Three economic priorities for the upcoming political government

The upcoming parliamentary election, scheduled for February 12, is of exceptional political and economic significance for Bangladesh. For many years, elections failed to serve as genuine instruments of democratic choice. The lack of meaningful opposition participation, allegations of vote manipulation, and ritualistic voting practices weakened democratic institutions and entrenched an increasingly authoritarian system. A generation of young citizens grew up without getting to exercise their right to vote, leading to political disengagement, erosion of public accountability, and a collapse of trust in state institutions. The election, therefore, offers a historic opportunity to restore democratic legitimacy, rebuild public confidence, and reset the relationship between citizens and the state.

However, restoring electoral credibility alone will not be sufficient. The next government will inherit an economy under severe strain after years of policy complacency, institutional erosion, and weak macroeconomic management. 

In recent years, Bangladesh’s economic momentum has weakened. Growth has slowed, inflation has remained stubbornly high, and the banking sector continues to struggle under the weight of rising non-performing loans. Low private and foreign investment, inefficient public investment, rising public debt, declining real wages, and weak employment generation are placing a lasting strain on the economy.

Against this challenging backdrop, the newly elected government will inherit a daunting reform agenda aimed at restoring economic discipline, strengthening governance, and delivering better outcomes for ordinary citizens. The list of priorities is long and complex. However, three urgent and interconnected issues stand out and require immediate, decisive attention. These will shape not only the direction of economic recovery, but also the credibility and effectiveness of the new administration.

First, controlling inflation must be the new government’s top economic priority. Over the past several years, the country has experienced persistently high inflation, driven mainly by rising food and energy prices. As food accounts for more than half of household expenditure for low-income families, rising prices have significantly reduced purchasing power and increased financial pressure across income groups. Wage growth has lagged inflation, leading to declining real incomes and eroding household savings, while middle-income families have reduced spending on education, healthcare and nutrition.

High inflation also weakens overall economic performance. It creates uncertainty for businesses, discourages long-term investment, puts pressure on the exchange rate, and undermines confidence in economic management. Once inflation expectations become entrenched, restoring price stability becomes more difficult and costly.

Inflationary pressures reflect both global shocks and domestic policy weaknesses. While higher global commodity prices raised import costs, exchange rate controls delayed adjustment and encouraged speculation. Energy prices were kept below cost for years and then adjusted sharply, raising production costs. Heavy government borrowing from the banking system added demand pressures, while weak competition, poor storage facilities and inadequate transport infrastructure constrained food supply.

The next government must adopt a comprehensive and credible anti-inflation strategy. Bangladesh Bank should be granted clear operational independence to prioritise price stability, supported by a transparent interest rate framework aligned with economic conditions. Fiscal discipline must be restored by reducing reliance on bank borrowing and strengthening revenue mobilisation, so that monetary policy can operate effectively and inflationary pressures are contained. 

Food market reforms should focus on strengthening competition, dismantling syndicates and hoarding, improving storage and transport infrastructure, and raising agricultural productivity. Energy pricing should follow a predictable, rules-based adjustment mechanism to avoid abrupt shocks. A transparent, automatic pricing formula, linked to global fuel prices and exchange rate movements, would allow gradual adjustments, reduce fiscal risks from subsidies, and provide greater certainty for households and businesses.

Second, private investment is essential to restoring growth, productivity, and job creation. Investment drives long-term economic expansion by supporting innovation, industrial upgrading and employment. In recent years, however, Bangladesh’s investment momentum has weakened. Private investment has stagnated, while rising public investment has delivered limited returns due to concerns about project quality, governance and efficiency.

Foreign direct investment remains particularly weak relative to regional competitors. This reflects persistent concerns about policy uncertainty, regulatory complexity, weak contract enforcement, infrastructure bottlenecks, bureaucratic inefficiencies, and financial sector fragility. Together, these factors have undermined investor confidence and discouraged long-term capital commitments.

The banking sector has become a major constraint on investment. Political interference, weak governance, and repeated loan rescheduling have eroded credit discipline. Productive firms struggle to access finance, while connected borrowers continue to receive preferential treatment, distorting capital allocation and weakening financial intermediation.

A comprehensive reform agenda is required to restore investment momentum. Banking sector governance must be strengthened, loan recovery enforced, asset quality reviews completed, and regulatory forbearance phased out. At the same time, the business environment must improve through streamlined regulation, digitised public services, simplified tax administration, reduced discretionary authority, and stronger contract enforcement.

Infrastructure development must prioritise efficiency and reliability over scale alone. Persistent weaknesses in power supply, ports, customs, and logistics continue to drive up business costs and undermine export competitiveness. Without modern infrastructure and predictable regulation, the country will struggle to integrate into global value chains and diversify its economy.

Third comes job creation. Bangladesh stands at a demographic crossroads. Around two million young people enter the labour force each year, yet employment growth has lagged far behind. Youth unemployment is more than twice the national average, and most new jobs are informal, with low productivity. Educated unemployment is rising, exposing a growing mismatch between education and labour market needs. This is not only an economic failure but also a social and political risk. 

Job creation depends on restoring macroeconomic stability and reviving investment. High inflation erodes real wages, weakens consumer demand, and discourages hiring. Low private investment limits firm expansion and the formation of new enterprises. A stable macroeconomic environment, predictable policies, and a business-friendly regulatory regime are therefore essential foundations for employment growth.

Targeted labour market reforms are equally critical. Education and training must align with industry demand, with a major expansion of well-funded technical and vocational programmes. SMEs, the main source of employment globally, need easier access to finance, stronger market linkages, and simplified regulations. A focused SME growth strategy can rapidly create large numbers of jobs.

If employment opportunities grow, the gains will be transformative: higher incomes, lower poverty, stronger domestic demand, a broader tax base, and greater social cohesion.

The upcoming election is not only about who governs Bangladesh but also about how it is governed. Democracy must be matched by economic discipline, leadership and accountability. If the new government governs with courage and responsibility, the country can begin a new chapter of stability, opportunity and trust.

Dr Fahmida Khatun is executive director at the Centre for Policy Dialogue (CPD). 

Views expressed in this article are the author's own. 

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