CPD sees more red flags than green shoots since elections

Six months into its tenure, Bangladesh’s new government has managed to tame inflation, revive export growth and shore up foreign exchange reserves – but these gains have been overshadowed by a widening trade deficit, a deepening revenue crisis and slowing GDP growth, according to a scorecard-based assessment by the Centre for Policy Dialogue (CPD).

Of 31 key economic indicators tracked by the think tank, 12 improved while 19 deteriorated, CPD Distinguished Fellow Dr Debapriya Bhattacharya said while presenting the report, titled “Six Months of the Government: A Commentary on its Performance,” at a media dialogue in Dhaka on Monday.

The government had inherited a fragile economy marked by weak banks, poor revenue mobilisation, fiscal constraints and subdued investment, he said, adding that a global slowdown and the fallout from the Middle East conflict on energy prices had further complicated matters.

Where the government has gained ground

CPD compared conditions before the government took office in late February with performance since, and found the clearest improvements in monetary indicators.

Headline inflation eased from 9.1% in February to 8.3% in July, while food inflation dropped from 9.3% to 7.2%.

Export growth turned positive too, rising from a contraction of 3.2% to growth of 3.5%, while gross foreign exchange reserves climbed from $30.1 billion in February to $32.3 billion by 12 August, on a BPM6 basis.

Even so, Debapriya cautioned that falling inflation had not necessarily eased pressure on households, as prices of essential commodities remained elevated and real wage growth stayed negative.

External sector and revenue under strain

The external sector suffered the sharpest setbacks, with six of its ten indicators worsening. Remittance growth slowed markedly, from 21.4% to 11.8%, while average monthly overseas employment fell from 95,521 to 51,235 workers, partly due to disruptions in Middle Eastern labour markets.

The trade deficit widened from $6.7 billion to $10.4 billion, and the current account swung from a $1.3 billion surplus into a $0.6 billion deficit. The overall balance-of-payments surplus also narrowed, from $4.6 billion to $3.2 billion.

Public finances presented an equally troubling picture. Total tax revenue growth collapsed from 12.3% to 4.9%, while NBR revenue growth slipped from 12.4% to 11.1%, leaving a substantial shortfall. Government borrowing from banks rose to 53.8% of the annual target, up from 48% a year earlier, while net foreign aid inflow fell from $771.4 million to $734.3 million.

CPD estimates the FY26 revenue shortfall could approach Tk1 lakh crore – roughly 17% of the annual target. With the government having set a steep FY27 revenue target of Tk6.95 lakh crore, requiring around 42% growth, Debapriya warned the shortfall could widen to Tk1.30-1.40 lakh crore, or nearly 20% of the target, even under optimistic assumptions.

Since breaching the 3.6% budget deficit ceiling appears unlikely and scope to cut non-ADP spending is limited, he said the Annual Development Programme could again absorb the brunt of fiscal adjustment – and urged the government to protect ADP allocations for education, health and social protection.

Growth slows, factories shut

GDP growth declined for three consecutive quarters, from 4.96% in Q1 FY26 to 3.03% in Q2 and just 2.22% in Q3, with industry slipping into negative territory.

“The fourth quarter is the first full quarter under this government – and its real testing time,” Debapriya said, warning that the successive declines had already “set a pattern.”

Industrial output stagnated, with growth in the general index of industrial production falling from 3.4% to zero and manufacturing growth dropping from 3.5% to zero.

CPD noted that 95 factories in Gazipur, Savar-Ashulia and Narayanganj-Narsingdi shut down permanently between January and August, costing 61,881 jobs.

Net FDI inflow fell from $662 million to $594 million, private-sector credit growth slowed from 6% to 4.5%, and persistent gas shortages left only one of the country’s five urea fertiliser plants operational.

Six reasons, and a way forward

CPD attributed the faltering recovery to the absence of a coordinated reform package, a weakened fiscal framework, external shocks, resistance from vested interests, persistent extortion and violence, and inadequate institutional capacity.

Debapriya noted that no formal baseline assessment of the inherited economy had ever been documented, as the promised second White Paper never materialised.

The think tank called for a “core budget” for October 2026-June 2027, an integrated reform package spanning energy, banking and revenue administration, and accelerated efforts on the stalled 150-well gas exploration programme.

On the long-pending pay scale, Debapriya said the government should not leave it hanging.

A phased approach, with an immediate 20%-25% dearness allowance, could have offered relief while a fuller structure was worked out, he said.

“Leaving the issue hanging will not reduce the problem. The longer it is delayed, the more complicated the situation will become.”

The assessment was prepared by a CPD research team including Distinguished Fellow Prof Mustafizur Rahman and Additional Research Director Towfiqul Islam Khan, among others.