CPD sees inflation tamed, exports improving but deeper fiscal strains undercut govt in first 6 months

The government has managed to tame inflation and post a turnaround in exports over its first six months in office, but these gains have been outweighed by a deepening fiscal squeeze, a weakening external account and a stalling industrial base, leading think tank Centre for Policy Dialogue (CPD) said today (24 August).

Presenting a scorecard-based assessment styled "Six Months of the Government: A Commentary on its Performance" at a media dialogue, CPD Distinguished Fellow Debapriya Bhattacharya said the government inherited "fragile banks, weak revenue mobilisation, fiscal constraints and subdued investment," a situation made worse by a global slowdown and the fallout of the US-Iran conflict on energy prices.

He noted that no formal baseline of the inherited economy was ever documented, as a promised second White Paper never materialised, leaving the state of the economy addressed only "perfunctorily" in the finance minister's April parliamentary statement.

CPD's research team tracked 31 key economic indicators across six areas by comparing performance before and after the government took office in late February. Of these, 12 improved while 19 deteriorated.

Monetary indicators showed the clearest gains, with headline inflation easing from 9.1% to 8.3% and food inflation falling from 9.3% to 7.2% between February and July. Export growth turned positive, rising from a negative 3.2% to 3.5%, and gross forex reserves climbed from $30.1 billion to $32.3 billion.

However, the external sector recorded the sharpest deterioration, with six of its 10 indicators worsening. Remittance growth nearly halved, from 21.4% to 11.8%, while average monthly overseas employment collapsed from 95,521 to 51,235 as the Middle East job market was hit by war.

The trade deficit widened from $6.7 billion to $10.4 billion, and the current account balance swung from a $1.3 billion surplus to a $0.6 billion deficit.

Public finance management also weakened, with total tax growth falling sharply from 12.3% to 4.9% and NBR revenue growth slipping from 12.4% to 11.1%, resulting in what CPD called a "large shortfall."

Bank borrowing rose to 53.8% of the annual target from 48%, while net foreign aid inflow declined.

Industrial output showed no improvement at all, with both general and manufacturing production indices falling to near-zero growth, while investment indicators were dominated by deterioration, including a drop in FDI net inflow from $662 million to $594 million and private-sector credit growth slowing from 6% to 4.5%.

Debapriya pointed to Bangladesh Bureau of Statistics data showing GDP growth fell for three consecutive quarters, from 4.96% in Q1 FY26 to 3.03% in Q2 and 2.22% in Q3 - the latter being the government's first quarter in office and FY26's weakest, with all major sectors slowing and industry slipping into negative territory.

"Q4 is the first full quarter under this government - and its real testing time," he said, cautioning that three consecutive quarterly declines had "set a pattern."

Reviewing 362 policy actions across nine governance areas, CPD flagged both positive and troubling trends. On the positive side, it cited the withdrawal of MPs' duty-free vehicle entitlement, austerity measures including capped PMO meal costs and suspended vehicle purchases, record-fast disposal of violence-against-women cases, and reforms at the Bangladesh Public Service Commission to strengthen merit-based recruitment.

On the concerning side, CPD pointed to the appointment of politically affiliated individuals to senior public posts, continued mob killings and violence against women, children and religious minorities despite government assurances, arrests of journalists following critical reporting, and disciplinary action against teachers over social media posts.

In the banking sector, the abrupt removal of the former Bangladesh Bank governor and the crisis at Islami Bank Bangladesh PLC, which saw major deposit withdrawals before the central bank dissolved its board - were cited as serious concerns, even as the government moved to consolidate five troubled Islamic banks and place ailing NBFIs under resolution.

CPD projected that the total revenue shortfall for FY2026 could approach Tk1 lakh crore, or about 17% of the annual target.

Against an FY2027 revenue target of Tk6.95 lakh crore, which implies roughly 42% growth, CPD said even the most optimistic historical growth trends point to a shortfall of Tk1.30-1.40 lakh crore, or almost 20% of the target.

With the government unlikely to breach the budget deficit limit of 3.6% of GDP, and only around Tk40,000 crore typically available for cuts from non-ADP spending, Debapriya said the Annual Development Programme would again have to absorb the bulk of the adjustment. 

He urged the government to ringfence ADP allocations for education, health and social protection.

The CPD assessment attributed the slow recovery to the absence of a coordinated and integrated reform package, a fiscal framework that was "never reset" for recovery, the external shock from the Middle East war, political economy pressures from vested groups, persistent law and order issues such as extortion and intimidation, and a lack of step-change in institutional capacity.

CPD called on the government to prepare a "core budget" for October 2026-June 2027 built on real-time data, aligned with its own Fiscal Strategic Framework Plan 2026, alongside a credible, time-bound energy-security package covering domestic exploration, fuel stockpiling and diversified sourcing.

It also urged the finance minister to use his September parliamentary statement, mandated under a 1991 Act, to place reform plans on pay scale, banking and power-sector restructuring before lawmakers.

"The change required is structural, not about people only," Debapriya said, adding that the government's cabinet architecture, appointment practices and coordination machinery needed to be assessed going forward, alongside its "freedom from capture" by inherited vested interests in banking, energy contracting and appointments.

The CPD research team included Distinguished Fellow Prof Mustafizur Rahman, Additional Research Director Towfiqul Islam Khan, and other researchers of the organisation.