New govt must prioritise stability and reforms: Fahmida Khatun

The newly elected government must urgently prioritise restoring macroeconomic stability through comprehensive reforms in the banking sector, revenue management, and inflation control to overcome ongoing economic pressures, said Dr Fahmida Khatun, executive director of the Centre for Policy Dialogue (CPD).

She made the remarks today (4 March) while presenting a keynote speech at a roundtable titled “Looking into Bangladesh’s Economic Development: Priorities for the Newly Elected Government,” co-organised by CPD and The Daily Star in the capital.

Highlighting pressures on the economy, Dr Fahmida pointed out high inflation, a shrinking fiscal space, sluggish private investment, vulnerabilities in the financial sector, and high debt burdens as primary challenges for the current administration.

She expressed deep concern over stubborn inflation, noting that it remains higher than wage growth and severely erodes the purchasing power of the masses.

“In January, the wage growth index was 8.12%, while inflation stood at 8.66%. Food inflation, in particular, remains high, posing a serious threat to the food security and living standards of marginalised people,” she said.

She emphasised that Bangladesh’s inflation is supply-side, not demand-driven, urging measures to ensure a smooth supply chain, curb syndicates and hoarding, while aligning monetary and fiscal policies.

She also lauded the government’s “Family Card” and “Farmers’ Card” initiatives as positive steps for social protection.

Dr Fahmida painted a grim picture of the country’s fiscal situation, noting a continuous decline in the tax-to-GDP ratio, which stood at 6.78% in FY25, while the debt-to-GDP ratio climbed to 38.6%, raising concerns about medium-term debt sustainability.

She highlighted a concerning reverse trend in government spending: “Operating expenditure has grown by over 11%, while development expenditure has seen a negative growth of 2%. If development spending continues to shrink, investment will halt, hindering job creation and income generation,” she warned, urging the government to curb unnecessary spending and stop leakages.

On the banking sector, Dr Fahmida termed its health as weak and vulnerable, criticizing the culture of loan rescheduling, particularly the massive rescheduling spree before the national elections which temporarily masked the true volume of Non-Performing Loans (NPLs).

“Previously, the true face of the banking sector was hidden. As Asset Quality Reviews began, the actual weaknesses were exposed,” she said.

To restore discipline, she stressed the immediate need for recovering defaulted loans, retrieving stolen assets laundered abroad, and ensuring the absolute autonomy of the central bank.

She urged the government to swiftly approve the proposed amendments to the Bangladesh Bank Order 1972 to protect the central bank’s independence.

On the external front, Dr Fahmida warned against over-reliance on the Ready-Made Garment (RMG) sector, which recently contributed to a negative year-on-year export growth.

She recommended targeted, time-bound support for promising new sectors, including sunset clauses (provisions that set a fixed end date for government support) so they can eventually stand on their own feet.

Addressing the impending Least Developed Country (LDC) graduation, she noted that proactive preparations must begin immediately, regardless of whether Bangladesh receives an extension.

She urged the government to implement its Smooth Transition Strategy (STS) effectively to maintain global competitiveness.