From Depletion to Fortitude: What Bangladesh Can Learn from Sri Lanka and Pakistan

When the cities lie dreaming, economies often falter before leaders admit the storm, and inflation creeps through groceries, gas meters, and unpaid rent. Sri Lanka and Pakistan did not collapse in a fleeting breath but through smoldering debt troubles, fiscal dereliction, and the bitter dependence on IMF bailouts, where the premonitions of decline were sensed but brushed under the carpet, and reserves dried to dust. Though not hitherto engulfed in crisis, Bangladesh bears the faint echoes of emerging fissures that resonate with the errors seen in similar economies. The routes these nations embraced in restructuring hold up a mirror to Bangladesh, reflecting what must be shunned and what should be pursued before catastrophe forces our hand.   

Sri Lanka: Debt Trap and Drastic Restructuring
The ruinous cascade of drastic reduction in tax rates, the Easter bombings in 2019, and the disruption of the COVID-19 pandemic on tourism and remittances plunged Sri Lanka into economic collapse. The nation chased grandeur through borrowed funds, pouring resources into ambitious infrastructure schemes with questionable returns, including the Hambantota Port. These debt-fueled pursuits spelled the depletion of reserves from $7.6 billion in 2019 to almost nil in 2022, and inflation soared to 69.8%. Drained reserves pushed the Sri Lankan rupee adrift, plunging from around 200 to more than 360 per US dollar since 2021, a collapse that fanned the flames of inflation and made the cost of sustenance a burden on the mosaic of residences.

In April 2022, the island nation defaulted, and the streets swelled with long queues for fuel and protests demanding bread. The protests soon gathered enough might to overthrow the government, forcing the president to flee as the masses regained the corridors of power.

In 2023, the country turned to the IMF for a $2.9 billion bailout under the mantle of deep fiscal consolidation and economic recalibration. It then initiated a robust debt restructuring process, introducing governance- and macro-conditioned bonds that herald a new age of financial transparency. During mid-2024, Parliament passed three fundamental bills: the Economic Transformation Bill, the Public Debt Management Bill, and the Public Financial Management Bill, illuminating the path to fiscal discipline and prudent debt management.

The revenue administration reforms and gradual elimination of para-tariffs attempt to reignite economic momentum and restore investor confidence. The cabinet of ministers under President Ranil Wickremesinghe raised the VAT rate from 15% to 18% and leaned further on income revenues. In parallel, subsidies for fuel and electric power receded, replaced with formula-based pricing to ease fiscal pressures.

Enhanced social protection measures are becoming more efficient in supporting the less fortunate. The Aswesuma welfare benefits scheme matured under sharpened requirements, and a digital social ledger was launched to better discern households in need. Monetary resilience was pursued through the Central Bank of Sri Lanka Act, granting independence to the monetary institution and shattering the bonds of political dominance. Inflation has dropped to 0.5% during August 2024, with GDP reaching a hopeful 5% increase. Though delicate, the progress of Sri Lanka acts as a testament to proficient crisis management rooted in debt transparency and institutional strength.  

Pakistan: Chronic Deficits and Crisis Management
The economic troubles in Pakistan intensified post-pandemic. Heightened reliance on foreign loans, including from the IMF and China (in particular for the China-Pakistan Economic Corridor), pulled the country into a debt trap. Chronic fiscal deficits and a low tax-to-GDP ratio mired at 10.8% eroded resilience, while political uncertainties amplified economic tremors. In 2023, inflation ballooned to 30.8%, foreign reserves plummeted to $4.1 billion, and the nation faced a daunting $30.35 billion in annual foreign debt obligations. The Pakistani rupee surrendered ground, dropping from 172.11 to around 300 per US dollar from 2022 to mid-2023.

Confronting the abyss, Pakistan approached the IMF in 2023 and secured a $3 billion bailout package conditioned on significant fiscal restraint and tax augmentation. The government increased the tax base (Finance Act 2025) with a focus on under-taxed retail and real estate sectors and curbed non-essential imports to protect dwindling reserves. Subsidies were reduced as the prices for fuel and energy rose, and tariffs were modified to boost international trade and dismantle elite dominance. During mid-2024, these measures tempered inflation to 11.1%, shored up foreign reserves enough to fund imports worth three months, and initiated the genesis of an economic rebound. Despite these hard-fought conquests, the path to reform remains an uphill battle as Pakistan edges toward a more open, export-oriented future.

The crisis in Sri Lanka and Pakistan did not roar in a sudden storm but was rather the consequence of deferring needed action until the cost of rescue became too crushing to shoulder. Bangladesh rests in the rare glint of dawn before a crisis, holding a slender thread to act before the last grains in the hourglass drop.

The COVID-19 pandemic surfaced the unseen ruptures across developing economies through reducing remittances, disrupting trade, and pushing increased public spending without proportionate revenue. Though Bangladesh weathered the initial pandemic tremor better than its peers, the momentum has since ground to a halt. Reserves endured a sharp decline from more than $48.06 billion in 2021 to around $20.27 billion in mid-2025. This decline has ramped up the pressure due to the depreciating value of the national currency unit (BDT). The heartbeat of the Bangladesh economy pulses through the ready-made garment sector, which dominates almost 80% of total export earnings, binding the nation to the tempests of global trade. Lingering around 7.4% (as of December 2024), the persistently low tax-to-GDP ratio imposes a ceiling on the government’s fiscal space to invest in a more resilient and multifaceted future. The once-significant growth rate has decreased to 5.2% in FY2024, lagging behind the pre-pandemic pace of 6.6%.

Learning from the Neighbors

When the neighboring countries submit to harsh IMF-mandated reforms to mend structural instabilities, Bangladesh remains at a crossroads, clutching the rare chance to decide its fate before crisis captures the reins.

To begin with, echoing the post-crisis quest of Sri Lanka to end tax inertia, Bangladesh should cast a broader net on its tax base. The adoption of digital tax management, reducing evasion, and ensuring reasoned exemptions are no longer optional but indispensable. Barring an increase in domestic revenue, growth can crumble under its own burden and induce unsustainable fiscal deficits.

Proceeding further, it must build a multi-faceted export landscape. Sole dependence on textiles turned Pakistan into a monocular deer in global economic squalls, while concentrated reliance on garments hurls Bangladesh toward the same pulses of looming threat. Pharmaceuticals, IT, agro-processing, and light engineering need to enter the leading edge of trade, sculpting new sources of economic upsurge.

In continuation, prudent and transparent debt management must be non-negotiable. Though the foreign liabilities of Bangladesh drifted near 22.6% of GDP in 2024, the increasing debt incurred for mega infrastructure schemes requires diligent monitoring. Bangladesh should conduct rigorous assessments of foreign-funded ventures to steer clear of ‘white elephant’ investments.

Furthermore, recalibrating subsidies is a prerequisite to buttressing fiscal health. Blanket subsidies deplete finances and are inadequate in shielding the most destitute. Targeted and efficient social safety nets, modeled on successful regional reforms in neighboring countries, can guard fiscal space while cushioning the poor during economic disruption.

To conclude, monetary and fiscal discipline must be coordinated to manage inflation and uphold foreign reserves. The sobering tales of Sri Lanka and Pakistan underscore the damaging repercussions of turning a deaf ear to these core economic elements. 

Despite storm-lashed seas, foreign reserves in Bangladesh climbed to $30.51 billion in July 2025, lifted through record remittance flows and international financial support. This gentle surge ushers in an optimistic buffer amid the creeping shrouds of unrest. The economic turmoil in Sri Lanka and Pakistan should not be seen as distant catastrophes; rather, they double as urgent alarm bells and significant case studies for Bangladesh.

 
Sumaiya Azmi is an aspiring
researcher and analyst with
a background in Public
Administration, focusing on
governance and policy studies.