Limited Gains, Wider Setbacks

Bangladesh’s economy has shown a mixed performance during the BNP government’s first six months in office, with easing inflation and a recovery in exports offset by mounting fiscal pressures, a deteriorating external account and a prolonged weakness in industrial activity, according to the Centre for Policy Dialogue (CPD).

Presenting a scorecard-based review titled “Six Months of the Government: A Commentary on its Performance” at a media dialogue on Monday, CPD Distinguished Fellow Debapriya Bhattacharya said 12 of 31 key economic indicators had improved since the government took office in late February, while 19 had deteriorated.

He said the government inherited an economy characterised by “fragile banks, weak revenue mobilisation, fiscal constraints and subdued investment”, with the situation further complicated by the global slowdown and the impact of the US-Iran conflict on energy prices.

Debapriya said the absence of a formal baseline of the economy inherited by the government had made it difficult to assess its performance fully.

A promised second White Paper was never produced, while the condition of the economy was addressed only “perfunctorily” in the finance minister’s April statement to Parliament.

Inflation and exports improve
Monetary indicators recorded the strongest improvement, according to the CPD assessment. Headline inflation declined from 9.1 per cent in February to 8.3 per cent in July, while food inflation fell from 9.3 per cent to 7.2 per cent.

Export growth also moved into positive territory, improving from negative 3.2 per cent to 3.5 per cent. Gross foreign exchange reserves increased from $30.1 billion to $32.3 billion over the period.

However, the think tank said these gains were insufficient to offset deterioration in several other parts of the economy.

The external sector emerged as the weakest area, with six of its 10 indicators worsening.

Remittance growth almost halved from 21.4 per cent to 11.8 per cent, while average monthly overseas employment fell sharply from 95,521 to 51,235 as conflict disrupted job opportunities in the Middle East.

The trade deficit widened from $6.7 billion to $10.4 billion, while the current account moved from a $1.3 billion surplus to a $0.6 billion deficit.

Revenue squeeze deepens
Public finance also came under growing pressure. Total tax growth fell from 12.3 per cent to 4.9 per cent, while National Board of Revenue revenue growth declined from 12.4 per cent to 11.1 per cent, creating what the CPD described as a “large shortfall”.

Government borrowing from banks increased to 53.8 per cent of the annual target from 48 per cent, while net foreign aid inflows declined.

CPD projected that the revenue shortfall in FY2026 could reach nearly Tk 1 lakh crore, equivalent to around 17 per cent of the annual target.

The challenge could become greater in FY2027, when the government has set a revenue target of Tk 6.95 lakh crore, requiring growth of around 42 per cent.

Even under the most optimistic historical growth assumptions, CPD estimated a shortfall of Tk 1.30-1.40 lakh crore, or almost 20 per cent of the target.

Debapriya said that with the government unlikely to exceed its budget deficit ceiling of 3.6 per cent of GDP, and only about Tk 40,000 crore generally available for reductions in non-ADP spending, the Annual Development Programme would again bear much of the adjustment.

He urged the government to protect ADP allocations for education, health and social protection.

Industry and investment remain weak
The industrial sector showed little sign of recovery, with both general and manufacturing production indices falling to near-zero growth.

Investment indicators also weakened. Foreign direct investment net inflow declined from $662 million to $594 million, while private-sector credit growth slowed from 6 per cent to 4.5 per cent.

Debapriya cited Bangladesh Bureau of Statistics data showing that GDP growth had declined for three consecutive quarters — from 4.96 per cent in Q1 FY2026 to 3.03 per cent in Q2 and 2.22 per cent in Q3.

The third quarter, which coincided with the government’s first quarter in office, was the weakest of FY2026, with all major sectors slowing and industrial output entering negative growth.

“Q4 is the first full quarter under this government — and its real testing time,” he said, warning that three consecutive quarterly declines had “set a pattern”.
Governance gains, concerns

The CPD also reviewed 362 policy actions across nine areas of governance, identifying both positive developments and areas of concern.

Among the positive measures, it cited the withdrawal of MPs’ duty-free vehicle entitlement, austerity steps including a cap on Prime Minister’s Office meal expenses and suspension of vehicle purchases, the rapid disposal of cases involving violence against women, and reforms at the Bangladesh Public Service Commission aimed at strengthening merit-based recruitment.

However, the think tank expressed concern over the appointment of politically affiliated individuals to senior government positions, continued mob killings and violence against women, children and religious minorities, arrests of journalists following critical reporting and disciplinary action against teachers over social media posts.

The banking sector also remained a major concern. CPD cited the abrupt removal of the former Bangladesh Bank governor and the crisis at Islami Bank Bangladesh PLC, which experienced substantial deposit withdrawals before the central bank dissolved its board.

At the same time, the government has moved to consolidate five troubled Islamic banks and place distressed non-bank financial institutions under resolution.

Structural reforms needed CPD attributed the sluggish recovery to the absence of a coordinated and integrated reform package, saying the fiscal framework had “never been reset” to support economic recovery.

It also cited external shocks stemming from the Middle East conflict, pressure from vested interests, persistent law-and-order problems including extortion and intimidation, and the absence of a significant improvement in institutional capacity.

The think tank recommended that the government prepare a “core budget” for October 2026-June 2027 based on real-time data and aligned with its Fiscal Strategic Framework Plan 2026.

It also called for a credible, time-bound energy security package covering domestic gas exploration, fuel stockpiling and diversified sourcing.

CPD urged Finance Minister Amir Khasru Mahmud Chowdhury to use his September parliamentary statement, required under a 1991 law, to present concrete reform plans on the national pay scale, banking sector and power-sector restructuring.

“The change required is structural, not about people only,” Debapriya said.

He said the government should also review its cabinet structure, appointment practices and coordination mechanisms, while ensuring greater “freedom from capture” by vested interests entrenched in banking, energy contracting and public appointments.

The CPD assessment was prepared by a research team including Distinguished Fellow Prof Mustafizur Rahman, Additional Research Director Towfiqul Islam Khan and other researchers.