Twenty Priorities, One Reality

When Dr. Salehuddin Ahmed stepped down as finance adviser on February 22, he handed the incoming finance minister, Amir Khosru Mahmud Chowdhury, a twenty-point transition note. On paper, it looked like a routine handover document. In practice, it was a warning about the economic pressures that had steadily accumulated beneath Bangladesh’s recent growth story.

The note highlighted persistent inflation, weak tax collection, rising foreign debt obligations, fragile banks, delays in foreign-funded projects, subsidy pressures, and the politically sensitive question of a new pay scale for government employees. Taken together, these were not isolated problems. They pointed instead to an economy with far less room for policy mistakes than Bangladesh had enjoyed in earlier years of rapid expansion.

More than three months into the elected government led by Tarique Rahman, the question is no longer whether the warning was justified. The question is how far the new administration has responded.

Inflation: Still the Central Problem

Inflation remains the government’s most immediate challenge. Prices have stayed above 9 percent for much of the past three years, while food inflation has hit low-income households especially hard. Even when inflation slows, prices themselves rarely fall back. Families simply adjust to a permanently higher cost of living.

Bangladesh’s annual inflation rate stood at 8.58% in January 2026 before rising again in subsequent months as food and energy costs remained stubbornly high. The International Monetary Fund now expects inflation to remain elevated through FY2026, projecting around 8.9 to 9.2 percent before easing gradually.

Dr. Ahmed’s note called for tighter coordination between fiscal and monetary policy, stronger market oversight, and action to address supply bottlenecks. The government has broadly accepted that diagnosis, but implementation has been cautious.

Officials say they hope to reduce inflation to around 7% next year, yet they remain reluctant to impose the sharper monetary tightening that would likely slow growth. That hesitation is understandable. Bangladesh is now trying to manage two conflicting pressures simultaneously. It must control prices without pushing the economy into a sharper slowdown.

Revenue: The Structural Weakness Beneath Everything Else

If inflation is the immediate fire, weak revenue collection remains the structural weakness beneath nearly every other fiscal problem the country faces. Bangladesh continues to have one of the lowest tax revenue shares relative to GDP in South Asia. The ratio has hovered around 7-8% for years and recently fell below that range, severely limiting the state’s ability to finance public services and social protection without borrowing more heavily.

The outgoing administration urged reforms to the National Board of Revenue, wider automation of VAT collection, expanded online income tax systems, and a reduction in politically protected exemptions.

The new government has formally embraced those goals and raised revenue targets for the coming fiscal year. Yet officials privately acknowledge that collection targets are unlikely to be met in full. The deeper issue is political rather than technical. Tax reform in Bangladesh has long meant confronting influential business groups that benefit from exemptions, weak enforcement, and negotiated settlements.

The government appears to understand the problem clearly. What remains uncertain is whether it is willing to spend the political capital required to solve it.

Debt and External Pressures: A Thinner Cushion

The transition notes also warned that Bangladesh’s external position had become more fragile. Foreign debt repayments have increased sharply, while global lenders now describe Bangladesh as facing moderate rather than low debt risk. The fiscal deficit remains manageable by international standards, but the long-term direction is becoming more concerning for policymakers and lenders alike.

Exports, especially ready-made garments, have faced weaker global demand and rising production costs. Remittances continue to provide an important buffer, while foreign exchange reserves remain above 30 billion dollars. Even so, reserves can decline quickly if export earnings weaken or energy prices rise.

Dr. Ahmed advised the government to maintain a market-based exchange rate and avoid costly borrowing. So far, the administration has largely stayed on that path while continuing its cooperation with the IMF. The difficulty is that external conditions have worsened. Renewed instability in the Middle East has increased pressure on fuel and import costs, making inflation control and reserve management considerably more difficult.

The Pay Scale: Where Economics Meets Politics

A few issues in the note were more politically delicate than the proposed pay raise for government employees. Public-sector workers have not received a major adjustment since 2015, while years of inflation have steadily eroded the real value of their salaries. The Ninth Pay Commission reportedly discussed very large increases, with some estimates suggesting that annual costs could rise dramatically if fully implemented.

The economic logic cuts both ways. Higher salaries could improve morale and help retain skilled officials, but they would also lead to a permanent increase in government spending at a time when debt-servicing costs are already rising. The new government has therefore chosen a compromise.

Rather than implementing the full recommendations, it appears likely to approve of a more limited increase while setting aside a smaller fiscal allocation. Politically, this is difficult. Economically, it reflects the constraints outlined in the original handover note.

Banking Reform: The Hardest Test Still Ahead

The transition notes devoted significant attention to the banking sector, and with good reason. Non-performing loans remain extremely high, while governance problems, weak supervision, and politically connected lending continue to undermine confidence in the financial system. Proposed reforms, including amendments to banking laws and stronger enforcement of anti-money-laundering measures, have moved slowly.

At the centre of the debate lies the question of central bank independence and institutional credibility. A credible and politically insulated central bank is essential for controlling inflation, stabilizing the currency, and restoring confidence in financial markets. When investors believe monetary policy is shaped by political pressure, its effectiveness weakens.

The government has signaled support for continuing reforms begun during the transition period, including efforts to strengthen oversight and address weak banks. Yet the most difficult decisions, such as restructuring troubled institutions, enforcing accountability, and reducing political influence, still lie ahead.

Spending and Foreign Aid: The Problem of Execution

Another major theme in the handover note was the slow use of foreign aid and the uneven implementation of public projects. Infrastructure and welfare programmes in Bangladesh are frequently delayed by administrative bottlenecks, weak planning, and poor coordination between ministries. In a constrained fiscal environment, these delays carry real economic costs.

Dr. Ahmed recommended stricter oversight of projects, tighter borrowing discipline, and better coordination across government agencies. The new administration has begun rolling out several targeted welfare initiatives, including expanded support for low-income households. But these programmes will require sustainable financing if they are to endure.

The real challenge is not simply spending more money. The greater challenge is ensuring that limited public funds are spent efficiently, transparently, and in ways that produce measurable economic value.

A Smaller Margin for Error

The new government is operating with far less room for policy mistakes than Bangladesh enjoyed during earlier years of rapid growth. It must reduce inflation without crushing investment, raise tax revenue without damaging business confidence, manage debt without slowing development, and restore trust in the banking system without triggering instability.

These are not separate challenges operating in isolation. Each pressure intensifies the others and narrows the government’s available policy choices. So far, the administration’s approach has been cautious rather than transformative. It has maintained a disciplined position on debt and exchange-rate management, scaled back expectations for public-sector pay increases, and preserved cooperation with the IMF.

What it has not yet done is push through the deeper structural reforms, particularly in taxation and banking, that the transition note identified as essential.

The Diagnosis Has Been Accepted

Dr. Salehuddin Ahmed’s twenty-point note was not merely a bureaucratic formality. It was an admission that Bangladesh’s old growth model, driven by export expansion, cheap labour, and relatively favourable global conditions, is under increasing strain.

The new government appears to understand that reality. Its first months in office suggest an administration trying to manage expectations carefully while avoiding economic shocks. But recognizing a problem is not the same as solving it.

The most important reforms, including tax modernization, banking-sector restructuring, and stronger central bank independence, remain incomplete. The coming budget will therefore be more than a financial document. It will be the first serious indication of whether the government intends to match cautious rhetoric with sustained reform.

The baton has now passed. The real question is whether the new administration can follow through on the difficult reforms outlined in the warning it inherited.

Dr. Mohammed A Rab is currently a free lunch consultant on Financial Risk Management, Quantitative Risk Modeling and Enterprise Risk Management.