No Time to Waste

It now seems a long time ago, but the political climate in Bangladesh was very different six months ago.

Would political parties reach a consensus on the reform package being pushed by Professor Ali Riaz, that was the question prevailing in early October. Soon this changed to how the reform package, consensus or otherwise, be implemented. 

Would there be a referendum, before or after the election, and would the result of the referendum be binding on the parliament? These questions dominated airwaves in November.

Then Mrs Khaleda Zia went into terminal coma, and the country was abuzz with speculations about his son’s return from exile. 

Osman Hadi was assassinated in mid-December, followed by orchestrated and premeditated arsons against media and cultural institutions.

The last quarter of 2025 was a very bad time for the economy. The latest national accounts estimates by the Bangladesh Bureau of Statistics confirms this. According to the BBS, the economy grew by 3 percent in the year to December quarter 2025.

More ominously, political uncertainty of 2025 could well cast a far longer shadow, lasting into the next decade. The IMF published two detailed reports on the Bangladesh economy, in June 2025 and January 2026. A comparison of their forecasts for real GDP growth in these two reports underscores the impact of political uncertainty on the economy.  

Source: IMF Staff Report for Bangladesh, June 2025 and Jan 2026. Years are fiscal year.

Chart 1 shows this in growth rates. In the June report, a robust recovery was expected to begin from 2026 fiscal year (that is, the one ending in a few months), reaching 8 percent growth by 2028-29. In contrast, the recovery is expected to be tepid in the January report, never reaching 6 percent in this decade.

Chart 2 presents the same information, but in terms of the size of the GDP in US dollars. The January report forecasts the economy to reach 674 billion US dollars by 2030 fiscal year. It was forecasting 720 billion dollars by that time in the earlier report.

To put the 46 billion dollar GDP forecast downgrade into context ­­­­-- our annual exports earnings are currently around 40-45 billion dollars, and remittances around 30-35 billion dollars. 

That is, by delaying the election, the interim government may well have caused the economy lost income and production that matches our export earnings and dwarves what our expatriates remit.

To the extent that the BNP has been consistent in its position that the elected parliament, and not a self-appointed body of civil society individuals, should ultimately determine political, constitutional, and institutional reforms, it is difficult to see exactly what has been achieved by the Consensus Commission process of 2025.

There was a paradox at the heart of Professor Yunus’s assumption of office in August 2024 ­­­­­­­­-- that he was the only individual who could project national unity before the world in those turbulent months when the country’s existence was at stake, but he was also singularly unsuited for leading the nation out of the wreck the fallen regime had left behind.

The professor had no particular vision of his own, beyond motherhood statements and a gift for optics and story-telling. He had allowed political actors of all sorts ­­-- overt and covert, democratic and otherwise -- to jockey, manoeuvre, influence and exercise power in the vacuum that was post-July Bangladesh.

History will judge that he kept his word, held an election on time, and departed honourably -- something rare (though not unprecedented) in our history. And undoubtedly debates will rage on about the fate of the July Charter. 

Meanwhile, the elected government inherited a downgraded economy, before the war engulfed the Middle East. Perhaps it can politically pass the blame to its predecessors and external factors, but that won’t solve the economic problems.

Leaving partisan political rhetorics aside, what should we expect from the government given its election commitments and what sound economic and public policy principles suggest?

It turns out, history offers us a parallel. As is well known, the 1991 caretaker government delivered a prompt election. It is not often appreciated that the fallen Ershad regime, like the fallen Hasina regime, was also reeling from an economic shock and was under an IMF program. A lot of technical work in areas such as revenue mobilization, corporate law reform, customs and so on were already under way towards the end of the Ershad regime. These were continued by the caretakers.

The elected government promptly negotiated a new program and implemented the necessary reforms. The Value Added Tax in 1991 budget is well known, but some credit for that work should indeed go to the Ershad regime. Meanwhile, Saifur Rahman’s role in ensuring that the elected government adhere to orthodox macroeconomic policies deserves better appreciation.

Prudent fiscal, monetary and exchange rate policies saw inflation decline from 9.3 percent in 1991 to 5.9 percent the following year, while the current account deficit narrowed, economic growth rebounded, and the taka depreciated only modestly. 

The lesson is clear. When it comes to the macroeconomy, avoid heterodox, so-called innovative solutions, and stick to the textbook orthodoxy. Whatever political decisions led to the appointment of the central bank governor, perhaps a robust Monetary Policy Committee mechanism could help assuage at least some of the credibility gaps thus created. 

However, moving beyond the macroeconomic policy, a very different paradigm must hold. Much of economic policy is fundamentally distributional in nature -- they create winners and losers, absolutely and relatively.

That’s why politics cannot be divorced from economic policymaking, and ultimately elected politicians are better placed to drive economic reforms. And nowhere is this truer than in the space of domestic revenue mobilisation. 

No country can aspire to have a decent society with the underfunded and incapable state such as the one we have. Our elites don’t rely on this state, and therefore have no stake in paying for anything other than the security apparatus.

Meanwhile, a harsh tax burden is carried by the non-elite who work in the formal economy -- the so-called middle class. This is a combustible political equilibrium that must change.

And political leadership is expected from the government in this regard, not just technical fixes that one can find in IMF or World Bank reports.

One might write a para or two about banking or energy sector in the same way. Or our state owned enterprises -- why should they not be privatized? Or whether we should continue with remittance driven growth, noting that in other countries, this have had a deleterious effect on manufacturing growth? 

Indeed, it is striking that nearly two years after a youth led uprising that was triggered by protests about jobs in an economic climate of high prices, the economy is largely absent from public discourse. 

Wasting the country’s demographic dividend and economic potential will probably be the ultimate July betrayal of them all. 

Jyoti Rahman is the Executive Editor of the weekly Counterpoint.