Bangladesh Faces Energy Constraints Amid Global Crisis

Prominent economist Debapriya Bhattacharya has warned that Bangladesh’s scope to import cheaper fuel has become increasingly constrained, citing what he described as the broader entanglement of economic policy with foreign relations under the interim government.

Speaking at a media briefing in Dhaka, he suggested that recent trade arrangements with the United States may have implications for Bangladesh’s ability to procure lower-cost energy from countries such as Russia, particularly in a highly competitive and politically sensitive global market.

“The economy is no longer separate from foreign policy considerations,” he observed, adding that current arrangements may require government approval or clearance for certain energy imports, thereby limiting flexibility in securing low-cost fuel supplies.

The remarks were made on Tuesday (31 March) at a briefing titled “Reflections on the First Budget of the New Government”, organised at the Centre for Policy Dialogue (CPD) conference centre in Dhanmondi. The event was jointly hosted by the CPD and the SDG Implementation Citizen’s Platform, Bangladesh.

Economic pressures intensify

Bhattacharya outlined a series of mounting macroeconomic challenges facing the country. He noted that external debt has risen significantly, the balance of payments remains under pressure, and investment as well as employment growth have continued to remain weak over an extended period.

Inflation, he said, remains persistently high, particularly in the food sector, while ongoing global instability is exacerbating pre-existing structural weaknesses in the domestic economy.

He further warned that the current geopolitical tensions in the Middle East have created three major risks for Bangladesh:

Given these risks, he stressed that the government should not wait for the upcoming budget cycle to act, but instead take immediate steps to mobilise financial and energy-related responses.

Policy recommendations on fuel and subsidies

The economist suggested that the government consider increasing fuel imports to stabilise supply, while also exploring tax and duty reductions to keep domestic prices under control.

He also called for a reassessment of subsidy structures, arguing that inefficient or unjustified subsidies should be identified and gradually reduced. Particular emphasis, he said, should be placed on determining whether benefits are reaching low-income groups or disproportionately favouring wealthier segments of society.

Bhattacharya further recommended a phased reduction of cash incentive schemes over two to three stages as part of broader fiscal consolidation efforts.

Reform of development spending and state enterprises

Calling for urgent restructuring of the Annual Development Programme (ADP), he proposed the formation of a task force to review ongoing projects within one to one-and-a-half months. Without such scrutiny, he warned, continued approval of poorly designed development projects would fail to improve outcomes.

He also urged reforms in state-owned enterprises, arguing that many public sector industries are operating at a loss and place a burden on the national budget. According to him, non-performing state enterprises should either be privatised or restructured, with outstanding liabilities settled through asset divestment.

Bhattacharya further advocated selling government-held shares in various companies, recalling that earlier policy initiatives under former finance minister Saifur Rahman had supported partial divestment. He claimed that bureaucratic resistance has historically slowed such reforms, despite their potential to stimulate the stock market and ease fiscal pressure.

Revenue targets and tax reforms

A key concern raised during the briefing was the setting of unrealistic revenue targets. Bhattacharya argued that even the National Board of Revenue is aware that such targets are often unattainable, leading to repeated shortfalls.

He emphasised the need for more realistic fiscal planning, suggesting that a smaller but achievable budget would be preferable to inflated projections that are unlikely to be met.

He also called for the removal of tax exemptions, expansion of the tax net, and stronger digital compliance mechanisms to improve revenue collection. Additionally, he advocated the introduction of wealth taxation and urged the swift implementation of the planned division of the National Board of Revenue.

Referring to political discourse, he noted that proposals to reduce tax exemptions and introduce wealth-based taxation had also appeared in opposition party election manifestos, signalling a broader policy consensus on the need for reform.

Fiscal costs of exemptions and incentives

A background presentation at the briefing highlighted the scale of revenue foregone through tax exemptions. In the 2021–22 fiscal year alone, the government reportedly lost approximately BDT 272,850 crore due to income tax, VAT and customs exemptions, equivalent to 6.87% of GDP.

In addition, during the 2024–25 fiscal year, around BDT 32,230 crore was allocated in incentives for agriculture, exports, jute products and remittance inflows—equivalent to nearly 0.60% of GDP.

Experts at the event warned that such fiscal costs, if not rationalised, could further constrain the government’s ability to manage debt, inflation and development spending in an increasingly uncertain global economic environment.