I am neither an economist nor someone who particularly enjoys pretending to be one. Professional necessity, unfortunately, requires keeping an eye on the subject.
Joan Robinson supplied perhaps the best justification for doing so. The purpose of studying economics, she said, was to learn how not to be deceived by economists.
Bangladesh offers an unusually good laboratory for practising that skill.
Ever since Sheikh Hasina fled in August 2024, my view has been that the central problem facing the Bangladeshi economy is not simply that it is weak. It is that the country has remarkably few painless policy choices left.
Consider monetary policy.
Bangladesh cannot maintain punishingly high interest rates indefinitely. Businesses have already spent two years complaining about the cost of money, investment remains anaemic and private-sector credit growth had slowed to just 5% by May. Bangladesh Bank itself has now acknowledged the problem, cutting its policy rate and lowering its private-credit-growth expectations.
But lowering rates presents the opposite danger. Inflation has not disappeared. Cheaper money may help companies that desperately need credit, but if monetary easing outruns improvements in supply, productivity and confidence, Bangladesh risks discovering that the cure for stagnation is another bout of inflation.
This is the sort of choice economists politely call a “trade-off”. Ordinary people might describe it as choosing which part of the body they would prefer to hurt. And the timing could hardly be worse.
Just as Bangladesh was trying to stabilise its post-Hasina economy or fixing the ‘wonder’ of ‘Hasinomics’, the Iran war delivered an external shock over which Dhaka has essentially no control.
Bangladesh imports roughly 95% of its oil requirements and remains heavily dependent on imported LNG. Disruption around the Strait of Hormuz has therefore turned somebody else’s war into Bangladesh’s inflation problem and balance-of-payments problem. Well, an industrial problem too.
The World Bank warned in April that a prolonged Middle Eastern conflict could push inflation higher, increase energy subsidies, weaken the current account and further squeeze fiscal space. It expects growth of only 3.9% in FY2026.
Global LNG markets remain tight, while oil prices have swung violently as every military and diplomatic development in the Gulf is repriced. Bangladesh has thus acquired the economic equivalent of a leaking roof just as the monsoon arrives.
Meanwhile the government is embarking on an ambitious expansion of social protection. The FY2026-27 budget allocates roughly 144,000 crore taka to the social safety net, substantially above the previous year. The impulse is understandable. After years of inflation, declining real purchasing power and economic disruption, poorer Bangladeshis plainly need help.
The awkward question is who pays.
There is an increasingly fashionable argument that Bangladesh's tax-to-GDP ratio is abnormally low and therefore the solution is straightforward…collect more taxes. Perhaps. But there are at least two complications.
The denominator itself deserves more scepticism than it once did. The post-Hasina White Paper documented serious concerns about manipulation of economic statistics and the credibility of the previous government's growth narrative. If GDP was overstated, endlessly comparing tax receipts with that inflated GDP produces a rather peculiar policy debate.
More importantly, a low tax-to-GDP ratio does not mean every existing taxpayer is undertaxed.
Bangladesh has spent years squeezing a relatively narrow formal tax base while large portions of wealth and economic activity remain poorly taxed or outside the system altogether. The salaried professional, legitimate business and compliant company therefore hear “we need to increase the tax-to-GDP ratio” rather differently from the economist presenting a policy proposal.
The economist sees fiscal capacity. The taxpayer sees another hand approaching his wallet. That matters because capital and skilled people are considerably more mobile than government spreadsheets assume.
Push the formal sector hard enough while providing unreliable electricity, weak public services, arbitrary regulation and a depreciating currency, and eventually some taxpayers stop asking how much tax they owe and start asking what an apartment costs in Dubai.
Capital flight is not an abstract concern in an economy emerging from an extraordinary period of financial extraction.
The White Paper commissioned after Hasina's fall estimated that illicit financial outflows during the previous regime were enormous. Estimates of the broader destruction or extraction of national wealth have ranged into hundreds of billions of dollars.
Although such numbers should be treated cautiously as stolen assets, illicit flows, misallocated capital and inflated GDP are different things and should not be casually added together.
Foreign-exchange reserves offer a more tangible yardstick.
Bangladesh's BPM6 reserves stood at roughly $21.8 billion at the end of FY2024. By early July 2026 they had risen above $33 billion an improvement of roughly $11 billion.
That is an important achievement. It is also a useful lesson in scale.
If a country loses economic assets measured in hundreds of billions of dollars, accumulating an additional $5 billion-$6 billion of usable foreign exchange a year does not quickly repair the balance sheet. At that pace, recovering even $250 billion would take several decades.
And the comparison may actually flatter the future. The Yunus interim administration operated during an exceptional period in which political scrutiny of money laundering was intense and many of the old channels of politically protected capital flight were disrupted. There is no guarantee that those conditions will persist indefinitely.
Then there are the banks.
At the end of March, Bangladesh's classified loans had reached 589,000 crore taka, equivalent to 32.26% of outstanding loans. This is the financial system through which Bangladesh is supposed simultaneously to finance a private-sector recovery, recapitalise weak banks and lend money to the government.
Something eventually has to give.
Government borrowing can fill fiscal holes, but aggressive domestic borrowing risks crowding out businesses just when policymakers are trying to revive investment. Printing money would be easier still, except Bangladesh has fairly recent memories of what monetary financing can do to inflation and the currency.
Tax more, borrow more, print more, cut interest rates… every conventional lever now seems connected to an alarm.
Debt servicing makes the problem still less comfortable. The relevant issue is not whether Bangladesh is technically insolvent — it is not — but how much room remains after interest payments, subsidies, public-sector salaries, pensions and other recurrent commitments have taken their share.
Fiscal space is ultimately opportunity cost wearing a tie. Every taka spent servicing yesterday's obligations is a taka unavailable for education, healthcare, infrastructure or productive investment tomorrow.
Which brings us to an issue Bangladesh's economic debate frequently avoids…perhaps the problem is not merely that the government collects too little money. Perhaps the government itself costs too much for what it produces.
Bangladesh maintains a large bureaucracy whose productivity is difficult to measure generously. Around it exists something less visible but economically just as consequential: the political economy of patronage.
In a normal textbook economy, an asset is expected to produce income. The state taxes some of that income and provides public goods. Bangladesh has traditionally demanded rather more from an asset.
A factory, shop, property development or transport business must generate enough money for the owner, enough taxable income for the government, enough informal payments to navigate parts of the bureaucracy and, in many places, enough political tribute — chaanda, commissions or “contributions” — to satisfy whichever network possesses the temporary privilege of extracting it.
Political economists have sophisticated terminology for this arrangement. Bangladeshis generally require fewer syllables.
The crucial question after 2024 was therefore never simply whether the country could replace one political party with another. It was whether it could dismantle an economic operating system in which politics itself had become a layer of taxation.
If that system survives, increasing exports will help. Higher remittances will help. More foreign investment will certainly help. Better reserves will help. But Bangladesh will still be attempting to fill a bathtub without closing the drain.
The new government has set ambitious targets. Its 938,000 crore FY2026-27 budget envisages 6.5% growth, 7.5% inflation and sharply higher spending. Revenue is supposed to rise to 695,000 crore while development expenditure jumps substantially.
These numbers describe the Bangladesh the government would like to have. The banking data describe the Bangladesh it actually inherited.
Private credit is weak. Non-performing loans remain enormous. Inflation remains uncomfortable. Energy security has deteriorated because of a war thousands of kilometres away. The World Bank expects growth well below the government's target.
And an ambitious welfare programme is arriving precisely when the state needs simultaneously to repair banks, restore investment and rebuild fiscal credibility.
There is no magic policy rate that resolves all of this.
Bangladesh will probably experiment. Rates will rise and fall. Taxes will be rearranged. Subsidies will be introduced and withdrawn. Banks will receive restructuring schemes with increasingly imaginative names. Governments will announce export targets containing impressively large numbers.
Some measures will work temporarily. Others will merely move losses from one balance sheet to another. The more interesting possibility is one Bangladesh has rarely seriously attempted…making the state cheaper.
That means asking whether every ministry, directorate, agency, project and administrative layer needs to exist at its present size. It means digitising services not merely to create another app but to remove bureaucratic discretion. It means selling or closing chronically unproductive state assets.
It means forcing government expenditure to justify itself in terms of measurable public value. Most importantly, it means reducing the unofficial political tax imposed on economic activity.
The traditional Bangladeshi development model has quietly assumed that businesses can carry the state, bureaucracy and political machine simultaneously. During periods of rapid growth, there was enough money moving around to disguise the inefficiency.
There is less room now.
The answer therefore cannot simply be finding more dollars.
Suppose Bangladesh succeeds spectacularly and earns another $10 billion annually from exports, remittances and investment. Excellent. But if every additional dollar enters an economy burdened by inefficient institutions, distressed banks, rent-seeking bureaucracy and an expensive political patronage system, part of the new wealth will disappear into precisely the machinery that consumed the old wealth.
Productivity is not merely about making workers more efficient. Governments can be unproductive too.
That is why Bangladesh's next economic reform may need to be less about extracting additional resources from the economy and more about reducing what the political state extracts from it.
Hasina's ‘great economic legacy’ was not simply debt, bad loans, inflation or depleted reserves. It was the destruction of the policy room. Choices that would be routine in a healthier economy — monetary easing, fiscal expansion — now carry unusually large risks because the buffers that make mistakes survivable have already been weakened.
The country is therefore discovering an unpleasant truth.
When you have exhausted the easy ways of finding more money, eventually you have to confront the harder question of why everything costs so much.
And that may require Bangladesh to attempt the one economic reform its political class has historically found most terrifying…asking the government and the political machinery attached to it to live on less.
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Nayel Rahman is a political analyst