Next govt must go for swift reforms to stabilise economy: CPD
It warns that delaying reforms on banks, inflation and public finance could sharply raise costs
The Centre for Policy Dialogue (CPD) has urged the next elected government to implement immediate and politically challenging reforms – particularly in banking, energy, revenue mobilisation and food supply – to stabilise the economy and restore confidence.
The think tank cautioned today (10 January) that delaying tough decisions early in the government's term could sharply increase both economic and political costs. With revenue targets under strain, banks posting historically low profitability and investor confidence already weakened, the CPD said reform momentum must be restored quickly to stabilise expectations among businesses, lenders and consumers.
In its latest Independent Review of Bangladesh's Development 2025-26, the CPD flags multidimensional risks across public finance, food security, banking, energy and trade. While export earnings and foreign exchange reserves have provided a degree of stability, the organisation warned that weak revenue mobilisation, entrenched inflation, deteriorating bank health and prolonged policy uncertainty could undermine growth and social stability without decisive action.
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The CPD stressed that rebuilding confidence will depend less on new policy announcements and more on credible execution through experienced leadership at key institutions, transparent communication with stakeholders and sustained implementation of reforms initiated under the interim administration.
CPD Executive Director Fahmida Khatun presented the findings of the state of the economy for the first half of the 2025-26 fiscal year at a press conference at the organisation's Dhaka office.
Banking sector remains most fragile area
The banking sector continues to be one of the most fragile segments of Bangladesh's economy, marked by weak capital adequacy, deteriorating asset quality and falling profitability, Fahmida said.
The CPD warned that persistent weaknesses in the banking system pose risks to overall economic stability and stressed the need for swift enactment and implementation of reform legislation.
It said restoring Bangladesh Bank's independence and authority, along with consistent application of the bank resolution framework, is essential to bring discipline back to the sector.
According to the CPD, most banks are struggling to maintain adequate risk-based capital, with capital positions continuing to weaken across the sector.
Asset quality has also deteriorated significantly, with defaulted loans now accounting for about 36% of total loans, amounting to Tk5,44,549 crore – nearly 12 times higher than the level recorded in 2015.
At the same time, the CPD noted that although liquidity is available in the banking system, demand for loans remains low due to prolonged stagnation in investment.
High interest rates and political uncertainty have discouraged private investment, leading to a decline in the loan-deposit ratio and leaving many banks with excess liquidity.
Import reliance and LNG spending threaten energy security
The CPD warned that import dependency in the power and energy sector is increasing.
It noted that the sector is facing multiple pressures, including an outstanding payment burden of Tk20,000 crore that must be repaid, stagnant production capacity, and a continued reliance on imported fuel.
It said Tk58,000 crore is expected to be spent on LNG imports alone, a situation the CPD described as a matter of grave concern for energy security.
The think tank pointed out that transmission lines have increased by 12.5% and distribution lines by 1.25%, with some growth in renewable-based generation.
Coal use has increased by 3% over the past one and a half years, which the CPD flagged as concerning at a time when the interim government has committed to a zero-carbon path.
It noted that 34 cancelled solar power projects have weakened investor confidence, and that implementation processes remain slow and complex, preventing expected benefits from materialising.
The CPD recommended reducing dependency on LNG imports, shutting down inefficient old power plants, and phasing out tax exemptions on fossil fuels.
It said such incentives should instead be directed towards renewable energy.
According to the organisation, these measures are achievable within the first 100 days of the new government after the election next month.
Revenue target challenging
The CPD said that although the country's revenue collection has grown by 16.7% in the first six months of the current fiscal year, achieving the annual target will be challenging.
On the public financial system, the organisation said both revenue mobilisation and expenditure management are critical areas that will need attention.
It also observed that the interim government initiated some reforms, but these will need to be completed by the incoming administration.
To reach the full-year goal, an additional 3% growth would be required, which the CPD noted as challenging given current trends.
Food supply shows no improvement despite easing inflation
The CPD said there has been no improvement in Bangladesh's food supply system in the first half of FY26, warning that structural weaknesses continue to keep prices elevated despite easing global trends.
The organisation said weaknesses in storage, distribution and market competition remain unresolved, contributing to persistently high food prices.
The CPD pointed out discrepancies in the domestic market, saying the country produces more rice than its estimated demand.
It pointed out that annual demand stands at 41 million tonnes while production is 44 million tonnes, highlighting weaknesses in supply management.
The organisation also noted a decline in agricultural labourers' wages, even as food prices continue to rise.
On policy recommendations, the CPD stressed that inflation cannot be reduced merely through higher market interest rates.
It said increasing supply, preventing hoarding and enhancing market competition are necessary to stabilise prices.
The organisation called for an integrated food policy framework to ensure effective imports, maintain adequate food stock, and streamline supply and transport systems.
Q&A session
In response to a question, Fahmida said, "We want the upcoming election to be fair, neutral, and participatory. The election candidates will use money according to the policy that the Election Commission (EC) has formulated regarding the use of funds. The EC will ensure that there is no excessive use of money. We wish for there to be no violence of any kind, and that the general public can cast their vote by going to the polling stations."
Addressing the risks of rising coal-based electricity use, CPD Distinguished Fellow Professor Mustafizur Rahman warned that Bangladesh's RMG sector relies on electricity generated from coal plants, which could trigger carbon-related penalties under export conditions.
He said higher coal use may create obstacles for Bangladeshi products entering international markets, beginning with the European Union and potentially extending to other destinations.
Responding to another question, Fahmida said that Bangladesh's biggest problem is that investment is declining, and for quite some time, there has been no significant jump in investment. "Employment will not be created unless the private sector develops."
Regarding Bangladesh's potential, she said that the country's potential lies in its energetic young population.
In response to another question, Prof Mustafizur said that over-valued mega projects have been implemented using foreign loans without properly considering the economic and financial returns. "Caution is necessary regarding this in the future."
He strongly advised placing the greatest emphasis on increasing revenue collection, particularly collecting revenue from direct income/taxes.
Regarding the issue of the debt trap, Fahmida said, "Transparency and accountability are necessary in the use of loan funds."
