Bangladesh's economic, institutional reforms urgent to skip 'existential threat'

Broad-based reforms across Bangladesh's economic and institutional landscape are urgent and the country must act swiftly to avert an "existential threat", a government functionary alerts as noted economists also highlight ways of recovery from a stagflation-like situation.

Lutfey Siddiqi, special envoy on international affairs to Chief Adviser Professor Muhammad Yunus, Saturday spelt out the urgency of far-reaching reforms while speaking at a discussion marking the launch of a book titled 'Bangladesh 2030: Pathways to Shared Economic Prosperity' authored by economist Sadiq Ahmed.

Siddiqi acknowledges the depth and analytical rigours of the research but underscores that knowing "what needs to be done" is no longer the issue but getting down to doing the must-do is what matters most.

"We need to focus on how to get it done," he said at the event organised by PRI in a city hotel, where other eminent economists and entrepreneurs also spoke for wide-scale changes, like the opening up of different sectors.

"Our external environment has dramatically shifted. The privileges of LDC status - concessional finance, preferential trade access, and aid - are eroding fast. In many ways, LDC graduation has already happened," Siddiqi told the meet, adding that the dual shocks of 2024's national events and global economic disruptions in 2025 have created a "continuity break of the highest order."

The special envoy to the head of interim government highlighted a fundamental contradiction within the country's development model, stressing the need for healing such paradox.

"We say it's a private-sector-led economy. So it's a capitalist economy with a very communist, planned structure. But unlike communist parties elsewhere, we don't deliver efficiency," he points out.

This paradox, he argues, hampers the country's ability to implement reforms.

Siddiqi calls for urgent attention to implementation, suggesting that political economy constraints-not policy knowledge-are blocking progress.

"We know the reforms. They are well-documented. The issue is behavioural - sequencing, pacing, and managing resistance."

Noting that the government alone cannot drive reforms, Siddiqi points to a broader accountability issue. "Members of the private sector strike their own deals with the government. Many who advocate systemic reform from public platforms have separate arrangements behind closed doors. This undermines change," he says.

He cites examples of active efforts underway now, like reforms in port operations, labour regulations, and migration processes.

"We're not just drafting white papers; we are using them in our workflow daily.

"For example, we've processed over 150,000 permits under the new National Single Window system, and within weeks, all 19 required departments will be integrated."

In a striking comparison, Siddiqi shared an anecdote from a Bangladeshi garment manufacturer operating in both Bangladesh and Vietnam.

"He pays his Vietnamese workers 40 percent more, yet that operation is more profitable. Where does the 40 per cent go in Bangladesh? Partly to poor logistics and infrastructure, but much of it to rent-seeking at multiple levels. That 40-percent productivity gap is unforgivable."

Prominent business leader Syed Nasim Manzur called for an urgent rethink of Bangladesh's economic strategy, highlighting the need to empower the private sector, reform the tax system, and address critical bottlenecks in exports, healthcare, and urban infrastructure.

Manzur warns that many of the key strengths that had powered the country's growth are now eroding.

He points out that several enabling factors listed in the book's introduction-such as macroeconomic prudence, low inflation, and effective use of demographics-have weakened.

On state-owned enterprises (SOEs), Manzur was blunt: "The government should not be running mills of any kind… taxpayer money is going into running jute mills and textile mills. Why has that discussion on privatisation completely stalled?"

He also addressed Bangladesh's fragile tax regime, describing it as "primitive even by LMIC [lower-middle-income country] standards."

Manzur laments that the National Board of Revenue (NBR) has become "addicted to import-based revenues," with arbitrary and unpredictable export-tax rates undermining investor confidence.

Highlighting a deeper issue of export disincentives, he argues that while the RMG sector had been rightfully supported, non-RMG exports were being stifled. "As long as import substitution remains more profitable than exports for non-RMG, export diversification will remain elusive."

He cites discriminatory practices in customs and taxation that give unfair advantage to domestic sales.

In a sharp call for health -sector reforms, Manzur quotes the book's critique of weak regulation: "The government should open up the healthcare system to foreign investment and medical practices by international healthcare staff."

He calls for investment in commuter rail and public transport, noting that prior efforts had been blocked by vested interests.

Citing the book's insight that Bangladesh lacks a clear definition of "skill", he says, "If you don't even agree what skills are, how are you going to have a skills policy?"

Country Manager for the International Finance Corporation (IFC) in Bangladesh, Bhutan, and Nepal Martin Holtmann offered reflections on several policy issues, including urbanisation, healthcare, export diversification, and taxation.

On health, he applauds Bangladesh's gains in life expectancy but warns of upcoming pressures due to demographic shifts and an ageing population.

He calls for reducing barriers to entry in the healthcare sector, saying, "We have closed that sector completely off, and that is very unwise."

Holtmann wouldn't shy away from critiquing Bangladesh's tax system either. Referring to it as "Kafka-esque," he said, "If you've ever read Franz Kafka, you'll know what I mean. Even in good company, like the South Asia region, our tax take is worse than in Nigeria."

He strongly advocates for investing in girls' education, calling it "the single-best policy intervention for development." He also urges the government and private sector to collaborate on vocational, technical, and digital skills training.

"The private sector also has a role to play. Don't just complain that the government isn't producing the right kind of workers-help us. Open academies, run vocational programmes, and provide factory-based training."

Dr Selim Raihan, Executive Director of SANEM and Professor of Economics at the University of Dhaka, emphasises that without a meaningful political transition and institutional reform, the country's economic achievements may fall short of delivering sustainable progress.

Referring to "political economy of reform", he stated, "The centre-point for our future development is a successful, sustainable, and meaningful political transition-something that has become more important than ever."

Dr Raihan argues that the very successes of Bangladesh's economic model over the past five decades have now turned into constraints or "hostages to past success."

While acknowledging importance of RMG, he notes, "It has created obstacles for other sectors to grow. The political economy around the RMG sector has entrenched vested interests that inhibit diversification in exports."

CPD Executive Director Dr. Fahmida Khatun notes that despite decades of impressive economic growth, Bangladesh is witnessing a reversal in its early social progress due to deep-rooted governance failures, rising inequality, and policy capture by vested interests.

Ms Khatun warns that the current pattern of growth-marked by corruption, weak institutions, and lack of inclusive policymaking-is unsustainable and risks undoing those gains.

"Bangladesh experienced macroeconomic stability at times, but growth without domestic investment, employment, and reform has proved fragile," she says, noting that the financial, energy, and infrastructure sectors-central to economic progress-have become hubs of rent-seeking and policy capture.

Author of the book Dr Sadiq Ahmed, delivering the keynote speech, said the book is a message of hope that Bangladesh can transition from its current stagflationary phase to a path of shared prosperity.

He notes that this optimism stems not from wishful thinking but from Bangladesh's remarkable track record of overcoming adversity through the resilience of its people - farmers, workers, migrant laborers, and the youth.

The book, a collection of thirteen essays, addresses issues spanning macroeconomic management, employment, export diversification, inequality, gender empowerment, urbanization, environmental sustainability, and governance. Each chapter offers concrete reform recommendations.

Among key proposals are: adopting a flexible exchange rate, modernizing the tax system, improving corporate governance in state-owned enterprises, removing anti-export bias, boosting education spending, and implementing redistributive fiscal and environmental reforms.

Chairman of PRI Dr Zaidi Sattar moderated the event.

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