What's in store for post-poll govt?

Following a consultation with Bangladesh at the end of January 2026, the global multilateral lender IMF in a press release made a rather cautious forecast about the economy under the post-election government. The IMF was somewhat positive about GDP's growth prospect amidst the recent economic slowdown. However, it projected the GDP growth at 4.7 per cent in 2026 and 2027. At the same time, the international lender cautioned that the economy would continue to face, what it termed, mounting macro-financial challenges arising from weak tax revenue and financial sector vulnerabilities. This was only expected as the interim government was not prompt enough to start the promised fiscal and financial reforms earlier. Evidently, as a post-July 2024 upsurge government, it failed to show the boldness it should have in carrying out the reform in the financial sector.

For instance, little progress has been made in rescuing the banking sector weighed down by non-performing loans (NPLs). So, the onus will be on the next administration to frame policies to implement comprehensive structural reforms on the medium-term with an eye to maintaining fiscal sustainability and strengthening macro-financial stability. The thrust of the medium-term reform should be on strengthening governance, creation of jobs and promotion of economic diversification. Obviously, the post-election government will be faced with a clouded outlook for the economy. That is due to a confluence of factors including structural weakness, stubbornly high inflation and financial sector vulnerabilities. These are a legacy of the past government that will continue to dog the next elected one. Notably, the financial fragility is due to a banking sector that is suffering from low level of capital and, as noted before, high level of non-performing loans and weak governance. Curbing inflation, which as predicted by IMF would be between 8.5 and 8.9 per cent in 2026, will remain the biggest challenge before the next elected government.

In fact, there is no short-cut formula to combat inflation other than by reducing excessive demand through increasing supply. The central bank, as it has been doing so far, has been trying to resolve the inflation issue through tightening money supply by raising interest rates. The money supply in the market can also be reduced by selling government bonds. The government can also cut its spending and/or raise taxes as part of its contractionary fiscal policy. Improving supply-side efficiency is yet another option that the government will need to focus on to ease inflation. At the same time, use of subsidies (keeping government spending within certain limits, though) and controlling commodity prices are some of the tools to tame inflation. A slide in the value of taka needs also to be arrested to check commodity price hike. In this context, higher income taxes or VAT to reduce disposable income should target the highest earners including both individuals and businesses, rather than taxing the lower income segments of the economy.

Establishing fiscal discipline towards a long-term fiscal sustainability and stability in public finances also helps reduce inflation risks. Increasing productivity through investing in technology and infrastructure can enhance efficiency and reduce production costs. This is one way of cost control as part of supply-side policies. Reducing high-interest debts, investing in inflation-resistant assets such as gold, real-estate, etc., are also tools used against inflation. To be frank, instead of applying a single tool like raising interest rate, a slew of measures can be used to tame the kind of intractable inflation that Bangladesh has been experiencing since long. Among other issues, increasing tax-to-GDP ratio, the focus should be on direct taxation, automation and simplification of tax laws to ensure compliance. Also, creating jobs for the growing number of graduates that the industry in its present stage cannot absorb will be a top priority area for the post-election government.

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