Without Central Bank Independence, No Other Reform Will Matter
An independent central bank could have prevented bank fraud and inflation. There is no alternative unless we want to return to the bad old days of high inflation and a plummeting Taka.
Banks are in bad shape.
In November 2025, newpapers reported that defaulted loans in the banking system had reached over 34% of disbursed loans or about Tk 6 trillion (Tk 6 lakh crore).
That is an almost unimaginable amount of money; enough to pay for 19 Padma Bridges.
Many banks will have to be bailed out with government money, otherwise they won’t be able to repay their depositors.
Cronies of the previous AL government borrowed massively. They used this money to pay for over-invoiced (over-valued) imports. Once large sums had been moved abroad, the borrowers defaulted on their loans.
It was as simple as it was contemptible.
And that led to the present banking crisis, and also caused the depreciation of the Taka between 2022 and 2024. Depreciation led to painful inflation.
How much will the bank bailout cost? This is not hard to estimate. Banks will probably have to be bailed out with about Tk 5 trillion of funds from the government, enough to allow them to at least return deposits to the public.
If this is not done, there might be a run on the banks, which would collapse the economy. If the government invests this money in the sick banks as equity, those banks will become state-owned banks.
How will the next government raise Tk 5 trillion to bail out banks?
Printing this amount of money would lead to further inflation and depreciation.
The government will probably have to raise this money by selling bonds. Healthy banks will buy these bonds, as government bonds are less risky than loans to businesses.
But when the government sells trillions of Taka worth of bonds, they will have less money left to lend to businesses.
This will probably lead to slow economic growth over the next few years.
The public would do well to remember that the previous AL government created this mess, but the next government will have to clean it up.
The fraudulent borrowers were allowed to borrow without offering banks sufficient security. If the banks had followed their own rules, they would not have made these large loans without sufficient security.
Bangladesh Bank is responsible for regulating banks. Bangladesh Bank needs to be made independent, so that it can stop cronies of future governments from looting the banks again.
An independent central bank can also prevent further inflation and depreciation of the Taka.
The previous AL government maintained a large fiscal deficit, while also forcing banks to lend at low interest rates.
Any economist would agree that the combination of large fiscal deficits and low interest rates was bound to cause inflation and currency depreciation.
In countries which have an independent central bank, the central bank can prevent inflation by raising interest rates to counter the inflationary pressure created by a large fiscal deficit.
Under the Interim Government, the central bank successfully stopped further depreciation (and inflation) by raising interest rates.
If this action had been taken by the central bank during the previous AL government, the painful inflation and depreciation of the last few years could have been prevented.
Kazi Zahin Hasan is a director of Kazi Farms Limited. He has a BA in economics from Oberlin College, and a master’s degree from Columbia University.
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