The new government of Bangladesh, led by Prime Minister Tarique Rahman, has assumed office at a moment of profound economic vulnerability. Inflation remains stubbornly high, with overall inflation at 8.58 percent in January. Alongside inflation, sluggish private investment and growth, banking sector vulnerabilities, weak revenue collection and fiscal deficits, fragile foreign currency reserves amid development demands, unemployment, LDC graduation, governance and structural reform pressures, and a probable energy crisis could place immense strain on the administration. If these issues are not addressed quickly through a systematic mix of short- and long-term measures, broader policy ambitions may lose credibility before they fully take shape.
The inflationary challenge is not merely cyclical; it reflects structural imbalances accumulated over years. Supply chain disruptions, currency depreciation, energy price adjustments, and weak market oversight have fueled persistent price pressures. For ordinary citizens, purchasing power has steadily eroded. Wage growth has lagged behind living costs, savings have dwindled, and middle- and lower-income families have been forced to compromise on nutrition, healthcare, and education. Tackling inflation therefore requires more than price controls or symbolic market raids. It demands coordinated monetary restraint, stronger supply logistics, vigilant anti-hoarding efforts, and transparent communication that reassure the public without obscuring the gravity of the situation.
Beyond inflation, the government inherits an economy still reliant on external lifelines. Since entering an IMF rescue program in early 2023 after a severe balance-of-payments crisis, Bangladesh has balanced stabilization with stagnation. An anticipated IMF mission to Dhaka will again bring scrutiny and conditionality focused on fiscal discipline, exchange rate flexibility, and monetary tightening. Although foreign exchange reserves have stabilized from their lowest point, this has come at a cost. Imports have contracted, banking sector credit growth has fallen to historic lows, and private investment has stalled. The paradox is evident: measures that stabilized reserves also dampened growth. If economic activity is reignited, renewed demand for foreign currency may again strain reserves.
This tension highlights the fragility of the external sector. Export earnings remain concentrated in garments, exposing the country to shifts in global demand. Remittance inflows, another major foreign currency source, depend heavily on labor markets in the Middle East and beyond. A narrow export base and reliance on overseas workers create vulnerabilities that surface during global shocks. The government must urgently diversify by investing in higher-value manufacturing, pharmaceuticals, agro-processing, and digital services while improving trade logistics and port efficiency. Export competitiveness cannot depend solely on low wages; it must increasingly rest on productivity, compliance standards, and technological adaptation.
The domestic fiscal picture is equally daunting. Public debt has surged over the past three years, reaching about Tk.21.5 lakh crore by September 2025. Heavy reliance on the banking sector to finance deficits has crowded out private credit, absorbing liquidity through treasury instruments and limiting funds for entrepreneurs. As businesses struggle to secure affordable financing, investment stagnates and job creation slows, creating a cycle in which weak growth suppresses revenue and compels further borrowing.
Fiscal strain could deepen if proposed salary adjustments under the Pay Commission are implemented without careful calibration. Raising civil service salaries might add Tk.1 lakh crore annually to the Tk.1.31 lakh crore already spent on wages and pensions. While fair compensation is justified, timing and scale must align with fiscal sustainability. Financing recurring expenditures through borrowing would widen deficits and risk fueling inflation. Adjustments may need phasing and linkage to revenue performance and efficiency gains. Moreover, broader wage policy attention is necessary, as private sector employees outside top firms face significant disparities.
Revenue mobilization remains central to a durable solution. Bangladesh's tax-to-GDP ratio is far below that of many comparable economies. Leakages in the value-added tax system are acknowledged but inadequately addressed. Reforming tax administration requires political resolve, as vested interests resist transparency. Strengthening the National Board of Revenue, digitizing records, broadening the base, and limiting discretionary exemptions are critical. Equally vital is restoring public trust that taxes translate into tangible public goods rather than corruption. Linking tax compliance to long-term social security benefits could improve revenue performance while strengthening citizens' confidence in the state.
The banking sector presents another critical fault line. High non-performing loans, weak corporate governance, and a culture of willful default have eroded financial stability. Without reform, banks cannot effectively channel savings into productive investment. Granting genuine autonomy to the central bank, enforcing stricter loan classification standards, and ensuring accountability for defaulters are essential. A transparent clean-up of balance sheets may be politically uncomfortable but is necessary to restore credit flow and investor confidence.
Unemployment and underemployment, especially among educated youth, compound the strain. The events of August 2024 showed how economic frustration can merge with political discontent. A recovery strategy must therefore prioritize job creation. Encouraging small and medium enterprises, supporting start-ups, and aligning vocational training with market demand can bridge the gap between education and employment. Infrastructure investment-particularly in renewable energy and transport connectivity-can create immediate jobs while boosting long-term productivity.
Energy security and supply chain resilience also require attention. Periodic shortages and price adjustments have fueled cost-push inflation. Diversifying energy sources, expanding domestic generation, and improving grid efficiency are crucial. At the same time, rationalizing subsidies while protecting the poorest through targeted transfers can ease fiscal pressure without undue hardship.
Another milestone is Bangladesh's planned graduation from Least Developed Country status in late 2026. Although a three-year delay has been sought, postponement cannot replace preparation. Graduation will gradually remove preferential trade terms, challenging export competitiveness. The interim period must enhance productivity, upgrade standards compliance, and secure favorable trade agreements. Failure to prepare could weaken export earnings when foreign currency stability is most needed.
Complicating this landscape are geopolitical risks. Escalating tensions involving Iran, the United States, and Israel threaten global energy markets, while instability between Pakistan and Afghanistan adds uncertainty to regional trade routes. As a net energy importer, Bangladesh is vulnerable to oil and gas price spikes from Middle East conflict. Higher energy costs would intensify inflation and widen the trade deficit.
Geopolitical instability can also dampen demand in export markets and disrupt shipping, raising freight costs. Remittances may decline if host countries face downturns or turmoil. The government must adopt a cautious, balanced foreign policy, avoiding entanglement while protecting economic interests. Building strategic fuel reserves, diversifying import sources, strengthening ties with labor-receiving countries, and maintaining macroeconomic buffers are prudent safeguards.
Ultimately, the central dilemma for Prime Minister Tarique Rahman's administration is balancing short-term popularity with long-term stability. Expanding subsidies, accelerating salary hikes, or delaying reforms may be tempting, but without fiscal backing such steps could deepen vulnerabilities and erode credibility. Early political capital should be invested in reforms that anchor sustainable growth.
Communicating hard truths is part of responsible governance. Citizens are more likely to accept temporary hardship if they see fairness, transparency, and a credible path forward. Targeted safety nets can protect the vulnerable during adjustment. Digital cash transfers, expanded food assistance during inflation spikes, subsidized healthcare for low-income families, and related measures can cushion stabilization's immediate impact.
Bangladesh stands at a crossroads. The new government faces inflation, fiscal strain, banking fragility, external vulnerability, and geopolitical uncertainty simultaneously. Yet crises also create opportunity. Through disciplined macroeconomic management, structural reform, and strategic diplomacy, the country can stabilize its economy while building diversified, resilient growth. The path demands restraint, courage, vigilance, and sustained focus. Success would not only restore stability but rebuild public confidence in economic governance-ensuring progress is reflected not merely in statistics, but in the everyday security and comfort of citizens.
The writer is Chief Editor at Mohammadi News Agency (MNA) and Editor at Kishore Bangla
