Bangladesh must shift decisively toward productivity-led reforms as macroeconomic pressures weaken the effectiveness of demand-side stimulus and slow recovery, economists and policy experts said on Thursday.
The call came at a Monthly Macroeconomic Insights session titled “Restoring Growth through Productivity Reforms: Pre-Budget Priorities”, organised by the Policy Research Institute of Bangladesh (PRI) with support from the Department of Foreign Affairs and Trade (DFAT).
Fiscal space, they warned, is increasingly squeezed by rising interest costs, elevated inflation and financial sector weaknesses that are limiting credit transmission and reducing policy effectiveness.
PRI Principal Economist Ashikur Rahman said a disciplined fiscal framework anchored in macroeconomic stability, alongside productivity-enhancing reforms, is the “most credible route” to restore growth momentum.
He warned expansionary fiscal or monetary measures could intensify inflation, widen fiscal imbalances and undermine stabilisation efforts.
The FY27 budget, he said, should focus on stronger revenue mobilisation, realistic spending, subsidy rationalisation and reduced bank financing, while protecting social and infrastructure priorities.
“Fiscal consolidation should not be seen as an end in itself,” Rahman said, adding that recovery will depend more on productivity reforms than demand stimulus.
He said Bangladesh’s core challenge has shifted “from demand to efficiency and institutions”, adding: “We cannot spend our way out of current economic tension.”
Centre for Policy Dialogue Executive Director Fahmida Khatun said weak ADP execution, rising costs and repeated project delays were intensifying fiscal pressure.
According to her cost overruns were eroding development efficiency and stressed that allocations alone were insufficient without stronger implementation and accountability.
Revenue shortfalls had widened deficits and increased bank borrowing, crowding out private investment.
Inflation remained largely supply-driven due to imported shocks, geopolitical tensions, market inefficiencies and rising fuel and interest costs.
She called for targeted subsidies, stronger policy stability and regular evaluation, warning that reforms must address structural distortions, including crony capitalism.
PRI Chairman Zaidi Sattar said Bangladesh had shown resilience through multiple shocks, but growth and investment momentum had weakened. Exports fell about 2 per cent during July–April, while remittance inflows stayed strong and reserves improved.
He outlined six priorities—tariff rationalisation, tax reform, investment climate improvement, energy restructuring, SOE reform and infrastructure investment.
he warned, trade intensity has dropped to 30–31 per cent of GDP from 45 per cent in 2021–22, constraining growth. A 1 per cent rise in trade intensity could lift GDP growth by 0.5 per cent, but high tariffs—averaging about 55 per cent—were blocking FTAs.
“We have been talking about FTAs for 20 years, but we have not been able to do one,” he said, calling for major tariff cuts, he added.
He also said import-substitution policy was “obsolete”, adding sustained 7–8 per cent growth requires global integration. “Our industrial policy has been focused on the domestic market,” he said. “That is not compatible with persistent high growth.”
Global policy trends were shifting toward reshoring and friendshoring, requiring higher openness and productivity. Growth volatility has risen after 2020 compared with the stable 1991–2015 period. “Restoring that stability will require sustained policy discipline,” he added.
Former NBR Chairman Nasiruddin Ahmed proposed a presumptive tax system for small service providers based on self-declared turnover to simplify compliance.
Business leader Shams Mahmud said market distortions and concentrated policymaking were weakening private sector confidence, pointing to a “disconnect between the banking sector, bureaucracy and businesses since 2019”.
He said policy support should shift toward productive firms, alongside improved procurement efficiency, streamlined automation and a clearer LDC transition roadmap.
