'Good economics is good politics': CPD fellow calls for macroeconomic reforms to restore banking sector confidence

Politicians must understand that good economics is good politics, said Centre for Policy Dialogue (CPD) distinguished fellow Mustafizur Rahman, stressing that governance reforms and stronger macroeconomic management are essential to restoring confidence in Bangladesh's banking sector ahead of the FY2026-27 budget.

Speaking at a pre-budget seminar titled "Budget 2026-27 and the Banking Sector: Expectations from the New Government" in Dhaka today (9 June), he said Bangladesh's banking challenges cannot be addressed through banking-sector measures alone.

"Our first priority must be to achieve stability before we focus on growth," he said, pointing to sluggish private-sector credit growth, declining business confidence, rising non-performing loans (NPLs), and broader macroeconomic vulnerabilities.

He noted that private-sector credit expansion remains well below Bangladesh Bank's targets, while sluggish export growth and lower imports of capital machinery indicate a slowdown in investment activity.

The economist underscored the importance of governance reforms and central bank independence, arguing that inflation acts as an additional burden on ordinary citizens and widens economic inequality.

He also warned about the increasing fiscal pressure created by government debt servicing obligations.

To ease pressure on the banking system, he recommended revitalising the capital market, introducing alternative financing instruments such as municipal bonds, expanding student loan programmes, and taking stronger action against wilful loan defaulters.

Also speaking at the seminar, Sohail R K Hussain, managing director of Bank Asia PLC, said governance failures remain at the core of the banking sector's problems.

"Nearly 85% of non-performing loans are concentrated in just 10 to 12 banks, most of which are state-owned," he said, adding that depositors deserve transparency regarding measures being taken by the government and Bangladesh Bank to address the crisis.

While acknowledging recent initiatives aimed at strengthening Bangladesh Bank's autonomy, Hussain said their implementation remains incomplete. He called for a more robust system of checks and balances involving bank boards, management, auditors and rating agencies under effective central bank oversight.

"When non-performing loans reach Tk6,00,000 crore, it signals deep structural weaknesses within the system," he said, urging comprehensive reforms to restore governance standards and public trust.

Professor Dr Rummana Huque of the University of Dhaka highlighted the impact of inflation, unemployment and poverty on households, urging the government to safeguard spending on health, education and social protection in the upcoming budget.

She also called for improved access to finance for women entrepreneurs and stronger governance across the banking sector.

Participants at the seminar emphasised that controlling inflation, mobilising revenue, reforming the banking sector and encouraging productive private-sector investment should be key priorities in the FY2026-27 budget, arguing that sustainable economic growth will depend on restoring confidence and strengthening governance.