Structural ills, slow investment and inflation stymie economic recovery

Bangladesh's economy has avoided a catastrophic collapse over the past year following the interim government's decisive actions, but entrenched structural weaknesses, slow private investment, and persistent inflation impede long-term recovery.

As economists, experts and a top politician made such observations at a high-profile policy dialogue Sunday in Dhaka, the central bank's governor listed improvements in some of the country's macroeconomic parameters and rolled out a slew of reforms coming in the banking sector for an overhaul.

The Centre for Policy Dialogue (CPD) organised the discussion, titled '365 Days of the Interim Government', at Lakeshore Hotel. Labour and Shipping Adviser Brig-General (retd) M Sakhawat Hossain attended the meet as chief guest, while CPD Distinguished Fellow Professor Mustafizur Rahman presided.

Bangladesh Bank Governor Dr Ahsan H Mansur painted a stark picture of the economy that the interim administration inherited. "The banking sector was right at the edge of the cliff when we took office," he said, adding that stabilising the macroeconomic condition and initiating financial-sector reforms became immediate priorities.

While acknowledging that "reforms can't be done in a year", Dr Mansur said progress had been made across multiple areas. The central bank quickly engaged with international financial institutions to preserve lines of credit, pledging to meet all foreign-payment obligations.

"Our situation didn't turn like Sri Lanka or Pakistan's. Remittances and exports provided tremendous support in debt repayment," he told the cutting-edge stocktaking session.

The governor notes that since 14 August 2024, the central bank has not sold a single dollar from reserves -- instead, purchasing at Tk122 despite exchange-rate pressures.

Inflation has fallen below 10 per cent, with expectations that the rate could drop below 5.0 per cent in the future, and the balance of payments (BoP) has returned to surplus, he told the meet about improving macroeconomic parameters.

On the legal front involving banking and finance, Dr Mansur announced amendments to be made to the Bank Companies Act, Money Laundering Act, Deposit Insurance Act, and Money Loan Court Act. The Bangladesh Bank Order is also being updated to strengthen autonomy and accountability.

The central bank is preparing to amend the Bangladesh Bank Resolution Ordinance allowing for acquisition of banks reeling from liquidity crises due to irregularities, with "no more leniency" for misconduct.

Other overhaul initiatives include forming three taskforces for (a) reform in the banking sector and central bank operations, and laundered money recovery (b) establishing a single body for "360-degree monitoring" of all banks (c) promoting QR code payments and credit-card usage (d) expanding nano-loans and student accounts (e) restructuring the revenue department (f) lowering smartphone prices to boost digital-banking coverage.

Reflecting on a turbulent year, Adviser M Sakhawat Hossain admitted the interim government was "bound to disappoint". Speaking as chief guest, he said: "We never said roses would bloom in every home."

Sakhawat, who has served in four ministries in a year under the post-uprising government, recalls the July Uprising as "unprecedented" -- a leaderless revolt where schoolchildren and youths died on the streets. In early August, as chaos gripped the country, he was handed the Home Ministry. "The police were demoralised and refused to work. I had to issue an ultimatum," he said, stressing that political interference must end for reforms to last.

Later, at the Labour Ministry, he faced the Beximco crisis, with 38,000 workers losing jobs. "I could do little, only form a committee," he admitted.

On banking scandals, he revealed one firm took Tk 480 billion from 16 banks and 7 financial institutions, with Tk 240 billion from Janata Bank alone -- without collateral.

"Maybe, we've failed in many areas, but not everywhere," he concludes. "We can leave a framework. Whether it's implemented -- that, I cannot guarantee."

CPD's traffic-light scorecard on government performances gives mixed readings. Presenting CPD's independent review of the government's first year, Executive Director Dr Fahmida Khatun said a "major economic disaster" was averted, with foreign-exchange reserves stabilised, remittances and exports increasing, and the trade balance improving.

However, she warns that these gains did not translate into qualitative improvements in ordinary people's lives. "Inflation may have eased, but many persistent challenges remain."

She highlights low revenue collection, weak institutional capacity, and constrained private-credit flow as serious problems.

The CPD's traffic-light scorecard has assessed 38 economic and social indicators. Nine were rated "green" (positive progress), 18 "yellow" (warning signs), and 11 "red" (areas of grave concern). While inflation control entered the green zone, health, education, revenue mobilisation, and governance were marked red.

Dr Khatun points out that health and education suffer from chronic underinvestment, poor infrastructure, staffing shortages, and rural-urban disparities, warning that "without decisive reform, the next generation will bear the cost".

She also flagged the fragility of the banking sector, citing rising non-performing loans (NPLs) and political influence. While the dissolution and reconstitution of 14 bank boards, adoption of international loan- classification standards, and creation of Tk230 billion in special credit lines were positive, the true scale of bad loans remains unclear.

The think-tank welcomes SME lending requirements, the youth fund, and enhanced migrant-worker financing but deplores a lack of progress in export diversification, post-LDC-graduation tariff reforms, labour-policy updates, and energy security.

It notes that while arrears to Adani have been cleared and capacity payments abolished, uninterrupted and affordable power supply remains a challenge.

Distinguished Fellow of the CDP Professor Mustafizur Rahman said macroeconomic stability had been largely restored from a situation of high inflation, rising unemployment, currency devaluation, declining remittances, and low investment a year ago. However, he strikes a note of caution: "The major test will be to translate this stability into investment and job creation."

He notes that some government targets have been met, others fallen short, and several initiatives were only beginning. "The future political government will have to carry these forward."

Standing Committee member of BNP Amir Khosru Mahmud Chowdhury told the review meet that sustainable reform requires changing the country's political culture. "We must move away from confrontational politics. Democracy means tolerance and respect for others' views."

He praised the National Consensus Commission initiative and calls for deregulation, greater private- sector involvement in economic management, and reduced direct contact between service providers and recipients to curb corruption.

He described Bangladesh's low ranking in foreign direct investment as a barrier to growth, urging a shift toward economic democratisation and faster restoration of democratic governance.

Dr M Tamim, Vice-chancellor of Independent University Bangladesh (IUB), Mahmud Hasan Khan (Babu), President of Bangladesh Garment Manufacturers and Exporters Association (BGMEA), Syed Sultan Uddin Ahmed, Chair, Labour Reform Commission, Mohammed Nurul Amin, Chairman, Global Islami Bank PLC, and Showkat Aziz Russell, President, Bangladesh Textile Mills Association (BTMA), among others, spoke at the event.

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