensure the election is free and fair. The largest opposition group, the Bangladesh Nationalist Party, has threatened to resume street protests in October for a “final decisive battle” against the government. 

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