High inflation is cutting deep into consumer spending, leaving Bangladesh's service-sector businesses struggling with falling sales and rising costs, according to an economic index released by the Dhaka Chamber of Commerce and Industry (DCCI).

The country's inflation rose to 9.04% in April from 8.71% in March, according to the Bangladesh Bureau of Statistics (BBS).

The chamber's Economic Position Index (EPI) found that consumers have sharply reduced spending as the cost of living continues to rise, putting pressure on retailers, transport operators and other service providers.

Businesses surveyed for the report said weak demand has become one of their biggest concerns.

"Inflation has cornered consumers and weakened purchasing power," said AKM Asaduzzaman Patwary, acting secretary general of the DCCI, while presenting the report at a seminar organised by the chamber today.

According to the report, higher rents, utility bills and fuel prices are eating away at already thin profit margins.

Small and medium-sized enterprises are feeling the pressure most as they struggle to manage higher operating expenses without losing customers.

Businesses also cited difficulties in obtaining bank loans, while delays in licensing and other regulatory procedures are adding to costs.

The report identified a shortage of skilled workers, particularly in technical and customer service roles, as another challenge for the sector.

The DCCI introduced the quarterly index to track changes in business conditions more closely than traditional economic indicators.

Patwary said official data often fails to capture the real situation businesses face because it is published long after conditions have changed.

“There is no proper metric that can effectively reflect the periodic health of the private sector,” he said.

The country's premier bourse witnessed a fluctuating trading week, as the benchmark index managed to edge higher and snap a persistent losing streak, supported by mid-week bargain hunting.

Although the broad index posted marginal gains, the market remained defined by a tug-of-war between cautious investor sentiment and opportunistic buying.

The benchmark DSEX of the Dhaka Stock Exchange (DSE) rose by 11 points to settle at 5,245. However, the blue-chip DS30 index moved in the opposite direction, shedding 19 points to close the week at 1,981, reflecting continued pressure on large-cap stocks.

Market participation showed signs of resilience, with average daily turnover increasing 6% to Tk879 crore.

According to a weekly market review by EBL Securities, trading lacked a clear directional catalyst, leaving investors to navigate persistent uncertainty.

The week began on a weak note, extending the previous losing streak across the first two sessions amid broad-based selling pressure. Investors largely stayed on the sidelines, closely tracking domestic policy signals and geopolitical developments, including ceasefire negotiations in the Middle East.

Amid the cautious environment, trading activity was largely concentrated in small-cap and momentum-driven stocks. Mutual funds also saw notable interest following recent sector-specific regulatory directives, the report noted.

In contrast, blue-chip counters remained under pressure for most of the week as institutional selling continued. However, sentiment improved from the third session onward, as bargain hunters accumulated oversold large-cap stocks after five consecutive sessions of decline. The recovery was further supported by quarterly earnings disclosures and expectations of potential policy changes, EBL Securities added.

Sector-wise, general insurance dominated turnover, accounting for 13.7%, followed by engineering and textile sectors.

Weekly returns remained mixed. The jute sector led gainers with a 6% rise, followed by information technology (4.5%) and financial institutions (4%). On the other hand, services recorded the steepest decline at 2%, while cement and telecommunications also ended lower.

Among individual stocks, RD Food emerged as the week's top gainer, surging 35.6%. VFS Thread, Apex Tannery, and Meghna Pet also posted strong gains.

Conversely, non-bank financial institutions dominated the losers' list, with International Leasing, Peoples Leasing, and FAS Finance each falling 18.2%.

In terms of liquidity, Monno Ceramic, Dominage Steel, and NCC Bank were among the most actively traded stocks.

By week's end, market breadth remained positive, with 205 issues advancing against 145 declines, though analysts said overall sentiment remained cautiously positioned

Techno Drugs Limited has decided to issue a coupon-bearing bond worth Tk50 crore to restructure its high-cost bank loans, as the pharmaceutical company faces declining profits alongside a sharp rise in long-term debt.

The decision was approved at the company's board meeting held on Thursday.

According to a price-sensitive disclosure, the proposed five-year bond will be structured as 25% redeemable and 75% convertible. The initiative is subject to approval from shareholders at an extraordinary general meeting (EGM) scheduled for 24 June, as well as clearance from the Bangladesh Securities and Exchange Commission (BSEC). MTB Capital Limited has been appointed as issue manager and arranger.

Company Secretary SM Abu Talha Siddik told The Business Standard that the primary objective of the bond is to manage the company's high-cost bank liabilities more efficiently.

The move comes at a sensitive time for the drugmaker, as One Bank PLC has recently filed a case in the Money Loan Court against the company and its directors to recover defaulted loans worth around Tk150 crore. The court has already issued a public notice summoning the directors in connection with the case.

Responding to the legal dispute, Siddik said the company is in discussions with the bank and hopes for a swift resolution.

The latest financing plan comes even after Techno Drugs raised Tk100 crore through an initial public offering (IPO) under the book-building method in 2024.

Audit reports show that Tk31.47 crore from the IPO proceeds was spent on machinery acquisition and construction at its Narsingdi and Gazipur facilities, while Tk30 crore was used to partially repay bank loans, including Tk25 crore to One Bank and smaller amounts to LankaBangla Finance, Alliance Finance, and IDLC Finance.

However, the company's financial position has weakened further in FY26. For the July–March period, revenue declined 11% year-on-year to Tk232 crore, while net profit fell 16% to Tk15.54 crore.

Meanwhile, long-term loans surged to Tk239.56 crore by the end of March 2026, marking a 54% increase compared to the same period last year.

Oil prices gained ​more than 3 percent on Friday, after comments by US President Donald Trump and Iran's foreign minister further dented hopes of a ‌deal to end ship attacks and seizures around the Strait of Hormuz.

Brent crude futures settled at $109.26 a barrel, up $3.54, or 3.35 percent. US West Texas Intermediate futures finished at $105.42 a barrel, up $4.25, or 4.2 percent.

Over the week, Brent has climbed 7.84 percent and WTI 10.48 percent on uncertainty over the shaky ceasefire in the Iran war.

"The tone between the US and Iran has once ​again become significantly more confrontational. While the ceasefire holds, hopes for a swift reopening of the Strait of Hormuz have faded," Commerzbank ​analysts said.

Iran has "no trust" in the United States and is interested in negotiating only if Washington is serious, Foreign ⁠Minister Abbas Araqchi said on Friday, adding that Iran is prepared to go back to fighting but also prepared for diplomatic solutions.

Trump said he ​is running out of patience with Iran and that he has agreed with Chinese President Xi Jinping that Iran cannot be allowed to have ​a nuclear weapon and must reopen the strait. About a fifth of the world's oil and liquefied natural gas normally passes through the strait, which is the gateway to the Gulf and main export route for countries such as Saudi Arabia, Iraq and Qatar.

Xi did not comment on his discussions with Trump about Iran, though China's foreign ​ministry issued a statement.

"This conflict, which should never have happened, has no reason to continue," the ministry said.

Among deals the market was looking for from ​the US-China summit, Trump said China wants to buy oil from the United States. Trump also said he could lift sanctions on Chinese companies that buy Iranian oil.

"Market ‌focus is ⁠back on the deadlock and a blockaded Strait of Hormuz, with a tail risk of renewed military escalation," said Vandana Hari, founder of oil market analysis provider Vanda Insights.

Iran's Revolutionary Guards said that 30 vessels had crossed the strait between Wednesday evening and Thursday, still far short of the 140 a day that was typical before the war, but a substantial increase, if confirmed.

"An increasing number of vessels are filtering through the strait ... although currently ​this has a more tangible impact ​on sentiment than on the actual ⁠oil balance," PVM analyst Tamas Varga said.

The strait's closure comes at a time when reserves are running thin.

"The world has consumed its oil safety net at a historic rate," Phil Flynn, senior analyst with Price Futures ​Group, said in a note. "While strategic releases and demand reduction have prevented immediate chaos, the margin for error ​is shrinking rapidly. A ⁠prolonged closure of the Strait of Hormuz points toward tighter physical markets, potential refined product shortages, and upward pressure on prices in the coming weeks and months."

Shipping analytics firm Kpler said on Thursday that 10 ships had sailed through the strait in the past 24 hours, compared with the five to seven ⁠that have ​crossed daily in recent weeks.

"Crude is trading higher on a combination of the Trump-Xi ​meeting doing little to bring us closer to a reopening of the Strait of Hormuz, and continued Ukrainian attacks on Russian refineries," Saxo Bank analyst Ole Hansen said.

Ahead of the fiscal year 2026-27 (FY27) national budget, the government faces mounting fiscal pressure amid high inflation and low investment at a time when the global geopolitical situation remains volatile, said Prof Mustafizur Rahman, distinguished fellow at the Centre for Policy Dialogue (CPD).

In an interview with The Daily Star, he said the revenue sector requires immediate attention, while trade challenges and inefficiencies in the Annual Development Programme (ADP) must also be addressed.

FISCAL PRESSURES MOUNT

Bangladesh’s upcoming national budget will be one of the most challenging in recent years, as the government grapples with inflation, debt pressure, global uncertainty, and rising public expectations, he said.

The FY27 budget will need to address “multi-dimensional challenges” amid persistently high inflation, rising living costs, weak investment, and external vulnerabilities.

He said the government inherited significant economic difficulties that cannot be ignored while preparing the budget. At the same time, it must fulfil election pledges related to healthcare, education, social protection, and employment generation.

“The government is presenting the budget against the backdrop of a difficult global environment,” he said, referring to the ongoing Middle East conflict and its impact on energy prices, import costs, and macroeconomic stability.

Rahman said people expect relief after years of inflation that have eroded purchasing power and living standards, particularly among low-income groups.

“People now expect better public services and stronger social protection from the government,” he said.

To meet those expectations without excessive borrowing, the government must prioritise domestic resource mobilisation, he argued, adding that Bangladesh cannot continue relying heavily on bank borrowing and external lenders to finance expenditure.

THREE PRIORITIES FOR REVENUE

Rahman identified three immediate priorities for the revenue sector: reducing leakages, broadening the tax base, and finding innovative sources of revenue.

He said corruption, weak governance, and inefficiencies continue to undermine tax collection, depriving the government of resources needed for public spending.

Bangladesh must expand the tax net instead of repeatedly burdening the same taxpayers, he argued. Many individuals and businesses remain outside the system, while VAT collected from consumers often does not fully reach the treasury because of leakages and weak enforcement.

“I fully endorse the proposal that rates should remain relatively low but become more universal,” he said while discussing VAT and income tax reforms.

The economist also stressed the importance of technology-driven tax administration. He welcomed moves towards online VAT registration and digitalisation but warned that isolated systems would not be effective unless they are integrated and interoperable.

Drawing comparisons with India, he said tax authorities there can compare declared income with spending patterns through integrated databases. Bangladesh could adopt similar systems to strengthen compliance and reduce tax evasion.

Rahman also suggested gradually introducing new forms of taxation, including wealth and inheritance taxes, to address widening inequality. Fiscal policy, he said, should not only raise revenue but also reduce disparities in income, consumption, and assets.

REPRIORITISE SPENDING, IMPROVE IMPLEMENTATION

On the expenditure side, Rahman said the government would need to reprioritise spending to fulfil commitments related to education, healthcare, and social safety net programmes.

The ruling party has pledged to raise spending on health and education to 5 percent of GDP each and increase social protection expenditure to at least 3 percent of GDP.

Current spending remains far below those targets, meaning resources may need to be shifted from other sectors over time, he said, warning that such decisions would be politically sensitive.

He argued that infrastructure spending could be rationalised by reducing waste, corruption, delays, and cost overruns.

“If we can ensure good value for money, then infrastructure spending as a share of GDP can be reduced without compromising outcomes,” he said.

Rahman stressed that higher allocations alone would not improve public services without better implementation and governance.

He was particularly critical of inefficiencies in the ADP, saying public projects in Bangladesh frequently suffer from inflated costs, delays, and weak oversight. On average, project costs and implementation periods rise by 30 percent to 40 percent, he said.

He called for stronger feasibility studies, tighter monitoring, and greater accountability. Projects nearing completion should receive priority, while approval of new projects should be approached more cautiously given rising debt and fiscal pressure.

The economist also warned against expanding the ADP aggressively without improving institutional capacity, procurement systems, and implementation quality.

INFLATION, TRADE CHALLENGES REMAIN KEY CONCERNS

On inflation and monetary policy, Rahman said Bangladesh faces a difficult balancing act. While high interest rates are hurting investment and job creation, inflation remains too high to justify aggressive monetary easing.

However, he argued that inflation is not driven solely by monetary factors. Weak market management, high logistics costs, inefficiencies at ports and customs, and poor supply-chain governance are also contributing to rising prices.

“If the government can improve market management and reduce the overall cost of doing business, inflationary pressure can ease even without relying only on monetary policy,” he said.

Rahman also discussed Bangladesh’s external trade challenges as the country prepares to graduate from the least developed country (LDC) category.

He said export diversification, free trade agreements, and stronger compliance standards would become increasingly important in the coming years.

Bangladesh still depends heavily on a limited number of products and export markets despite years of discussion about diversification, he noted. Meanwhile, competitors such as India and Vietnam are moving aggressively to secure free trade agreements and attract foreign investment.

To remain competitive, Bangladesh must improve logistics, reduce lead times, strengthen labour and environmental standards, and create a more investment-friendly environment, he said.

He also urged the government to treat any extension of the LDC graduation transition period as an opportunity to accelerate reforms rather than delay them.

Iran will reopen its stock market on Tuesday after a suspension ‌during the conflict with the US and Israel, ​Iran's IRNA news agency ​cited a senior official ⁠as saying on Saturday.

"The ​suspension of stock market ​activities from the start of the war was aimed at ​protecting shareholders' assets, ​preventing panic-driven trading and allowing for ‌more ⁠transparent pricing conditions," said Hamid Yari, deputy supervisor at the Securities and ​Exchange ​Organisation.

"Now, ⁠with the reopening of the stock ​market, we will ​see ⁠the full resumption of all capital market sectors," ⁠he ​added.

The government has decided to begin phased implementation of a new pay structure for public sector employees from this July, according to officials familiar with the matter.

The decision was taken by Prime Minister Tarique Rahman during a high-level meeting with senior officials of the Finance Ministry on the upcoming national budget held last Wednesday, sources told TBS.

A senior finance ministry official, speaking on condition of anonymity, said today that the prime minister has approved the rollout of the new pay scale from the first day of the 2026-27 fiscal year. "There is no uncertainty. We will start receiving salaries under the new structure from July."

He added that the implementation, however, will be carried out in phases, although the exact proportion of the revised salary to be disbursed from July has not yet been finalised.

Officials said the full pay structure may be implemented over three fiscal years. Under the proposed plan, 50% of the increased basic salary could be introduced in the 2026-27 fiscal year, starting 1 July, with the remaining 50% in 2027-28. Allowances may be incorporated in 2028-29.

Also read: Govt employees to get paid under new pay scale from early next year

The phased approach is expected to ease pressure from inflation while also making fiscal management more manageable for the government.

Finance ministry officials said over Tk30,000 crore is being allocated in the next fiscal budget to cover the initial 50% increase in basic pay. In the current fiscal year, around Tk85,000 crore has been allocated for salaries and allowances of nearly 1.5 million government employees.

Accordingly, the draft budget speech prepared by Finance Minister Amir Khosru Mahmud Chowdhury reportedly includes provisions for a gradual implementation of the new pay structure. Officials said that when the finance ministry presented the implementation plan and funding strategy before the prime minister, she approved it and directed that it be made effective from July.

The interim government led by Prof Muhammad Yunus formed a National Pay Commission last year, which submitted its report to the government on 22 January. The commission recommended raising salaries and benefits of government employees by 100% to 147%, depending on grade.

Under the proposed structure, the minimum basic pay for 20th-grade employees would increase from Tk8,250 to Tk20,000, while the highest grade would rise from Tk78,000 to Tk160,000. The proposal also includes higher allowances and improved pension benefits.

The commission estimated that implementing the new pay structure for active employees would require about Tk106,000 crore, with an additional Tk25,000 crore needed for pensioners.

Given the government's revenue situation and broader macroeconomic constraints, the commission recommended a phased rollout of the revised pay structure.

European countries have entered negotiations with Iran's Revolutionary Guards navy to secure transit for their ships through the Strait of Hormuz, according to Iranian state media, following Tehran's decision to permit passage for dozens of vessels from East Asian nations that agreed to newly imposed Iranian shipping rules.

Iran has largely restricted shipping through the strategic waterway since the outbreak of war with the United States and Israel on 28 February, 2026. Although a fragile ceasefire has been in place since 8 April, the United States has continued a naval blockade on Iranian ports, says CNA.

The Strait of Hormuz, which handles roughly one-fifth of global oil and liquefied natural gas shipments during peacetime, remains a critical artery for global energy trade. The disruption has unsettled international markets and increased Tehran's leverage over maritime traffic in the region.

Iranian officials have said commercial traffic through the strait will not return to pre-war arrangements. Tehran has already begun collecting revenue from newly introduced tolls imposed on vessels using the route.

Ebrahim Azizi, head of the Iranian parliament's national security commission, said a "professional mechanism" for managing maritime traffic would be announced soon. According to Iranian officials, the system would apply only to commercial vessels and parties that "cooperate with Iran", and would involve charges for what Tehran described as "specialised services."

Iranian authorities also said the route would remain closed to operators involved in the "freedom project", a temporary US military operation established to guide stranded commercial ships through the strait.

Iranian state media confirmed that talks were underway with European countries regarding shipping access, but did not identify the nations involved.

China and the United States agreed to continue implementing "all" agreements previously reached and to establish councils for trade and investment, Beijing's top diplomat said in a statement on Friday.

It comes after a two-day summit between Chinese President Xi Jinping and his US counterpart Donald Trump discussed a spate of thorny issues dividing the world's two largest economies from trade to the Middle East, as they met in Beijing where the US leader was feted with a temple tour and tea.
Trump touted "fantastic trade deals", announcing in interviews Chinese purchases of American soybeans and jets, but there have been no official announcements or details from either side.

After Trump's departure from China, Xi accepted an invitation from his US counterpart on Friday to visit the United States in autumn.

"The delegations of the two countries reached overall positive results, including continuing to implement all consensus reached in previous consultations (and) agreeing to establish a trade council and an investment council," Wang Yi said, according to a statement from the Chinese foreign ministry.

US Treasury Secretary Scott Bessent said in an interview with CNBC on Thursday the countries were in talks to establish a bilateral "board of trade" and "board of investment".

The two countries also agreed to "address each other's concerns regarding market access for agricultural products and promote expanding two-way trade within a framework of reciprocal tariff reductions", Wang said.

China and the US are in the middle of a year-long trade truce reached in October, where both sides agreed to slash tariffs on each other's goods that had exceeded 100 percent.

Sustainable financing in Bangladesh reached Tk 8,375 crore during the October-December quarter of 2025, accounting for 35.87 percent of total disbursed loans, reflecting growing momentum in the country’s sustainable finance sector, experts said.

They, however, stressed the need for blended and sustainable financing to further strengthen economic growth, tackle climate-related risks and expand social welfare initiatives.

The observations came at the “Sustainable Finance Summit 2026”, organised by LightCastle Partners with support from the Embassy of Switzerland in Bangladesh, the United Nations Capital Development Fund (UNCDF), Netherlands-based impact investment firm Truvalu Bangladesh, and Startup Bangladesh Ltd, held at a hotel in Dhaka yesterday.

Reto Renggli, Swiss ambassador to Bangladesh, inaugurated the event and said sustainable finance was no longer a niche agenda but an essential element for building an inclusive and future-ready economy.

He also praised Bangladesh’s progress in climate resilience and financial inclusion and expressed hope that the summit would help unlock investment opportunities and partnerships.

According to data presented at the event, the global sustainable finance market reached $919 billion in 2025 and is projected to expand to $1.1 trillion in 2026.

The daylong summit aimed to mobilise blended finance and expand the sustainable finance market in Bangladesh.

Masud Rahman, chief technology adviser to the Aspire to Innovate (a2i) project under the ICT ministry, attended the programme as guest of honour.

“Bangladesh stands at a critical juncture where innovation, technology and sustainable financing must advance together,” he said.

More than 200 policymakers, financiers, entrepreneurs and ecosystem stakeholders participated in the summit.

Bijon Islam, chief executive officer of LightCastle Partners, delivered a presentation, titled “From Pledges to Projects: Unlocking the Next Trillion in Sustainable Finance”.

The event also featured three panel discussions involving representatives from financial institutions, development organisations and the startup ecosystem.

Zahedul Amin, managing director of LightCastle Partners, Diepak Elmer, deputy head of mission/head of cooperation at the Embassy of Switzerland in Bangladesh; Nuzhat Anwar, managing director of Dhaka Stock Exchange; Nurul Hai, managing director of Startup Bangladesh Limited; Kerry Breen, senior director at Brummer & Partners; Nazat Chowdhury, managing director of South Asia Tech; Nabila Nowrin, managing director of Infusion Partners; among others, also spoke at the event.

The government has raised Tk 42,400 crore through sukuk, a shariah-compliant investment instrument akin to bonds, since its launch in December 2020.

The latest auction for raising Tk 5,900 crore through sukuk received bids worth Tk 72,598 crore from banks, finance companies, and individuals.

Issued to finance the construction of bridges to connect rural roads, the latest initiative’s subscription amount was 12 times the face value of the bond, reflecting strong investor interest.

The Bangladesh Bank (BB) auctions the sukuk on behalf of the government.

Issued to finance the construction of bridges to connect rural roads, the latest initiative’s subscription amount was 12 times the face value of the bond, reflecting strong investor interest

Of the Tk 42,400 crore, some Tk 32,400 crore was issued through public auction, while Tk 10,000 crore was issued through private placement to Sammilito Islami Bank, which was launched in December last year.

“Such a high response ultimately shows that there is demand for shariah-based investment options in the market,” said Istequemal Hussain, director at the Debt Management Department of BB.

The two main reasons behind the strong interest in this sukuk are that it is government-backed and that many people lack confidence in shariah-based banks, he said.

On Wednesday, the BB allotted the seven-year tenure sukuk bond in favour of investors -- Islamic banks, finance companies, Islamic windows of conventional banks, individual investors and various provident funds -- at a fixed proportionate rate.

Hussain said they have plans to raise Tk 10,000 crore more by June in fiscal year 2025-26, through both short-term and long-term bonds.

Of the sukuk bonds issued so far, none has matured. The BB official said their maturity period had been extended earlier.

Finance Minister Amir Khosru Mahmud Chowdhury has said Bangladesh's economy may take around two years to recover from recent financial pressures, citing an additional Tk40,000 crore spent on the oil and gas sector due to the Middle East war and nearly Tk50,000 crore in outstanding dues from previous governments in the power and energy sectors.

Speaking as the chief guest at a ceremony for the foundation stone laying of a new building at Chattogram Maa-O-Shishu Medical College Hospital this morning (16 May), he said healthcare is a fundamental right of every citizen and the government is now focusing on preventive and primary healthcare. 

Khosru, also the planning minister, added that initiatives are being taken to coordinate with private hospitals so that poor people can access better treatment.

He said the government is considering a plan to send poor patients to private hospitals and bear their treatment costs due to the limitations of public hospitals. 

He mentioned that the health budget will be increased, but stressed that proper use of allocations must be ensured.

The minister alleged that although substantial allocations were made to the health sector in the past, a large portion was wasted through corruption. Ordinary people did not receive the expected healthcare services, he added.

Despite limitations, he said, the government will continue supporting educational and healthcare institutions that are performing well.

The minister also expressed concern over the design of the new medical college building, saying parking space for only 72 vehicles will be insufficient for such a large institution and could create severe traffic congestion in the future. 

He suggested keeping parking facilities for at least 200 to 250 vehicles, including additional basements if necessary.

He also stressed modernising medical education through digital libraries, multimedia classrooms, sports facilities and quality canteen services.

Highlighting a shortage of medical technologists in the country, he said costly medical equipment remains unused due to a lack of skilled personnel and called for separate institutes for medical technologists.

Bangladesh plans to position itself among the world’s top 20 countries in telecom and technology services within the next five years through a holistic digital economy strategy focused on connectivity, affordable access, startup growth, electronics manufacturing and skilled human resources.

The vision was outlined by Rehan Asad, the prime minister’s adviser on telecom and ICT, at a seminar titled “Telecom future: new government's vision” organised by the Telecom and Technology Reporters' Network Bangladesh (TRNB) at InterContinental Dhaka today.

Faqir Mahbub Anam, minister for telecom and ICT, and Md Emdad Ul Bari were also present at the programme.

“We are not only aiming to become a top-20 subscriber country, we want to become a top-20 service-quality country,” Rehan said, noting that Bangladesh already ranks among the top countries globally in terms of telecom subscribers but lags behind in service quality indicators.

According to different estimates, the telecom and ICT sector’s current contribution to Bangladesh’s GDP ranges from less than 1 percent to around 6 percent, but the figure could rise to 15 percent if the government develops a supportive ecosystem around the industry, he said.

“Yes, there will be challenges … But there is no reason why this sector cannot contribute 15 percent of GDP,” he said.

Rehan said that alongside network expansion, affordable devices and digital services are needed to ensure digital inclusion.

“We are talking about 4G and 5G, but if we do not focus on devices, then 4G and 5G mean nothing,” he said.

According to him, smartphone penetration in Bangladesh remains below 50 percent, while the cheapest smartphones still cost around Tk 10,000, making them unaffordable for many low-income users.

To address this, the government is working with local manufacturers, telecom operators, banks and mobile financial service providers to produce smartphones priced between Tk 5,000 and Tk 6,000 and introduce equal monthly instalment (EMI) facilities for consumers.

“If we can enable EMI, a farmer or rickshaw puller may be able to buy a smartphone through monthly payments,” he said.

The adviser also highlighted the need for stable and predictable policies to attract investment into the telecom and technology sectors.

“One of the biggest complaints from businesses is policy unpredictability. We want to provide a five-year roadmap for VAT, tax and customs policies so businesses can plan ahead,” he said.

He acknowledged concerns over the telecom sector’s high tax burden, saying operators face effective tax rates of up to 56 percent, significantly higher than the global average.

On spectrum policy, Rehan said the government’s priority is no longer limited to maximising revenue collection.

“Our priority is creating the ecosystem, the value chain and overall economic development,” he said.

The adviser also identified AI, cybersecurity, data centres and digital governance as key pillars of the government’s future technology strategy.

“Cybersecurity is absolutely critical,” he said, adding that both the public and private sectors would need to work together to improve the country’s cyber resilience.

He also drew comparisons with countries such as Vietnam and India, saying Bangladesh has the potential to become a major electronics manufacturing and export hub if it can ensure investment-friendly policies and support for entrepreneurs.

Rehan also said the government plans to strengthen the startup ecosystem through grants, policy support and financing facilities for young innovators and entrepreneurs.

Nineteen years ago, BNP finance minister M Saifur Rahman placed a national budget of Tk 69,740 crore for fiscal year 2006-07. Three governments have since come and gone, and BNP has now returned to power through a national election.

This time, Finance Minister Amir Khosru Mahmud Chowdhury is preparing to unveil the country’s 54th budget, which may exceed Tk 9.30 lakh crore for FY2026-27.

Despite the increase in size, the budget-to-GDP ratio has not changed much over the years. In 2006-07, the budget stood at around 12.68 percent of GDP, and is set to be 13.6 percent in FY27.

This suggests that while the economy has grown significantly in size, the government’s fiscal capacity has not strengthened at a comparable pace.

Bangladesh is therefore entering a phase where the scale of public spending is no longer the central issue. The more pressing question is whether the economy can sustain a larger budget amid rising debt, weak revenue mobilisation and institutional constraints.

Over the past two decades, the country’s socio-economic condition has changed noticeably. Electricity access has expanded, rural road connectivity has improved, mobile phone use has surged and internet-based communication has reshaped daily life. Large infrastructure projects such as the Padma Bridge and Dhaka Metro Rail have altered transport patterns and boosted economic activity.

These changes have also raised expectations.

Citizens now expect uninterrupted power supply, better transport systems, modern healthcare, quality education and improved urban services.

Dhaka dwellers want more metro rail lines, while people across the country want improved highways, second bridges across Padma and Jamuna and more industrial investment. As a result, public spending commitments have increased structurally. But, at the same time, fiscal space has tightened.

A growing share of the budget is now being absorbed by just operational expenditure. Interest payments on domestic and external borrowing have risen due to higher debt levels and elevated interest rates. Subsidies in energy, power and food are also high, while the proposed implementation of a new pay commission for public employees is expected to add further recurring pressure.

These factors leave less room for development spending, even as the overall budget size expands.

Weak revenue mobilisation remains a central challenge. Bangladesh continues to have one of the lowest tax-to-GDP ratios in South Asia, which limits the government’s ability to finance development without heavy borrowing.

The financial sector adds another layer of pressure. Non-performing loans have risen due to weak governance, political interference, lending irregularities and poor recovery. A fragile banking system reduces its capacity to support private investment and economic expansion.

Government borrowing from banks has also increased, crowding out credit available to the private sector and pushing up borrowing costs for businesses. The capital market has remained shallow and volatile, offering limited support for long-term financing needs. As a result, the economy remains heavily dependent on the banking sector.

Governance concerns and corruption further complicate fiscal management.

Delays in project implementation, cost overruns and allegations of irregularities in public procurement have reduced the efficiency of public spending.

A White Paper on the State of the Bangladesh Economy under the previous interim government estimated that around $234 billion may have been laundered during the previous Awami League period.

External shocks have also shaped recent economic pressures. The pandemic disrupted trade, employment and production. The Russia-Ukraine war pushed up global food and fuel prices, feeding inflationary pressure in import-dependent Bangladesh.

Inflation has remained above 8 percent since March 2023, eroding real incomes and weakening purchasing power. At the same time, war in the Middle East has added further volatility to global energy markets, increasing risks for inflation and foreign exchange stability.

Against this backdrop, Bangladesh faces a difficult policy balance.

Growth has slowed in recent years while inflation remains elevated. Expansionary fiscal measures could support growth, but they also risk worsening debt and price pressures.

Another important dimension is the role of the International Monetary Fund (IMF) under its ongoing programme. Reform commitments are expected to focus on raising tax revenue, improving banking, reducing subsidies, strengthening fiscal discipline and increasing exchange rate flexibility. While these measures may improve long-term stability, they carry short-term political and social costs.

For the finance minister, the job is not just to present a bigger budget. It is to rebuild trust in how public money is managed while dealing with limited resources and political promises.

He will have to make difficult choices. Money will need to go either to big infrastructure projects or to areas like health, education and skills.

In the end, the budget is not only about numbers. It will show how the government plans to manage a time of high expectations, tight finances, global uncertainty and weak institutions.

The Dhaka Stock Exchange (DSE) witnessed a massive retreat by international investors in April, as a combination of escalating global geopolitical tensions and persistent domestic structural hurdles triggered a wave of heavy selling.

Data from the premier bourse revealed a stark imbalance in foreign participation, with overseas investors offloading shares worth Tk124.14 crore while injecting only a meagre Tk12.06 crore into the market.

This lopsided trade reflects a deepening sense of caution among global fund managers, who appear to be scaling back their exposure to frontier markets in favour of safer havens amidst a volatile international landscape, according to the market insiders.

The overall participation of foreign investors saw a dramatic contraction during the month. Total foreign turnover in April stood at Tk136.2 crore, which was exactly 50% lower than the turnover recorded in March.

This decline in trading volume suggests that foreign institutional investors are not only selling off their positions but are also hesitant to engage in fresh buying, leading to a significant reduction in market liquidity, said insiders.

As per DSE data, foreign investment held in 130 listed companies, out of which foreign investments trimmed in 19 companies, while increases in 14 firms. Foreign participation remained unchanged in 97 firms.

According to the Central Depository of Bangladesh Limited, the number of non-resident beneficiary owner accounts stood at 43,242 as of mid-May.

The sell-off was most pronounced in fundamentally strong, large-cap companies that have traditionally been the darlings of foreign portfolios. Square Pharmaceuticals, often considered a blue-chip anchor for the market, saw the highest volume of foreign exit, with sales amounting to Tk40.72 crore. Consequently, foreign shareholding in the pharmaceutical giant dropped from 15.33% in March to 15.11% in April. BRAC Bank followed a similar trend, with foreign investors trimming their stakes by Tk37 crore, bringing their holding down to 36.22% from 36.48%.

Other major firms such as Renata, British American Tobacco Bangladesh, Marico, and Grameenphone also experienced notable foreign outflows, reflecting a broader trend of profit-taking or risk-mitigation by international funds.

In a few extreme cases, foreign investors opted for a complete exit from certain entities. During April, international fund managers liquidated their entire remaining holdings in Ring Shine Textile and Premier Bank. Conversely, the market saw a rare entry as foreign investors picked up stakes in Bangladesh National Insurance for the first time.

On the buying side, BSRM Steels emerged as the only significant beneficiary of foreign interest, attracting Tk9.50 crore in purchases and raising its foreign shareholding from 0.25% to 0.60%. Minor increases were also noted in BSRM Limited, Prime Bank, and Envoy Textile, though these were insufficient to offset the overall exodus of capital.

Market experts and researchers attribute this sharp decline to a complex mix of external and internal factors.

A senior researcher at a leading brokerage firm noted that while there was high optimism following the national elections and the formation of a new government, the expected surge in foreign investment failed to materialise. Instead, the market was blindsided by the sudden escalation of conflict in the Middle East involving the United States, Israel, and Iran. This geopolitical instability has sent shockwaves through global energy markets, creating a climate of economic uncertainty that is particularly damaging for energy-import-dependent nations like Bangladesh.

For global investors, the risk of inflation and energy insecurity in Bangladesh, exacerbated by these international conflicts, has made the domestic equity market appear increasingly risky. These external pressures have compounded long-standing domestic issues that continue to weigh on the market's attractiveness.

Analysts emphasised that the scarcity of high-quality, well-governed firms forces foreign investors to concentrate their holdings in a very small number of stocks. When sentiment shifts, as it did in April, this concentration leads to rapid and heavy sell-offs that the local market often struggles to absorb.

Furthermore, the prevalence of "junk stocks" and companies with poor corporate governance continues to deter professional fund managers. Issues surrounding transparency, inconsistent financial reporting, and weak regulatory enforcement remain significant barriers to attracting long-term institutional capital, said a managing director of a brokerage firm.

Structural hurdles, including a complex capital gains tax regime and ongoing difficulties in the repatriation of funds, also remain cited as deterrents. While the government and regulators have introduced some policy measures to address these bottlenecks, market participants argue that the impact of such reforms has yet to be felt on the ground, he added.

According to the DSE officials, the persistent foreign sell-off serves as a wake-up call for the country's capital market regulators. As foreign investors shift their stakes from top-tier firms like City Bank, Southeast Bank, Beximco Pharma, and IDLC Finance into defensive positions or out of the country entirely, the pressure on the DSEX benchmark index continues to mount.

Bangladesh offers a competitive cost structure that enables Chinese firms to maintain global price dominance while relocating production, said Mohammad A Hafiz, vice president of the Bangladesh China Club Limited.

This creates a strong advantage for companies seeking efficient manufacturing alternatives while preserving profitability and export competitiveness in international markets, he added.

Hafiz made the comments during his presentation at a daylong summit in the capital today.

The event was organised by the Bangladesh China Club Limited in collaboration with representatives from the Global Chinese General Chamber of Commerce, China, and the International Business Strategy Committee of the Guangdong-Hong Kong-Macao Greater Bay Area Business Federation.

Hafiz also said that Bangladesh serves as a gateway to the broader South Asian and ASEAN markets, providing businesses with a strategic footprint outside mainland China.

Its geographic position and growing regional connectivity make the country an attractive hub for trade, investment, and supply chain diversification, he added.

In addition, Bangladesh has demonstrated proven leadership through a strong track record of managing successful multi-billion-dollar projects and international syndicated financing in the region, he said.

This experience reflects the country’s growing capability to support large-scale industrial development and long-term foreign investment partnerships, he added.

Hafiz also said that Bangladesh is addressing concerns related to energy stability by establishing new government-to-government frameworks for long-term LNG supply and expanding floating storage and regasification unit infrastructure to ensure uninterrupted industrial continuity.

The country is also improving regulatory compliance through stronger labour law standards and enhanced professional service rules designed to protect institutional investments, he added.

In addition, specialised asset management companies and strategic advisers are being utilized to ensure that investment capital is directed toward operational growth rather than passive debt accumulation, he added.

Bangladesh continues to demonstrate strong political commitment by maintaining solid bilateral ties and engaging in dedicated policy-level dialogues to create a secure and stable environment for foreign direct investment, he said.

He added that total bilateral trade between Bangladesh and China reached $24.05 billion, heavily driven by $22.88 billion in Chinese exports to Bangladesh compared to just $1.17 billion in Bangladeshi exports to China.

Saif Uddin Ahmed, chief executive officer at the Bangladesh Foreign Trade Institute, said that in the current era of global turbulence, including issues such as US reciprocal tariffs and geopolitical tensions involving the US-Israel war on Iran, Chinese investors may find opportunities to invest in and relocate their factories to Bangladesh.

Mohammad Mamdudur Rashid, managing director of the United Commercial Bank PLC, said the bank actively facilitates trade transactions and supports Chinese partners in foreign direct investment in Bangladesh, with a dedicated Chinese desk staffed by Mandarin-speaking colleagues to ensure smooth communication and efficient service.

He further outlined future areas of collaboration, including green energy and climate technology, agribusiness and food processing, logistics and supply chains, healthcare and pharmaceuticals, education and skill development, fintech and digital banking, and tourism and hospitality.

Muzaffar Ahmed, chairman of the Sustainable and Renewable Energy Development Authority, said that Bangladesh is one of the fastest-growing economies in Asia and has made significant progress in industrialization, infrastructure development, export growth, digital transformation, and energy development.

He said that the power, energy, and mineral resources sector offers significant opportunities for international investors and strategic partners, while the government remains committed to ensuring energy security, sustainable development, and a clean energy transition for future

The Bangladesh Bank (BB) has temporarily loosened the rules so commercial banks can lend more to big borrowers, treat trade guarantees more lightly, and adjust large loan limits based on how healthy their loan books are.

In a circular issued yesterday, the banking regulator said commercial lenders may lend up to 25 percent of their capital to a single client or group until June 2028. This is 10 percentage points higher than the existing ceiling of 15 percent.

Besides, non-funded exposures, such as letters of credit (LCs), will be weighted at just 25 percent until mid-2027, down from the current 50 percent.

At the same time, banks will be allowed to extend higher large-loan limits depending on their classified loan ratios.

In the circular, the central bank said the changes are meant for easing international trade finance for businesses and industries.

However, several BB officials said the facility came after a few large industrial groups exceeded their exposure limits at a number of banks.

Business leaders welcomed the decision by the BB, but economists and bankers were critical of the move. They said that looser rules could concentrate credit further in the hands of a small number of large conglomerates and politically connected economic actors.

NEW EXPOSURE LIMITS

Under the relaxed rules, banks will be allowed to extend funded loans of up to 25 percent of their total capital to a single borrower, up from the existing limit of 15 percent.

However, the combined exposure of funded and non-funded facilities must not exceed 25 percent under any circumstances, the central bank said.

Under the new rules, the conversion factor for non-funded exposure has been reduced to 25 percent from 50 percent. This means banks will now count only 25 percent of their total non-funded exposure when calculating large loan limits.

The facility will remain in place until June 30, 2027. The conversion factor will then increase in phases, rising to 30 percent by December 31, 2027; 40 percent by December 31, 2028; and 50 percent by December 31, 2029.

As per the single borrower exposure rules, a borrower may take up to 25 percent of a bank’s capital in total exposure, including both funded and non-funded facilities. Of this, 15 percent may be funded exposure and 10 percent non-funded exposure.

Previously, funded loans were capped at 15 percent of a bank’s capital. Under the new rules, banks may extend funded loans of up to 25 percent, but only if no non-funded exposure is provided. If funded exposure stands at 20 percent, a further 5 percent may be non-funded exposure.

For example, an LC worth Tk 100 was previously converted into funded exposure at Tk 50. Under the new framework, only Tk 25 will be counted.

The central bank has also revised limits on large loans based on banks’ classified loan ratios.

Under the previous rules, banks with classified loans of up to 3 percent could extend large loans amounting to 50 percent of their total loans and advances. Under the new rules, this threshold has been extended up to 10 percent.

Banks with classified loans between 10 percent and 15 percent may now maintain large loans of up to 46 percent of total loans and advances. Those with ratios between 15 percent and 20 percent will be allowed up to 42 percent, while banks in the 20 percent to 25 percent range may go up to 38 percent. For those between 25 percent and 30 percent, the ceiling will be 34 percent.

Where classified loans exceed 30 percent, large loans will be capped at 30 percent of total loans and advances.

The central bank has also raised the overall ceiling for large loans to 600 percent of a bank’s capital, up from 400 percent.

WAS IT NECESSARY NOW?

Several central bank officials, speaking on condition of anonymity, said a few large industrial groups have exceeded their exposure limits at several banks. The facility has been introduced in response to their requests.

A managing director of a commercial bank, who asked not to be named, said the current condition of the banking sector is not good.

“So, this kind of forbearance was not necessary at this time,” he said, adding that it sends the wrong signal and is contrary to international standards.

However, Mir Nasir Hossain, former president of the Federation of Bangladesh Chambers of Commerce & Industry (FBCCI), welcomed the central bank’s move.

He said the economy has expanded and many large companies often need consortium financing.

“Increasing the exposure limit will be beneficial for trade and business. It is a business-friendly decision,” said Hossain.

Ashikur Rahman, principal economist at the Policy Research Institute of Bangladesh, took a different view.

“At a time when concerns over governance, non-performing loans, and weak risk management already plague the banking sector, such relaxation may deepen systemic vulnerabilities rather than strengthen financial intermediation,” Rahman told The Daily Star.

He said that excessive concentration of lending not only undermines diversification of bank portfolios, but also amplifies the “too-connected-to-fail” problem within the financial system.”

The economist argued that a more prudent long-term approach would gradually steer large borrowers towards corporate bond issuance and capital market financing, reducing reliance on banks for major industrial projects.

“Deepening the bond and equity markets is essential if Bangladesh wishes to build a more balanced and resilient financial architecture. Unfortunately, this decision appears to move in the opposite direction, reinforcing existing distortions instead of correcting them,” he commented.

The banking sector's total capital shortfall stood at Tk2.78 lakh crore at the end of the December quarter of 2025, a slight decline from the previous quarter mainly due to Bangladesh Bank's loan rescheduling policy support, according to a central bank report.

The capital shortfall had stood at Tk2.82 lakh crore at the end of the September quarter of the same year.

A bank capital shortfall occurs when a bank's own capital and reserve funds fall below the minimum level set by the central bank. Under international standards, banks are required to maintain a specific amount of capital against their risk-weighted assets.

Bangladesh Bank data shows that 20 banks were in capital deficit at the end of the December quarter.

Bankers and economists say the crisis stems from years of aggressive lending, weak oversight, and politically influenced loan approvals. The widening capital gap is also restricting banks' lending capacity and putting pressure on international financing, signalling broader risks for the economy.

Insiders said most state-owned banks in Bangladesh have been operating for years with virtually no capital base. The government, as owner of these banks, had previously injected thousands of crores of taka from taxpayers' money to help them recover. Despite that support, the banks have failed to overcome their capital shortages.

They added that compared with other South Asian economies, Bangladesh's banking sector remains in an extremely fragile capital position.

The report also showed that the sector's capital-to-risk weighted assets ratio (CRAR), a key indicator of financial strength, fell to negative 2.64% at the end of December. International regulatory standards require banks to maintain a minimum CRAR of 12.5%.

Non-performing loans (NPLs) in the banking sector stood at Tk5.57 lakh crore, or 30.60% of total outstanding loans, at the end of December 2025.
Deficits across banks

According to the central bank report, four state-owned banks had a combined capital shortfall of Tk37,364.82 crore at the end of the December quarter.

Agrani Bank's shortfall stood at Tk6,534 crore, BASIC Bank's at Tk4,158 crore, Janata Bank's at Tk22,482 crore, and Rupali Bank's at Tk4,189 crore.

Seven Islamic banks recorded a combined capital shortfall of Tk1,74,087 crore.

EXIM Bank's deficit stood at Tk25,914 crore, First Security Islami Bank at Tk64,162 crore, Global Islami Bank at Tk15,693 crore, Islami Bank Bangladesh at Tk6,597 crore, ICB Islamic Bank at Tk2,012 crore, Social Islami Bank at Tk30,053 crore, and Union Bank at Tk29,653 crore.

Meanwhile, seven private commercial banks recorded a combined capital shortfall of Tk33,138 crore.

AB Bank's shortfall stood at Tk6,551 crore, BCBL at Tk2,065 crore, Citizens Bank at Tk81.70 crore, IFIC Bank at Tk4,704 crore, National Bank at Tk9,032 crore, Padma Bank at Tk5,837 crore, Premier Bank at Tk4,866 crore, Bangladesh Krishi Bank at Tk30,751 crore, and Rajshahi Krishi Unnayan Bank at Tk2,704 crore.

Why capital shortfall declined over 3 months

A senior Bangladesh Bank official said the main reason behind the decline in capital shortfall between the September and December quarters was the central bank's loan rescheduling policy. Rescheduling helped classify some defaulted loans as regular, reducing the amount of required provisioning against bad loans. Since provisions are maintained from banks' capital, the lower provisioning requirement reduced the capital deficit.

Former World Bank Dhaka Office Lead Economist Dr Zahid Hussain said the apparent improvement in capital shortfall over the three months was largely artificial and driven by rescheduling.

"The improvement seen in capital shortfall is the impact of rescheduling. It is creating an artificial improvement. State-owned banks, Islamic banks, and the latest generation of private commercial banks are mainly responsible for the shortfall. Banks that were already in deficit remain in deficit," he said.

He added, "It is completely unacceptable for banks to remain in a capital deficit. If a bank's CRAR falls below 10%, the central bank should take action. But that is not happening in our country."

Zahid Hussain questioned whether the sector could continue relying on rescheduling indefinitely, warning that the banking sector would remain weak without meaningful reforms. He noted that Bangladesh Bank had initially barred banks with capital shortfalls from paying staff bonuses, but later backed away from the decision.

"Instead of repeated rescheduling, writing off bad loans would be a better option," he said.

Two reasons why rescheduling is unsustainable

According to Dr Zahid Hussain, there are two major reasons why repeated loan rescheduling is unsustainable.

First, rescheduling weakens banks' balance sheets and erodes capital. He compared it to "continuous bleeding" in the human body, gradually weakening financial institutions over time.

Second, it creates a moral hazard in society. When borrowers see repeated concessions despite non-payment, they become more likely to spend borrowed money on luxury consumption, such as expensive cars or foreign travel, rather than productive investment.

"As a result, honest borrowers become discouraged, while wilful defaulters are emboldened further. Overall, the trend is undermining discipline in the banking system and weakening the sector's long-term sustainability," the economist added.

The Bangladesh Securities and Exchange Commission (Bangladesh Securities and Exchange Commission) has published a draft of sweeping new corporate governance rules that introduce stricter oversight and tighter controls on listed companies, with a focus on strengthening transparency, accountability and investor protection in the capital market.

The proposed framework marks a shift from the existing corporate governance code issued in 2018 by significantly tightening board composition requirements, expanding independence standards, and imposing stricter eligibility and shareholding rules for directors and key executives.

It also introduces enhanced restrictions on cross-directorships between listed companies and major market infrastructure institutions such as exchanges, depositories, clearing entities, brokers and merchant banks.

According to the draft, the new rules will apply to all companies with ordinary shares listed on the main board, SME board and alternative trading board (ATB) of the stock exchanges, as well as any public interest entity.

The draft, released today (14 May), has been opened for stakeholder feedback until 31 May. The regulator said it will review the comments before finalising the framework for implementation.

Board structure and shareholding requirements

Under the proposed framework, the board of directors of a listed company must consist of no fewer than five and no more than 20 members. For SME-listed companies, the ceiling will be 10 directors. Each board will be required to include at least one female director.

All sponsor-directors – excluding independent directors – must collectively hold at least 30% of a company's paid-up capital. Each director will be required to hold a minimum of 2% of shares, while nominated directors must hold at least 5%.

Independent directors and eligibility rules

The proposed rules increase the minimum requirement for independent directors. At least three directors, or one-third of the total board, whichever is higher, must be independent. This marks a shift from the existing requirement, which mandates at least one-fifth of the board to be independent directors.

The draft bars individuals who are currently directors of stock exchanges, depositories, central counterparty institutions, stock brokers, stock dealers, or merchant banks from serving as directors of listed companies. The only exception is where they are appointed as independent directors representing a holding company.

Senior management structure and compliance

Every listed company must appoint a managing director (MD) or chief executive officer (CEO), a company secretary (CS), a chief financial officer (CFO), and a head of internal audit and compliance (HIAC).

The draft specifies that individuals holding these positions will not be allowed to serve in executive roles in any other company simultaneously. However, the CFO or company secretary may hold the same position in another company within the same group – listed or unlisted – subject to prior approval from the Commission, for cost efficiency or technical expertise reasons.

In addition, the MD, CEO, CS, CFO, and HIAC cannot be removed from their positions without board approval. Any such decision must also be immediately disclosed to both the Commission and the stock exchanges.

The Commission said the proposed rules are designed to modernise corporate governance practices in Bangladesh's capital market and ensure stronger accountability across listed entities.

Bangladesh’s next national budget should focus on strengthening economic resilience rather than increasing spending, said Zahid Hussain, former lead economist at the World Bank’s Dhaka office.

He warned that weak fiscal buffers, high inflation, and serious vulnerabilities in the financial sector have left little room for a large or expansionary budget.

In an interview with The Daily Star, Hussain said the economy is facing prolonged external pressures stemming from elevated global fuel, fertiliser, and commodity prices, limiting Bangladesh’s ability to absorb further shocks.

“The economy is now facing a global trade shock,” he said, noting that import costs have risen sharply while access to essential goods has become increasingly difficult. Even if geopolitical tensions ease, prices are unlikely to return to pre-war levels anytime soon, he added.

Hussain explained that Bangladesh is paying more for imports but receiving less in return, resulting in a net income loss. “The key question is how we will absorb these losses,” he said.

He added that policy choices are increasingly constrained by limited fiscal space.

“Except for foreign exchange reserves, most buffers are nearly exhausted,” he said, noting that inflation remains above 9 percent and the banking sector is under severe stress.

He said the economy is now facing stagflation -- high inflation, low growth and weak shock absorption capacity -- while election promises and the new government’s budget plans are increasing pressure to raise spending.

“How do we balance these conflicting pressures?” he asked.

LIMITED SPACE FOR EXPANSIONARY BUDGET

Hussain said printing money is not a viable option because inflation is already high and could rise further.

“If inflation were very low, money financing might have been considered, but that is not the case,” he added.

He also said domestic borrowing is constrained as interest rates are already high, with businesses facing double-digit lending rates. Higher government borrowing would push rates up further and restrict private credit.

A large portion of the budget is already locked into mandatory spending.

IMF projections suggest interest payments could reach Tk 1.7 lakh crore in FY27. In FY26, salary expenditure is close to Tk 85,000 crore, while pension payments exceed Tk 35,000 crore.

“These are mandatory costs that are difficult to reduce,” he said, adding that many development projects are already in advanced stages and cutting them would waste past investment.

World Bank studies show that 70 to 80 percent of Bangladesh’s public spending is pre-committed, compared to 50 to 60 percent in other lower-middle-income countries and 40 to 50 percent in better-governed Asean economies.

With inflation eroding purchasing power and weak real wage growth, Hussain said tax revenue cannot rise sharply. Bangladesh typically struggles to collect even Tk 4.5 lakh crore.

Given the constraints, he said, “If we respect these constraints -- no money printing, limited domestic borrowing, large fixed expenditures, and rising interest costs -- then a realistic revenue target would be around Tk 5 lakh crore, with a deficit of about Tk 3 lakh crore.”

“That would put the maximum feasible budget size at roughly Tk 8 lakh crore.”

He warned that financing even this deficit would be challenging. Domestic borrowing needs could exceed safe limits unless external financing rises significantly.

Net external financing may need to reach Tk 1.1 lakh crore, while domestic borrowing of around Tk 1.9 lakh crore would still pressure financial stability.

“For this reason, the overall budget size would need to remain tighter,” he said.

He added that concessional financing from the World Bank, ADB, IMF, JICA and other development partners could allow a slightly larger budget without stressing domestic banks.

“Even so, under realistic assumptions, I do not see the government implementing a budget much beyond Tk 7.5 to Tk 8 lakh crore,” he said.

STRUCTURAL REFORMS OVER SPENDING PUSH

On the IMF programme, Hussain said challenges go beyond subsidy cuts or electricity price adjustments.

Key reforms in tax policy, exchange-rate management, banking sector restructuring, Bangladesh Bank governance, and separating the National Board of Revenue remain incomplete.

“I don’t think simply increasing electricity prices will bring the IMF programme back on track,” he said.

Hussain said Bangladesh no longer has the option to prioritise either inflation control or growth.

The problem, he said, is supply-side constraints rather than weak demand.

“If you don’t have diesel, LNG, or fertiliser, higher government spending will not increase growth,” he said. “Instead, it will mostly lead to higher prices or exchange rate pressure.”

He said the budget should prioritise resilience by protecting food security, energy security, healthcare, and social protection.

“You cannot cut spending on vaccinations, medicines, schools, or support for the poor and vulnerable,” he said.

However, he warned against broad subsidies that often benefit higher-income groups more than those in need.

Hussain said low tax collection is mainly due to a complex tax system and weak administration.

Multiple VAT and customs duty rates, he said, create corruption risks and revenue leakage.

“If the rate structure is simplified and the tax system is automated, revenue can increase without adding pressure on taxpayers,” he said.

He called for urgent reforms in energy, banking, ports, regulation and skills development.

Bangladesh has around 30,000 megawatts of installed power capacity, while peak summer demand is about 18,000 megawatts.

“The problem is not power generation capacity,” he said. “The real issues are fuel supply and limitations in the transmission grid.”

He also highlighted inefficiencies in ports, complex regulations, and weak vocational training.

“Bangladesh exports labour but imports skills,” he said.

Hussain said structural reforms, rather than higher spending, now offer the most practical path to improving investment, lowering costs, and stabilising the economy.

He said Bangladesh is still facing a global trade shock, with both import prices and volumes under pressure.

“Prices have increased, and even if you are willing to pay more, it is still difficult to get the required quantities, especially as global supply chains remain strained,” he said.

He concluded that Bangladesh needs a more productive economy driven by reforms, not a larger budget based on fragile borrowing.

“Without such reforms, the economy could remain stuck in repeated crisis management, while private investment confidence continues to weaken,” he said.