“Economy faces heavy pressure from debt interest repayments”

Bangladesh’s economy is facing mounting pressure as the cost of servicing large domestic and foreign debts continues to rise, slowing overall growth. Efforts to control inflation have coincided with low-quality tax collection, high levels of non-performing loans, persistent price pressures, and structural weaknesses in governance, all of which are undermining household incomes.

The combination of these factors is reducing the government’s capacity to respond to major fiscal crises. Reliance on both domestic and foreign borrowing has increased to cover budget deficits, placing further strain on the economy. These observations are detailed in a succession note prepared by Economic Adviser Dr. Salehuddin Ahmed, outlining the state of the country’s macroeconomy for the incoming finance minister.

Key Recommendations for the Incoming Government

Dr. Ahmed’s note emphasises that immediate priorities should include stabilising inflation and restoring confidence in market mechanisms. Strengthening revenue collection is highlighted as critical, with a focus on implementing ongoing reforms at the National Board of Revenue (NBR), reviewing tax exemptions, digitalising income tax processes, and modernising customs operations.

The new finance minister, appointed as part of the BNP-led coalition cabinet, will assume office on Wednesday. Upon the minister’s swearing-in, Dr. Ahmed’s interim advisory role will formally conclude. In his final address, Dr. Ahmed stressed that the succession note is intended to guide the new government in continuing reforms rather than initiating entirely new programmes.

Financial Sector Concerns

The note paints a troubling picture of Bangladesh’s banking sector. According to the Centre for Policy Research Institute (CPRI), between 2008 and 2023, approximately BDT 92,000 crore was misappropriated from banks. Currently, 36 per cent of total bank loans have become non-performing. The financial sector reforms undertaken by the interim government include amendments to the Bank Company Act, Finance Company Act, Secured Transaction Act, and the Negotiable Instruments Act. A Bank Resolution Ordinance (2025) has empowered Bangladesh Bank to intervene in troubled banks, with five Islamic banks already consolidated under temporary administrators.

The note also reports that between September 2025 and the same period last year, deposit and loan interest rates increased by 0.58 per cent and 0.46 per cent respectively. While market-based lending rates are stabilising, capital shortages and governance weaknesses persist, constraining private-sector credit growth, which fell by 6.58 per cent in November year-on-year.

Immediate Economic Priorities

Dr. Ahmed recommends short-term measures to ensure macroeconomic stability, including:

Ensuring smooth import channels for essential goods.

Addressing market supply issues through better monitoring.

Continuing coordinated revenue and monetary policy.

Expanding VAT automation and e-invoicing to increase tax collection.

Inflation, although persistent, is expected to moderate, with a target of around 7 per cent by June, aided by contractionary monetary policies and fiscal restraint. Meanwhile, foreign trade shows a growing import trend, but export growth, particularly in the garment sector, remains below expectations.

Summary of Key Economic Indicators

The succession note provides the incoming finance minister with a roadmap to consolidate ongoing reforms, strengthen financial governance, and stabilise macroeconomic indicators, rather than initiating untested policy measures.