The new finance minister, Amir Khosru Mahmud Chowdhury, faces an urgent challenge with inflation taking the spotlight amidst his broader agenda of fiscal reforms, banking stability, and negotiations with international lenders. As Ramadan begins, a time typically marked by increased demand for essential goods and subsequent price hikes, recent data showing a rise in inflation to 8.58 percent year-on-year in January, contrary to expectations of a slowdown, adds to the pressure.
Of particular concern is the acceleration of food inflation to 8.29 percent in January from 7.71 percent in December, underscoring the critical link between public perception of the government’s economic management and food prices. Professor Selim Raihan from Dhaka University emphasizes the need for a coordinated effort across ministries to combat unjustified price increases, as past governments have struggled in this area.
The new administration, led by Prime Minister Tarique Rahman, inherits an economy dependent on external support, highlighted by Bangladesh entering an IMF program in January 2023 due to a sharp decline in foreign exchange reserves. The upcoming IMF mission will focus on fiscal discipline, monetary tightening, and reform progress, crucial for securing continued support from international lenders.
Economist Mustafizur Rahman stresses the importance of careful resource assessment by the finance minister amid the IMF’s push for contractionary monetary policy to curb inflation. While stabilizing reserves provides some relief, the economy’s sluggishness poses challenges, with investments slowing, imports moderating, and credit growth in the banking sector at historic lows.
The looming decision on implementing a Pay Commission recommendation to raise civil service salaries, estimated to cost around Tk 1 trillion annually, further complicates the fiscal landscape. Revenue mobilization becomes critical as Bangladesh has struggled to generate a revenue surplus for nearly two decades, relying heavily on borrowing to fund its development programs.
Public debt has surged by around 60 percent in just over three years, reaching Tk 21.5 trillion by September 2025, with a shifting composition towards more bank financing. The government must increase revenue from an undertaxed economy, with VAT collection leakage being a notable concern that could be addressed through improved tax administration and modernization of collection systems.
Structural reforms, such as granting autonomy to the central bank and overhauling the National Board of Revenue, are essential but slow to materialize. The banking sector also requires significant repair, with key amendments stalled, hindering confidence in financial institutions necessary for investment and growth recovery.
As Bangladesh approaches graduation from the Least Developed Country (LDC) category, trade preferences may phase out, impacting exports. The government is considering seeking a three-year deferment from graduation to mitigate potential adverse effects on the economy.
Navigating through these interconnected challenges, from stabilizing food prices to negotiating with international lenders and implementing crucial reforms, will test the new administration’s policy acumen, coordination, and political determination. Success in addressing these issues will lay the groundwork for a stable and effective term, while failure could quickly erode the initial optimism of returning to power in challenging economic times.
