The debate surrounding Bangladesh’s economic future is often oversimplified as a dilemma between state control and market forces. This is a false dichotomy. Effective markets depend on robust public institutions that enforce contracts, curb monopolies, provide reliable infrastructure and shield citizens from unmanageable risks.
Without these fundamental elements, the perceived freedom of enterprise can mask a more restrictive system in which established interests secure credit, contracts and concessions on terms that are inaccessible to average entrepreneurs. Therefore, Bangladesh’s critical challenge is not just to revive economic growth, but to establish the regulatory framework that ensures growth is productive, competitive and widely distributed.
Recent data underscores the practical importance of this discussion. The World Bank’s October 2026 Bangladesh Development Update forecasts economic growth of 3.4 per cent for both FY2026 and FY2027. However, it also estimates that approximately 2.1 million additional people fell into poverty in FY2026. These figures illustrate an economy where output recovery is inextricably linked to household incomes.
A favourable aggregate growth rate alone provides little insight into whether wages are regaining purchasing power, small businesses are surviving or young people are securing meaningful employment.
The primary function of a healthy market is the efficient allocation of capital. Banks are intended to channel savings towards projects that can generate sustainable returns. However, when lending decisions are swayed by undue influence, poor underwriting or the expectation of bailouts, the burden falls on depositors, taxpayers and creditworthy borrowers.
The World Bank reported a rise in non-performing loans to 33.2 per cent of total loans in June 2026, up from 30.6 per cent in December 2025. These figures represent more than just an accounting issue; they indicate a breakdown in financial intermediation and a significant barrier to investment for businesses without privileged access.
Banking reform should start with a credible acknowledgement of losses, transparent ownership of distressed assets and enforceable accountability for connected lending. It is crucial to differentiate between restructuring a viable business facing temporary challenges and repeatedly refinancing an unsustainable borrower. Regulators must make this distinction through independent assessments rather than discretionary judgement.
When bank resolution becomes necessary, it should protect small depositors and ensure financial stability without transforming public funds into an unconditional guarantee for those who profited from previous mismanagement. The goal is not punitive, but rather to restore commercial merit as the basis for credit decisions.
Fair competition extends beyond the banking system to encompass the broader operating environment. New manufacturers, for instance, may secure orders but then face unpredictable energy supplies, customs delays and high transport costs.
While established competitors might absorb these burdens or negotiate exemptions, smaller entrants often cannot. In such scenarios, market concentration may stem from unequal operating conditions rather than superior efficiency. Promoting entrepreneurship often benefits more from reducing regulatory discretion, publishing clear service standards and applying rules consistently than from additional schemes that distribute subsidised loans to a select few.
Public procurement offers a practical starting point. Open tenders, accessible documentation, timely payments and transparent disclosure of contract modifications can broaden participation and curb favouritism. Smaller suppliers also need fair opportunities to compete for appropriately sized contracts, free from irrelevant exclusionary requirements.
Competitive procurement should be evaluated not solely on the initial quoted price, but also on delivery quality, lifecycle cost and the demonstrable value public funds generate. Consequently, accountability in procurement is a development policy, not merely a compliance exercise.
The fiscal system presents a second challenge. Citizens expect improved schools, local health services, transport and protection from shocks, yet the state cannot finance these responsibilities without sufficient and predictable revenue.
The World Bank projects revenue collection at 8.3 per cent of GDP in FY2026, representing an exceptionally limited resource base. Tax reform must therefore expand compliance and reduce arbitrary exemptions, while simultaneously simplifying the tax system and making administration more predictable. Imposing sudden demands on compliant businesses, alongside ongoing leakage elsewhere, would discourage formalisation and reward those operating outside the system.
Revenue reform should be accompanied by public scrutiny of spending. Every major tax concession or subsidy should have a clearly stated purpose, an estimated fiscal cost, an expiry or review date and demonstrable evidence of its results. For example, a concession justified as an employment incentive should be evaluated by the number of additional jobs created, not merely by the size of the beneficiary’s investment announcement.
Similarly, public investments must be chosen through rigorous appraisal, with realistic maintenance costs and transparent procurement processes. The crucial question is not the total amount the government spends, but the lasting social and economic value each taka generates.
Energy subsidies illustrate why difficult reforms must be linked to fairness. While underpricing energy might protect some consumers in the short term, indiscriminate support often disproportionately benefits the households and businesses that consume the most.
Conversely, the sudden removal of such support could exacerbate difficulties for low-income families and smaller enterprises. A credible strategy would involve publishing a gradual adjustment timeline, enhancing metering and operational efficiency, and providing targeted compensation before cost burdens increase. Predictability is vital: investors require an understanding of future costs, and vulnerable households need assurance that adjustments will not simply transfer risk onto them.
Effective targeting is crucial for social protection. The World Bank’s October update reveals that approximately half of the poorest households are not covered by social protection programmes. This significant gap necessitates a reordering of fiscal priorities.
By implementing an improved social registry, transparent eligibility criteria and mechanisms for correcting wrongful exclusions, limited resources can be utilised more effectively. However, digital systems are not a substitute for due process; citizens must be able to challenge errors, and personal information must be protected. While a market economy can tolerate business failure, it should not accept destitution resulting from illness, job loss or disaster as an acceptable cost of competition.
Economic opportunity must also be evaluated through the lens of the labour market. The World Bank’s 2025 Poverty and Equity Assessment indicated that after 2016, growth became less inclusive, manufacturing job creation declined and many young workers remained in poorly paid employment.
For women, access to safe transport, childcare, enforceable workplace standards and secure employment are as vital as training. Apprenticeships linked to employers, portable skills credentials and reliable labour-market information are more beneficial than training programmes solely judged by the number of certificates issued. The purpose of education expenditure extends beyond mere enrolment; it aims to foster productive capability.
Therefore, Bangladesh must avoid conflating industrial diversification with a mere list of trendy sectors. Policy support for areas such as electronics, agro-processing, pharmaceuticals or digital services should address identifiable constraints, export potential and productivity gains. Such support should be time-bound and accessible to competing firms, rather than permanently granted to selected champions.
While industrial policy can correct coordination failures, without proper evaluation and an exit mechanism, it risks preserving inefficiency. The state’s role should be to provide shared infrastructure, testing facilities, credible standards and skills systems that enable new producers to enter the market and successful ones to expand.
Institutional reform demands political discipline because unequal rules always benefit some. To measure progress, governments should publish data on bank resolutions, procurement performance, tax expenditures, energy service quality and social protection coverage.
Independent auditing and parliamentary scrutiny, with consequences for findings, can enhance credibility. The government should report not just the number of reform committees, but whether credit reaches sound new enterprises, public contracts are delivered on time and low-income households receive intended support.
A dynamic private sector and an effective state are not contradictory; they are interdependent. Businesses invest when they trust the rules, infrastructure and macroeconomic stability.
Households participate in growth when their skills are rewarded and economic shocks do not erase years of effort. Bangladesh’s future development will hinge less on headline targets and more on everyday economic decisions: who can secure a fair loan, win an honest contract, receive reliable electricity or recover from the loss of a livelihood.
Public confidence in a market economy is earned only when rules, not relationships, govern opportunity.
The writer holds a PhD in Knowledge Management from Wuhan University of Technology in China. He is an Assistant Professor at the Bangladesh Institute of Governance and Management and Associate Editor of the BIGM Journal of Policy Analysis. He can be reached at [email protected].
Views expressed are solely those of the author
