Sustainable growth not possible without banking sector reforms: CPD

Executive Director of the Centre for Policy Dialogue (CPD) Dr. Fahmida Khatun on Saturday said that sustainable economic growth is not possible without reforming the country’s banking sector. She stressed that reducing the number of loan defaults requires curbing political influence, enforcing the Bank Resolution Act, amending the Bank Companies Act, and ensuring the independence of the central bank. Fahmida said investment and employments must be placed at the center of economic policy, while the tax and VAT systems should be simplified. “Greater emphasis should be given to renewable energy in the power and energy sector,” she said, reports BSS.

 Dr. Fahmida Khatun made these remarks while presenting the keynote paper at a CPD-organized event titled “Bangladesh Economy 2025–26: Multidimensional Risks at the Electoral Crossroads”, held on Saturday at Dhanmondi in the capital. CPD Distinguished Fellow Professor Dr Mustafizur Rahman and CPD Research Fellow Dr. Khondaker Golam Moazzem were present at the event. Dr. Fahmida Khatun said that without export diversification, development of skilled human resources, and strategies to sustain remittance inflows, it would not be possible to face future challenges. Bangladesh, she noted, has many opportunities as well as risks and is currently in a mixed situation. “If political commitment, institutional reforms, and policy decisions are implemented properly, Bangladesh will be able to regain macroeconomic momentum and restore public confidence,” she said. Suggesting the ensuing elected government to continue banking sector reforms, the CPD Executive Director said reform initiatives must not stall during the tenure of the new government. Reforms must continue, depositors’ confidence must be restored, and there must be clear political commitment regarding the banking sector, she added. Dr. Fahmida Khatun said overall inflation stood at 8.49 percent in December 2025. Although international food prices have declined, the benefits have not been reflected in the domestic market. She noted that hoarding, weaknesses in the supply chain, and lack of competition in the market have turned inflation into a structural problem. “Inflation can’t be controlled by raising interest rates alone; rather market supervision and supply systems must be improved,” she added. She noted that remittance inflows have increased and foreign exchange reserves remain stable. The CPD has also advised taking strategic preparations from now on to address the risk of losing duty-free market access following graduation from the LDC status. Dr. Fahmida Khatun said, “If political commitment and institutional reforms are implemented, Bangladesh’s economy will once again regain momentum.” She opined that Bangladesh’s greatest potential lies in its young and working-age population. “With proper skills development, use of technology, and creation of an investment-friendly environment, this human resource can give new impetus to the country’s economy.” 

One of the most striking shifts, CPD noted, is in budget priorities. Domestic and foreign debt servicing has now become the second-largest expenditure item in the national budget, overtaking education—long considered a core investment in long-term growth. 

“This is not just a fiscal adjustment; it reflects a change in national priorities driven by mounting debt obligations,” said CPD distinguished fellow Prof Mustafizur Rahman. He warned that many countries transitioning from low-income to lower-middle-income status stumble at this stage, as rising debt burdens crowd out growth-enhancing spending. “Bangladesh is not immune to that risk,” he said. Despite this shortfall, the government has set an even higher revised revenue target for the year, raising concerns about realism. “With elections ahead and economic activity slowing, the feasibility of achieving these targets is questionable,” said CPD executive director Dr. Fahmida Khatun. She warned that without structural reform in tax administration, higher targets may increase evasion rather than revenue.