Unless the newly elected government takes measures to strengthen Bangladesh’s economic foundations with due urgency, addresses external shocks and confronts deep-rooted domestic weaknesses, the challenges may deepen further
As Bangladesh enters a new political chapter, the country’s economic future now hinges not on mere policy statements, but on discipline, reforms and concrete actions to mitigate the negatives and address the emergent challenges, cautioned eminent economist Prof Dr Mustafizur Rahman at The Daily Observer’s National Print Dialogue.
Delivering a candid and wide-ranging assessment at the dialogue titled “From Ballot to Balance Sheet: The New Government, The New Vision”, the Distinguished Fellow of the Centre for Policy Dialogue (CPD) emphasised that unless the new government urgently takes steps to consolidate Bangladesh’s economic foundations, addresses external shocks and confronts head on the deep-rooted domestic weaknesses, the accumulated challenges could seriously undermine economic stability and development potentials.
“The impacts of the ongoing global uncertainty are still evolving. If the Middle East crisis escalates into a wider international economic shock, Bangladesh’s foreign exchange reserves and the stability of the dollar market will come under pressure. Consequently, steps must be taken in anticipation of the adverse implica tions, by pursuing flanking measures. These may include domestic energy price adjustment, mobilizing external borrowings to secure forex reserves and maintain exchange rate stability,” he said in an exclusive interview with Senior Reporter Mizanur Rahman.
Prof Rahman stressed that the country is passing through a delicate economic phase marked by investment stagnation, persistent inflation, weakened purchasing power of people, particularly the marginalized sections of the society, and increased unemployment, particularly among the educated youth. He observed that while the new government has inherited significant structural challenges, it has an opportunity to reset economic priorities through prudent economic policymaking, better market management, and sound institutional reforms.
Dr. Rahman underscored the need to ensure the alignment between fiscal and monetary policy. He advised Bangladesh Bank against reducing the policy interest rate prematurely, but to remain open to reviewing the issue once inflations rates start to come down.
“This is not an appropriate time for a policy rate cut. Once the immediate external pressure eases and macroeconomic stability is restored, interest rates may then be reviewed and adjusted to stimulate investment,” he remarked.
The veteran economist, who has more than four decades of experience in macroeconomic policy, trade and development economics, argued that the upcoming national budget must focus on, and prioritise, stimulating investment and job creation. Bangladesh’s public expenditure, at about 12%-13% equivalent of the country’s GDP, is not very high. The South Asian average is higher, not to speak of many other developing and developed countries where public expenditure is equivalent to 25%-35% of the GDP. The problem lies in muted domestic resource mobilistaion and low tax and revenue GDP ratio. Expanding the tax base without harassing citizens, by reducing corruption, through digitalisation of taxation based on interoperable systems, by introducing innovative financing and by improving governance, he said, would be critical to restoring confidence in the economy.
“Revenue collection must increase substantially so that the government does not become excessively dependent on borrowings, whether domestic and external. Care must be taken to ensure that a significant part of the national budget is not spent on debt servicing alone,” he observed.
Prof Rahman placed particular emphasis on rationalising subsidies and tax exemptions instead of abruptly withdrawing those.
According to him, all subsidised or tax-privileged sectors should be reassessed through the lens of national priorities, economic efficiency and long-term sustainability. “In the upcoming budget, subsidies and tax incentives should be brought to rational and targeted levels. The right priorities must be established by taking into cognisance the demands of the economy and to ensure food and energy security, at the same time taking into consideration fiscal capacity,” he said.
He further underscored the urgent need to modernise revenue administration through technology and digitalisation to curb leakages, improve efficiency and reduce opportunities for corruption. Greater transparency and accountability in public procurement and project implementation, he argued, would significantly reduce wasteful expenditure.
Calling for deeper reforms in education, healthcare and social protection, Prof Rahman said these sectors must be repositioned at the centre of national development planning. He stressed that ordinary citizens should receive public services free from harassment, inefficiency and corruption.
“The education, health and social security sectors must be comprehensively restructured so that people receive quality services with required efficiency, in a well-targetted manner and without causing unnecessary sufferings,” he noted.
He also welcomed the government’s initiatives for marginalised and vulnerable groups, such as family card, agri-loan/interest waiver and mid-day meal for children, describing them as positive early signals. However, he stressed that such programmes must be backed by sustainable financing, efficient implementation and strict oversight to ensure resources reach intended beneficiaries, and there are no errors of inclusion and exclusion.
The CPD Distinguished Fellow further stated that Bangladesh’s graduation from the Least Developed Country (LDC) category would need to be looked from the perspectives of addressing the attended challenges and risks and reaping the potential benefits.
The objective will need to be making the LDC graduation smooth, attaining it with momentum and making it sustainable.
“LDC graduation should not be portrayed solely as a government achievement. It is a collective national achievement involving the private sector, workers and the people of Bangladesh,” he said. According to Dr. Rahman, “Implementing the objectives and actions articulated in the Smooth Graduation Strategy of Bangladesh ought to be given highest priority to make LDC graduation sustainable.”
While large export-oriented industries may be able to adapt to the post-LDC environment, he cautioned that many small and medium-sized garment factories could face acute competitive pressure. He also warned that the pharmaceutical sector may experience sharp increases in medicine production costs, particularly for patented drugs, once patent exemptions expire.
Referring to the long-delayed API Industrial Park project in Munshiganj, launched in 2012 to strengthen the pharmaceutical sector’s competitiveness, he expressed frustration that meaningful progress had yet to materialise even by 2026.
To navigate the post-LDC era successfully, he urged the government to focus on competitiveness, productivity, technological advancement and trade facilitation. Measures such as introducing an effective single-window system, implementing the logistics policy, reducing port congestion and shortening export lead times, he argued, would be essential for sustaining Bangladesh’s global competitiveness. Logistics costs are equivalent to about 10%-15% of total business costs, he observed.
Prof Rahman raised serious concerns over the condition of the banking sector inherited by the new government and stressed the urgent need to restore financial discipline.
“Official figures previously suggested that defaulted loans stood at Tk 1.22 lakh crore, but the real figure proved to be far higher �" more than Tk 5 lakh crore,” he said, warning that misappropriation, largescale plunder and weak governance had led to exceedingly high NPL and undermined confidence in the financial system. He underpinned the urgency of undertaking reforms of the banking sector through mergers and acquisitions, ensuring that the central bank works without unwarranted political influence and developing bond and equity market. These will be crucial in restoring confidence of the general public as also the investors in the financial system.
Prof Rahman concluded by stressing that economic recovery cannot be achieved within a short period. The true test of the new administration, he said, will lie in its ability to restore institutional credibility, maintain macroeconomic stability, generate employment and establish good governance in all spheres of economic management.
“Restoration of accountability, economic stability and economic progress cannot be achieved merely through policy aspirations and statements, but will call for discipline, transparency, accountability, institutional strengthening, and the courage to undertake difficult reforms,” he observed.
