As Bangladesh heads into an election year, warning signs are emerging across key economic indicators: rising debt servicing costs, persistent revenue shortfalls, fragile banks, and rigid domestic prices despite falling global rates.
Together, these trends suggest not just short-term stress but deeper structural vulnerabilities that could push the economy toward a debt trap or a lower-middle-income trap, economists at the Centre for Policy Dialogue (CPD) cautioned on Saturday.
Presenting its assessment at a media briefing in Dhaka, CPD said recent budgetary and market signals point to weakening policy space at a time when political uncertainty and slowing economic momentum are already weighing on confidence.
One of the most striking shifts, CPD noted, is in budget priorities.
Domestic and foreign debt servicing has now become the second-largest expenditure item in the national budget, overtaking education—long considered a core investment in long-term growth.
“This is not just a fiscal adjustment; it reflects a change in national priorities driven by mounting debt obligations,” said CPD distinguished fellow Prof Mustafizur Rahman.
He warned that many countries transitioning from low-income to lower-middle-income status stumble at this stage, as rising debt burdens crowd out growth-enhancing spending.
“Bangladesh is not immune to that risk,” he said.
While revenue collection has grown in nominal terms, it continues to fall short of targets.
In the first five months of the current fiscal year, the National Board of Revenue collected about Tk150,000 crore—over 15% higher than a year earlier—but still around Tk24,500 crore below the target for the period.
Despite this shortfall, the government has set an even higher revised revenue target for the year, raising concerns about realism.
“With elections ahead and economic activity slowing, the feasibility of achieving these targets is questionable,” said CPD executive director Fahmida Khatun.
She warned that without structural reform in tax administration, higher targets may increase evasion rather than revenue.
Banks remain a weak link
CPD also flagged the banking sector as a persistent source of systemic risk, citing unresolved loan defaults, political interference, and weak enforcement of regulations.
“Without banking sector reform, sustainable growth is not possible,” Fahmida said, stressing the need for stronger laws, effective resolution mechanisms, and greater central bank independence.
She cautioned that reform momentum often slows after elections—at a cost to depositor confidence and financial stability.
Prices high despite global decline
At the consumer level, CPD pointed to a disconnect between global and domestic prices.
Global rice prices have fallen by nearly 40%, yet domestic prices remain elevated, even though Bangladesh produces far more rice than it consumes annually.
Similar patterns persist in sugar and edible oil markets.
“This points to weak competition and the continued grip of market syndicates,” CPD said, warning that price rigidity is reinforcing inflationary pressure.
Although headline inflation eased slightly to 8.49% in December, CPD said inflation remains structurally entrenched.
Interest rate hikes alone cannot address non-food inflation, which hovers near 9%, suggesting that price pressures extend beyond food supply shocks.
Market oversight, supply-chain reform, and enforcement against collusion are essential, CPD argued.
Despite the risks, CPD said Bangladesh still has a window to stabilize its economy—if decisive action is taken.
The think tank emphasized investment mobilization, export diversification, skills development, and effective use of foreign financing as key priorities.
“Bangladesh’s greatest asset is its young workforce,” Fahmida said. “With the right policies and political commitment, this demographic advantage can still drive growth.”
But without timely reforms, CPD warned, the economic pressures building beneath the surface could harden into long-term constraints—just as the country enters a politically sensitive period.
