Loan defaulters now part of political system, blocking reforms: Rehman Sobhan

Economist Rehman Sobhan today (19 April) said Bangladesh's loan defaulters have become embedded in the political system and are now creating barriers to financial and institutional reforms.

"Loan defaulters have become part of the political structure. They themselves are obstructing reforms. So the problem is no longer person-specific, it is structural," he said on the final day of the three-day 9th South Asian Network on Economic Modeling (Sanem) Annual Economists' Conference in Dhaka. 

"Reform is not merely about passing laws, but a continuous process requiring implementation, enforcement and measurable outcomes," he added at the session titled "Romancing the Reform: The Bangladesh Story", held in Dhaka today. 

Sobhan said many reform efforts fail because governments do not follow through after legislation. "The first step of reform is enacting laws, followed by building the necessary administrative framework, ensuring proper enforcement and finally evaluating results."

The session was moderated by Sanem Executive Director Selim Raihan. The keynote paper was presented by CPD Distinguished Fellow Debapriya Bhattacharya, while former Finance Secretary and former Comptroller and Auditor General Mohammad Muslim Chowdhury served as designated discussant.

Debapriya Bhattacharya speaks during an event on 19 April 2026. Photo: TBS

Debapriya said Bangladesh has pursued multiple reforms since independence but progress has been slowed by what he termed a "kleptocratic legacy" of corruption, misuse of public resources, weakened institutions and collusion among political, bureaucratic and business elites.

He said reforms often fail due to weak political ownership, poor implementation capacity, vested interests, lack of consultation, corruption, financing constraints and weak accountability.

Referring to the interim government, he said despite strong rhetoric, it failed to establish a coherent reform framework, lacked an integrated economic vision and did not create a real-time system for citizens to monitor progress.

Banking sector at center of crisis

Debapriya said the banking sector has become one of the clearest examples of how reform plans are derailed during implementation. He said rising non-performing loans (NPLs) are weighing heavily on the economy, while repeated attempts to restructure weak banks have been blocked by political resistance.

"The government has finally disclosed the names of major defaulters. But the real question is what to do with banks that have effectively collapsed," he said.

He also criticised amendments to the Bank Resolution Act, saying the changes created an opportunity for former owners of failed banks to regain influence by injecting a relatively small amount of money.

"This is seen as the comeback of oligarchs in a new form, with political patronage," he said, warning that such policy reversals send the wrong signal when depositors and investors need confidence.

He also criticised overlapping administrative control in the sector, saying governance reforms have been delayed for too long. "Good intentions are not enough. If banking reforms are delayed again, the cost to the economy will be much higher," he warned.

However, he welcomed promises of greater central bank autonomy, stronger supervision, action against defaulters and depositor protection, but questioned whether those commitments would be implemented.

Reform needs political commitment

Rehman Sobhan said political parties make major reform promises during elections, but it remains unclear whether they have the leadership or commitment to deliver them.

He said past reforms succeeded only when they had strong public support, citing the Six-Point Movement as an example of a widely backed reform agenda.

He added that such mobilisation is now weak, with parties failing to effectively communicate manifestos to voters. "In many cases, even party members do not properly know their own manifesto," he said.

Questioning the policy debate culture, Sobhan asked how many commentators have direct government experience, arguing that reform cannot be fully understood without working inside the state. "Without that experience, it is hard to know who supports reform, who resists it, and why it fails," he said.

Recalling his time at the Planning Commission, he said passing reform laws was not the main challenge.

Using police reform as an example, he said success should be measured by outcomes in practice. If accountability mechanisms are introduced, their effectiveness must be tested over time by citizens and journalists, he said. "That would be the real test of reform," he added.

Sobhan said many reform proposals promoted by the World Bank and the International Monetary Fund (IMF) are not new, but have been discussed for decades under successive governments.

According to him, governments often show limited progress to unlock loan disbursements, while development partners also have an interest in showing money has been spent.

"What actually happens in the long run is rarely examined," he said.

Need for performance budgeting

Sobhan said he has repeatedly proposed performance-based budgeting to show citizens what outcomes are achieved through public spending. "At present, we only see expenditure figures, with little analysis of results," he said.

Referring to health and education, he said allocations are often underutilised even as complaints persist over inadequate budgets. "If allocated money is not spent properly, where is the real problem?" he asked.

Citing India, Sobhan said major reforms such as the right to food, education and work were driven by strong citizen movements. In Bangladesh, he said civil society remains fragmented and unable to build unified pressure for large-scale reform.

He described the democratic process as the ultimate test of reform, calling for free, fair and inclusive elections. "A government becomes truly accountable when it accepts the people's verdict."