Revenue, defaults and the coming storm

FE Team | Published: May 02, 2026 20:46:50

For all the electoral enthusiasm of February, change of government in Bangladesh has not brought with it any substantial change in the economic condition. The early optimism of a new dispensation has already worn thin. As it turns out, the country is caught between the failures that long predate the new government and fresh external pressures that have arrived with little warning. Finance Minister Amir Khosru Mahmud Chowdhury did not pretend otherwise when he recently warned parliament of two difficult years ahead, and the figures he cited left little room for misreading the situation. The country's tax-to-GDP ratio has now fallen below 7 per cent, the lowest in South Asia, while the poverty rate stands at 29.93 per cent. Default loans in the banking sector have ballooned to over 30 per cent of total lending, a threshold at which, as the minister himself acknowledged, an economy nearly grinds to a halt. The April 2026 Economic Update from the General Economics Division only reinforces this distress signal noting that headline inflation eased only marginally to 8.71 per cent and non-food inflation remained stubbornly high at 9.09 per cent. In the meantime, the National Board of Revenue (NBR) collected only Tk 335 billion against a revised target of Tk 532 billion in March, demonstrating that the state's capacity to fund its own obligations remains deeply in question.
Obviously, the reason this situation is so resistant to speedy repair is that it is the result of purposeful choices made over the course of a decade and a half. The banking sector, for instance, could not have gotten to its 30 per cent non-performing loans as a result of random chance. This occurred due to the fact that political patronage was prioritised over regulatory supervision, and connected borrowers were permitted to extract capital with minimal repercussions. Nevertheless, the new government can only go so far by referencing that legacy. At some point, and that point is arriving faster than the government may be comfortable with, the ruling BNP would be judged not by what it was handed but by what it does with it. The immediate-past interim administration, for all its accountability efforts, failed to reverse this economic downturn, leaving the new government with the same liabilities and no clear way out. This is perhaps most evident in the state of revenue collection where the disparity between fiscal need and fiscal capacity is still enormous. How much budgetary manoeuvre can the government be reasonably expected to do to support its social security or public investment when its tax department could hardly meet 60 per cent of its own revised monthly targets?
Throughout this period, remittances have been a vital lifeline, boosting the external account and helping to preserve reserves at generally comfortable levels despite monthly swings. The cushion so far has kept greater balance of payments concerns at bay. Nevertheless, it will not be able to permanently fix the fundamental issues with revenue mobilisation, subdued investment and energy-driven cost pressures that make prices go up and hurt competition. More concerning is the approaching graduation from LDC status in November 2026, which will remove tariff preferences covering roughly 70 per cent of global exports and add further strain to an already unstable economic condition.
The two difficult years the finance minister has spoken of will undoubtedly test the government's resolve. But difficulty is not the same as futility, and those two years can still be made purposeful ones provided the government has the institutional will and foresight to address what's coming in its its way.