Bangladesh’s economy is currently under significant pressure as rising debt servicing costs coincide with slowing growth. Attempts to rein in inflation have tempered economic expansion, while structural weaknesses—such as low-quality tax collection, high levels of non-performing loans, persistent inflationary pressures, and governance deficits—have compounded the challenges. These factors are simultaneously eroding the real income of ordinary citizens.
In addition, weak tax collection limits the government’s capacity to address major fiscal crises, forcing greater reliance on domestic and foreign borrowing to finance the budget deficit. This dependence has placed considerable strain on public finances, with debt servicing obligations consuming a growing share of national resources. These findings were highlighted by Dr Salehuddin Ahmed, outgoing Economic Adviser to the interim government, in a succession note prepared for the incoming finance minister.
Key Recommendations for the New Government
In the note, Dr Ahmed emphasised the importance of controlling inflation and restoring confidence in the market. He urged the government to strengthen revenue mobilisation, particularly through reforms under the National Board of Revenue (NBR), including reviewing tax exemptions, accelerating the digitalisation of income tax administration, and modernising customs operations.
The new finance minister, appointed as part of the BNP-led coalition, is set to take office on Wednesday, following the formation of the new cabinet. Upon their swearing-in, Dr Ahmed’s official advisory responsibilities will automatically conclude. He has consistently advocated preparing a clear pathway for the incoming government to continue existing reforms rather than starting anew.
Banking and Financial Sector Challenges
The note details significant weaknesses in the banking sector. According to research by the Centre for Policy Dialogue (CPD), between 2008 and 2023, approximately BDT 92,000 crore was misappropriated from banks. Around 36% of total bank lending has become non-performing, mirroring challenges in other financial institutions. Strengthening legal frameworks and ensuring compliance will be a key task for the new government.
| Sector | Key Indicators | Observations |
|---|---|---|
| Bank Lending | 36% non-performing loans | High default rate undermines financial stability |
| Deposit & Loan Rates | +0.58% (deposits), +0.46% (loans) | Interest rates have risen compared to last year |
| Financial Sector Reform | Multiple laws enacted/amended | Includes Bank Company Act, Finance Company Act, Secured Transaction Act, and Bank Resolution Ordinance 2025 |
To address troubled banks, Bangladesh Bank has established a Bank Resolution Unit, prioritising deposit protection and service continuity. Five Islamic banks have already been merged under temporary administration, costing the government BDT 20,000 crore in fiscal year 2025-26.
Immediate Policy Priorities
Dr Ahmed highlighted several urgent areas: ensuring smooth import management of essential goods, monitoring market supply chains, coordinating fiscal and monetary policy, and enhancing revenue collection through VAT automation and e-invoicing.
Despite aggressive measures, inflation remains a challenge. The interim government projects point-to-point inflation to fall below 9% by June, aided by contractionary monetary policies and budgetary restraint.
External Sector Concerns
While import growth has accelerated recently, export growth, particularly in the ready-made garment sector, remains subdued. Insufficient production has limited overall export expansion, adding to balance-of-payments concerns.