CPD flags widening economic vulnerabilities, calls for review of US tariff deal

Bangladesh's economy is facing mounting pressure from persistent inflation, weak revenue mobilisation, growing banking sector vulnerabilities, and rising energy costs, the Centre for Policy Dialogue (CPD) has warned.

Macroeconomic stability alone will not be enough without institutional reforms and stronger governance, the think tank said, presenting the third reading of its Independent Review of Bangladesh's Development FY2025-26 at its office in Dhaka today (4 June). 

The CPD also urged the government to reassess its recent tariff agreement with the US amid a new proposal by Washington to impose additional duties on imports from countries, including Bangladesh, accused of failing to address forced labour concerns.

Infographics: TBS

Structural weaknesses, and global economic shocks, continue to leave the economy vulnerable, said CPD Executive Director Fahmida Khatun, who presented the report, titled "State of the Bangladesh Economy in FY26: Multidimensional Challenges during the Transition Period".

The economist said Bangladesh's recovery requires credible governance reform beyond macroeconomic stabilisation. "Institutional strengthening, accountability and transparency are essential for building long-term resilience," she added.

Inflation eroding purchasing power

The CPD said inflation accelerated to 9.04% in April 2026 from 8.71% in March, driven largely by higher fuel, transport and service costs. Non-food inflation climbed to 9.57%.

Fahmida noted that wage growth has failed to keep pace with rising prices, significantly eroding the purchasing power of low- and fixed-income households.

"The increase in electricity and energy prices will place additional pressure on people's cost of living at a time when their purchasing power is already under strain," she said.

The think tank also highlighted significant price distortions in agricultural supply chains.

A CPD survey found that the dominance of intermediaries and urban wholesalers is inflating retail prices of essential commodities, with green chilli prices rising by as much as 116% and onion prices by 87% between farm and retail levels.

According to the report, urban wholesalers continue to wield substantial control over commodity markets, limiting competition and contributing to excessive mark-ups.

Revenue targets 'operationally unrealistic'

The CPD expressed concern over weak revenue collection, saying overall revenue mobilisation grew by only 6.9% during July-March of FY26 against a target growth of 29.3%.

NBR's revenue collections fell short of target by Tk104,533 crore during July-April, while achieving the annual goal would require 128.6% growth during May-June.

The think tank described such targets as "operationally unrealistic".

At the same time, implementation of the Annual Development Programme (ADP) remained sluggish at 35.4% during July-April, well below the historical average.

Banking sector remains fragile

The CPD also painted a troubling picture of the banking sector. The overall capital adequacy ratio fell to a historic low of negative 2.93%, while specialised banks recorded a negative 87.9% ratio in September 2025.

Private sector credit growth slowed to a record low of 4.72% in March 2026, reflecting weak investment demand and cautious lending by banks.

Although the gross non-performing loan ratio declined from 35.73% to 32.26% between September 2025 and March 2026, the CPD said the improvement stemmed mainly from loan rescheduling and restructuring rather than genuine recovery in asset quality.

The think tank also raised concerns over proposed regulatory changes that could allow former owners of troubled banks to regain control, warning that such measures could undermine accountability and weaken confidence in the banking resolution process.

External sector resilient but risks persist

The report showed some improvement in external sector indicators. The balance of payments registered a surplus of $3.6 billion during July-March FY26, compared with a deficit of $1.1 billion a year earlier, while remittance inflows rose 19.8%.

However, the CPD cautioned that the improvement was largely driven by debt-creating financial inflows rather than a fundamental strengthening of the current account.

Exports fell 2.02% during July-April, far below the government's target, while Bangladesh continued to lose market share in key destinations such as the US and the European Union.

Reform and governance key to recovery

The CPD recommended broad structural reforms, including expansion of the tax base, stronger action against illicit financial flows, stricter loan classification standards, improved transparency in rescheduled loans and reduced political influence in the banking sector.

The think tank also called for accelerated gas exploration, greater investment in rooftop solar, improved agricultural loss assessments and enhanced compensation packages for farmers affected by recent haor floods.

"Policy support without accountability can only postpone solutions," Fahmida said. "Economic stabilisation is important, but institutional reform is equally essential if Bangladesh is to achieve sustainable and inclusive growth."

'Review US tariff agreement'

Responding to questions on the US Trade Representative's (USTR) recent proposal to impose an additional 10-12.5% tariff on imports from around 60 countries, including Bangladesh, over alleged failures to prevent forced labour, CPD Distinguished Fellow Mustafizur Rahman said Bangladesh should revisit its existing tariff agreement with Washington.

"This agreement now needs to be reviewed and discussed again," he said. "An additional 10% tariff will not solve the problem of forced labour. In fact, it may increase the prevalence of forced labour."

He argued that US policymakers often fail to fully appreciate Bangladesh's socio-economic realities. "Many children work because of family necessity. If support mechanisms to reduce child labour are not provided and additional tariffs are imposed instead, questions naturally arise about the effectiveness of such measures."

Mustafizur noted that Bangladesh already faces an average tariff of around 15% in the US market and had agreed to terms that would raise total duties to 34%.

"If another 10% is added, the total tariff burden would reach 44%. Meanwhile, countries that did not sign similar agreements would not face the additional 19% burden. We must carefully assess what that means for Bangladesh's competitiveness," he said.