Now is the time to go for reforms in Bangladesh
With IMF warnings on energy vulnerability and weak revenues, taking bold fiscal and financial action has become urgent for Bangladesh
For a new government elected with an overwhelming majority, this is the right moment to embark on ambitious reforms. Bangladesh still has significant work to do in revenue and financial sector reforms, as well as in restructuring the financial system and reforming the exchange rate regime.
Bangladesh's economy today stands at a crossroads. On one hand, there are the achievements of the past four decades—export growth, poverty reduction, and progress in social indicators. On the other, structural weaknesses, a fragile revenue base, inefficiencies in the financial sector, and mounting global uncertainties are becoming increasingly visible.
In this context, the recent observations of the International Monetary Fund (IMF) should not be dismissed as routine institutional commentary; rather, they should be treated as an important signal for policymakers.
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According to the IMF's recent assessment, volatility in global energy markets and dependence on conflict-prone regions pose significant risks to economies across Asia. In particular, the region's heavy reliance on fossil fuels amplifies the negative impact of future energy shocks.
Both Bangladesh and Sri Lanka are currently under IMF-supported programs. In Sri Lanka's case, there has been notable progress over the past three years in increasing tax revenue as a share of GDP. The country has gradually built fiscal buffers, placing it in a better position to support those affected by the energy crisis. A key policy principle for Sri Lanka has been to ensure that such support is well-targeted and temporary, allowing for efficient use of limited resources.
In contrast, Bangladesh continues to struggle with a narrow revenue base and low tax collection. This has made it increasingly difficult to provide adequate support to those affected by economic hardship. Given the pressures faced by the population, it is essential that whatever resources are available are used as precisely and efficiently as possible.
At the same time, urgent attention must be given to increasing revenue mobilisation, which remains among the lowest in the world. Bangladesh has underperformed in revenue collection, and the ratio of revenue to GDP has declined further over the past three years. Additionally, broader constraints within the financial sector must be addressed to sustain growth in both the short and long term.
Like many countries in Asia, Bangladesh has been significantly affected by the energy crisis, largely due to its heavy reliance on energy imports. Discussions between the government and the IMF on policy support and reform programs are ongoing, and outcomes remain to be seen.
The IMF report also highlights that economies across Asia are highly energy-dependent. Oil and gas consumption accounts for around 4% of GDP in the region—almost double that of Europe. In some countries, such as Malaysia and Thailand, this figure exceeds 10%. As a result, even small fluctuations in energy prices can have large economic consequences. Due to limited domestic production, countries in the region must rely heavily on energy imports, which account for roughly 2.5% of GDP.
The IMF warns that under such conditions, future economic risks are largely tilted to the downside. If energy prices rise further and remain elevated, Asia-Pacific economies will be unevenly affected, with those heavily dependent on imported energy facing the greatest risks. Countries with limited energy reserves, weak fiscal capacity, or high dependence on remittances, tourism, or fertilizer imports will be particularly vulnerable.
Scenario analyses suggest that a significant rise in energy prices could reduce output in major Asian economies by about 0.8% by 2027. In more severe cases, the loss could reach as high as 2%, with lasting negative effects on economic performance. Therefore, in the short term, policymakers must focus on managing the energy shock, while maintaining macroeconomic stability and ensuring accurate market price signals.
Despite these challenges, earlier positive economic trends have provided a strong foundation for Asia's economies. As a result, growth forecasts for the region remain broadly unchanged from earlier projections. Asia continues to be a key driver of global economic growth. However, a gradual slowdown is expected, with growth projected to decline from 5% in 2025 to 4.4% in 2026 and further to 4.2% in 2027.
In this context, two priorities stand out for policymakers. First, managing the immediate impact of the energy shock to prevent major disruptions to production and livelihoods. Second, pursuing long-term strategies to diversify energy sources and improve efficiency. Investment in renewable energy, adoption of energy-efficient technologies, and aligning price signals with market realities are no longer optional—they are essential.
Finally, a fundamental question remains: are such reforms politically feasible? The answer is not straightforward. Reforms inevitably face resistance from vested interests. However, leadership plays a critical role here. With a clear roadmap, transparent communication, and public trust, even difficult reforms can be implemented.
Bangladesh's economy still holds considerable promise. Like the broader Asian region, it has the potential to remain a significant contributor to global growth. But realising that potential requires decisive action—now. The window of opportunity will not remain open indefinitely. Reforms are always difficult, but delay makes them even more so.
Mamun Rashid is an economic analyst and Chairman at Financial Excellence Limited.
Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the opinions and views of The Business Standard.
