Prioritise reforms to support growth

The government should focus on reforms and higher productivity to restore economic growth and financial stability instead of relying on demand side expansion and populist measures, economists said yesterday.

“This budget gives us an opportunity to restore financial stability while supporting growth,” said Ashikur Rahman, principal economist at the Policy Research Institute of Bangladesh (PRI).

He made the remarks at PRI’s monthly macroeconomic insights session titled “Restoring Growth through Productivity Reforms: Pre-Budget Priorities” held at the organisation’s office in Dhaka.

Rahman said Bangladesh must prioritise reforms in the financial and revenue sectors, improve the investment climate, and address ongoing problems in the electricity and energy sectors.

“Without effective reforms, an expansionary budget could increase inflation and debt burdens, undermining the ongoing stabilisation process,” he warned.

He also called for reforms in state-owned enterprises (SoEs), saying these organisations hold assets equivalent to 17 percent of GDP but generate negative returns.

“This is draining the economy. You are bleeding money without any reason,” he said, blaming poor corporate governance, weak financial management, lack of transparency and political influence for the poor performance of SoEs. He also criticised the governance structure of many SoEs.

Bangladesh’s macroeconomic situation remains fragile because of weaknesses in the fiscal, financial and energy sectors. Rahman stressed that macroeconomic stabilisation alone would not be enough to restore strong and sustainable growth.

Bangladesh now needs productivity-focused reforms, including tariff rationalisation, trade openness, tax reforms, better investment conditions, energy sector restructuring, more foreign direct investment and improved infrastructure.

He noted that both Fitch Ratings and the Asian Development Bank have recently expressed concerns about Bangladesh’s economic outlook.

Inflation remained above 9 percent in April, while tight liquidity and high lending rates pushed private sector credit growth to historic lows, he said.

Businesses have cut investment because of inflation, uncertainty and energy shortages. At the same time, banks are increasingly investing in government securities instead of private lending due to rising risks and weak loan demand.

Rahman also criticised Bangladesh Bank for easing single-borrower exposure limits, warning that it could increase loan concentration among large business groups and weaken the banking sector further.

He also expressed concern over proposed amendments to banking laws that may allow wilful defaulters to return to the banking sector.

Meanwhile, Zaidi Sattar, chairman of PRI, said Bangladesh can no longer rely only on traditional growth drivers.

Future competitiveness will depend on productivity, innovation, policy predictability and openness to investment and technology, he said.

After Bangladesh graduates from the least developed country (LDC) status, the transition period would require export diversification, deeper integration into global value chains and a modern industrial policy framework, Sattar said.

Fahmida Khatun, executive director of Centre for Policy Dialogue, said reforms should go beyond slogans and be properly implemented.

She noted that previous non-political governments had also launched reform initiatives, but many failed to produce meaningful results because of weak execution.

Khatun said one of the government’s biggest challenges is preventing key sectors such as banking, energy and infrastructure from falling under the control of vested interest groups.

She also expressed concern over the slow implementation of development projects and the sharp rise in operating expenses, warning that both are undermining fiscal discipline.

Controlling inflation should not depend only on contractionary monetary policy, she said. It also requires creating a more competitive market environment.