DHAKA — Bangladesh on Thursday cleared its first review under an International Monetary Fund loan program, despite an apparent failure to meet key targets for foreign exchange reserves and revenue.

“The authorities have made substantial progress on structural reforms under the IMF-supported program, but challenges remain,” the IMF said in a news release, noting continued pressure on the taka currency and foreign exchange coffers.

The fund said the review would unlock about $462 million under an Extended Credit Facility plus about $219 million under a Resilience and Sustainability Facility. Bangladesh received the first installment, worth $476 million, in January this year to replenish forex reserves that had shrunk in part due to the Ukraine war. The installment was meant to “help preserve macroeconomic stability” and “protect the vulnerable.”

The IMF appears to have taken a lenient stance toward Bangladesh this time, with local officials saying that it also agreed to extend the time frame for certain “high urgency” reforms until after the next national election, expected in January.

Ahsan H. Mansur, executive director of the Policy Research Institute of Bangladesh, told Nikkei Asia that the IMF team is acting very “flexibly” for now, understanding that the government would not be able to achieve its targets. But he warned that when the next review rolls around, there will be no election “excuse” and the IMF team may take a stricter view.

By the end of December, as part of the conditions of their $4.7 billion loan agreement, Bangladesh was supposed to “adopt a periodic formula-based price adjustment mechanism for petroleum products.” This, however, could ignite further inflation and rouse anger against the ruling party.

“The government now makes a commitment to introduce the new price adjustment mechanism by March next [year], and the IMF staff team agreed to go with that,” a finance ministry official said on condition of anonymity.

The IMF team spent about two weeks taking stock of Bangladesh’s reform agenda and found other issues, according to local reports.

Until June, net foreign reserves were reportedly short of the $24.46 billion minimum target by around $3 billion, based on IMF criteria. In addition, the government failed to meet a revenue target of 3.45 trillion taka ($31.2 billion) for the fiscal year that ended in June, coming up with only 3.25 trillion taka.

Officials say that ahead of the second tranche release, Bangladesh asked the IMF to lower the forex reserve floor for December to $20 billion from the previously set minimum of over $26 billion.

Despite the IMF’s praise for the country’s progress, experts see little to show for it.

The fund applauded the Bangladesh central bank’s decision to raise rates earlier this month. But Zahid Hussain, a former lead economist at the World Bank’s Dhaka office, pointed to limited headway on exchange rates, interest rates and the banking sector.

The country’s Bank Company Act has been amended, he noted, but no effective steps have been taken to lessen nonperforming loans.

The IMF took notice, saying: “Addressing banking sector vulnerabilities remains important to meet Bangladesh’s growing financing needs. Reducing nonperforming loans of state-owned commercial banks, enhancing supervision, strengthening governance, and improving regulatory frameworks would increase financial sector efficiency.”

Hussain said he does not “see any other major reform works that have been done so far,” adding that the missed forex reserve target is a quantitative failure, and how it will be resolved remains to be seen.

Mansur at the Policy Research Institute, himself a former IMF official, argued the lender is not doing Bangladesh any favors with its current “accommodative” policy, calling it “not good.”

“This is a big loss for us,” he said. “We could not achieve targets and carry out reforms. There is no confidence in the market [for] us. Our forex reserve is not becoming stable. … Problems are deepening further.”