Bangladesh must boost revenue, improve governance to avert debt trap: CPD's Mustafizur

Distinguished Fellow of the Centre for Policy Dialogue (CPD) Professor Mustafizur Rahman today (8 December) said Bangladesh must urgently strengthen revenue mobilisation, improve governance, and tackle deep-rooted structural challenges to ensure inclusive growth and avoid the risk of falling into a debt trap.

He warned that the country is gradually moving towards "a dangerous and obligatory dependency," largely due to its persistently low revenue-to-GDP ratio.

He made the remarks while speaking at a seminar on the publications "Bangladesh State of the Economy 2025" and "Sustainable Development Goals: Bangladesh Progress Report 2025" at the NEC Conference Room of the Bangladesh Planning Commission in Sher-e-Bangla Nagar, Dhaka.

Mustafizur noted that Bangladesh's revenue-GDP ratio has fallen to 7.7% this year, down from around 8% last year and significantly lower than 10.9% in 2015.

"The NBR's 10-year plan aims to raise this ratio to only 10.5% by 2035. If it was 10.9% in 2015, could we not have been more ambitious after ten more years?" he asked.

Citing former finance minister AMA Muhith's 2016 budget speech, he said the government pays VAT at four lakh points, but receives VAT from only 24,000 points.

"This means the gap between what people pay and what the government collects is huge. This is not just a 7.7% issue — it points directly to corruption. How are we addressing it?" he asked.

He said digitisation and technology-based reforms could close many loopholes, but stronger integration between income and expenditure data is essential.

"Unless we tag income with expenditure, we cannot shut these leakages. Our NID system is strong. If expenditure is linked to NID, we would immediately know whether someone declaring an income of Tk10 lakh is buying a Mercedes-Benz worth Tk10 crore."

Mustafizur cautioned that without decisive action, Bangladesh could face a serious debt-servicing burden.

"We may enter a debt trap, which will not be good for the country. Already, in the revenue budget, after salaries and pensions, the second-largest expenditure used to be agriculture and education. Now it is an interest payment," he said.

Linking the SDG pledge of "leave no one behind" with the economic outlook, he said that while macroeconomic stability has begun to improve, many "subterranean challenges" remain.

"If we analyse the economy through two reference points — the state in which the interim government took responsibility in July–August, and the aspirations of the student-led movement — we see that stability has come, but at a cost. This is reflected in the banking sector as well," he added.

He said that although the Bangladesh Bank governor is undertaking reforms, high policy and interest rates have increased the cost of capital.

"High interest rates raise business costs, but logistics and other costs also amount to around 12% for entrepreneurs. Without addressing corruption and institutional weaknesses, the cost of doing business will remain high."

Mustafizur said income inequality continues to deepen, with the bottom 40% holding 12% of income and the top 10% holding 41%. If the Gini coefficient were updated, it would likely reflect further deterioration, he added.

Though inflation has eased to 8.2%, he said, workers whose wages rise by only about 5% annually continue to experience erosion in purchasing power. The wage share in GDP is also declining, worsening distributional inequality.

He stressed that ahead of LDC graduation, Bangladesh must urgently improve governance and competitiveness to offset the loss of preferential market access, including the 12% GSP benefit in the EU.

Export growth has slowed to 2.2% between July and October, compared with strong growth last year.

One positive sign, he noted, was a sharp rise in LC openings for capital machinery — over 25% in the first three months of the fiscal year — indicating early optimism among entrepreneurs about political stability and a new government.

However, Bangladesh remains far behind on SDG targets related to education and skills. Mathematics and Bangla performance indicators show a "worrying situation," while no significant progress has been made in technical and vocational training, he said.

He also highlighted serious weaknesses in the health sector, where allocation remains below 1% of GDP and utilisation is the lowest among major sectors.

"Allocative priorities, utilisation and efficiency — in all three areas, there are embedded problems," he said.

Mustafizur concluded that the success of ongoing reforms will depend largely on the commitment and capacity of the incoming government, as well as on whether governance challenges are addressed decisively.