Can Bangladesh build a democratic, humane & inclusive economy?

The theme of Bangladesh’s national budget for fiscal year 2026–27—”Towards a Democratic, Humane and Inclusive Economy”—is among the most ambitious framings attached to an annual fiscal document in recent years. It reflects a growing recognition that the country’s development challenge is no longer simply how to generate economic growth, but how to ensure that the benefits of growth are distributed more broadly and equitably. Concerns about inequality, youth unemployment, unequal access to opportunities and the concentration of economic power have, therefore, moved closer to the centre of policy debate.
But how should such an aspiration be evaluated? Ultimately, the budget must be judged not by its rhetoric but by its fiscal priorities and policy choices. Three questions are particularly important. First, who pays and who benefits from the state’s fiscal system? This is the test of a democratic economy. Second, does the state merely protect people from economic hardship, or does it also expand their capabilities and opportunities? This is the test of a humane economy. Third, who gains access to economic opportunities, productive employment and the benefits of growth? This is the test of an inclusive economy.
The answers to these questions offer an important window into the kind of development state Bangladesh is seeking to build.
THE DEMOCRATIC ECONOMY: FISCAL STRUCTURE AND DISTRIBUTIONAL POWER: A democratic economy means more than competitive elections or parliamentary representation. It concerns the fairness of economic institutions, the distribution of opportunities, and the ability of citizens to influence how public resources are allocated. At its foundation is a fiscal system that distributes both burdens and benefits equitably.
Bangladesh’s revenue structure, however, remains structurally regressive. Approximately 70 per cent of tax revenue continues to derive from indirect sources—VAT, customs duties and excises. Indirect taxes, whatever their administrative convenience, impose a proportionally heavier burden on lower- and middle-income households: a garment worker purchasing essential goods and a wealthy industrialist purchasing the same goods pay identical VAT rates, but that tax consumes a far greater share of the worker’s income. The result is a tax system that struggles to reduce inequality.
Direct taxation has expanded at the margins, but not sufficiently to alter this structural reality. As income and wealth inequality widens—a trend visible in urban land markets, banking sector credit concentration and the expanding fortunes of a narrow commercial elite—the failure to build a genuinely progressive tax regime becomes not merely a fiscal problem but a democratic one. It signals that those with the greatest capacity to contribute to public goods bear a proportionally lighter burden than those with the least.
Fiscal decentralisation presents a parallel concern. Despite longstanding commitments to local governance strengthening, most public expenditure decisions remain centralised. Local government institutions operate with limited fiscal autonomy and constrained revenue-raising authority, leaving citizens with little meaningful influence over resources that directly shape their communities. A democratic economy requires not only representative institutions at the centre but devolved fiscal authority at the periphery.
Yet fairness in taxation and resource allocation is only one dimension of a democratic economy. Equally important is whether public spending expands people’s capabilities and opportunities. This brings us to the budget’s second aspiration: building a humane economy.
THE HUMANE ECONOMY: PROTECTION VERSUS TRANSFORMATION: Viewed through a humanitarian lens, the 2026–27 budget contains genuine strengths. Social protection allocations exceed Tk 144,000 crore, and in the context of persistent inflation, labour market uncertainty and worsening climate-related vulnerabilities, this expenditure provides an essential safety buffer for millions of low-income households. The expansion of social transfers is not trivial; it reflects a policy recognition that growth alone does not protect the vulnerable.
Yet a humane economy requires more than protection—it requires transformation. There is an important analytical distinction between a state’s protective capacity and its transformative capacity. Protective policies reduce immediate suffering; transformative policies expand human capabilities and long-run opportunities. Sustainable development depends on the latter.
This distinction becomes stark in education and healthcare sectors. Despite absolute increases in allocations, public spending on education remains around 2 per cent of GDP—well below the UNESCO-recommended benchmark of 4–6 per cent—and public health expenditure hovers near 1 per cent of GDP, the lowest in South Asia. The consequence is that more than 70 per cent of healthcare costs continue to be financed directly by households through out-of-pocket payments. Such chronic underinvestment does not merely constrain access to services; it entrenches intergenerational inequality by limiting the social mobility of families unable to absorb private health or education costs.
The same logic applies to skills and workforce development. Bangladesh’s demographic dividend—a large, young, working-age population—is an asset with a limited window of productive utilisation. Automation, digitalisation and restructuring global value chains are transforming labour markets at pace. Yet investments in technical and vocational education, innovation infrastructure and digital capability remain modest relative to the scale and urgency of that transition. A humane economy cannot afford to leave its youth underprepared for a rapidly changing economic environment.
Capability formation ultimately matters because it determines whether people can participate meaningfully in economic life. In practice, that participation is most clearly reflected in access to productive employment.
THE INCLUSIVE ECONOMY: EMPLOYMENT AS THE CENTRAL TEST: If one indicator best captures whether an economy is truly inclusive, it is productive employment. Employment is not merely a source of income; it is the primary vehicle of dignity, social mobility and economic participation. For most households, the most effective form of social protection is not a transfer payment but a decent and secure job.
Yet employment receives insufficient prominence in the budget’s narrative. Bangladesh continues to face significant and growing challenges: youth unemployment, graduate underemployment and structural skills mismatches that neither the education system nor the labour market has adequately addressed.
The data are concerning. According to the Bangladesh Bureau of Statistics Labour Force Survey, nearly 1.94 million young people aged 15–29 were unemployed, representing approximately 7.2 per cent of the youth labour force, and youth account for nearly four-fifths of total unemployment. More strikingly, the Labour Force Survey 2024 recorded an unemployment rate of 13.5 per cent among university graduates—the highest of any educational group—with around one-third of graduates remaining unemployed for up to two years after completing their studies. Of the country’s 2.62 million unemployed individuals, approximately 885,000 held university degrees.
These figures point to a structural disconnect between educational expansion and productive employment generation. Bangladesh has successfully broadened access to tertiary education; it has not yet built the economic structures capable of absorbing a more educated workforce into productive, well-remunerated employment. When higher education no longer reliably delivers economic mobility, public confidence in both institutions and development can begin to erode—a cost that extends well beyond labour market statistics.
An inclusive economy requires policies that actively support labour-intensive sectors, reduce barriers to entrepreneurship, and forge stronger institutional linkages between education and labour market demand. Employment creation must be treated not as a secondary outcome of growth but as a primary development objective in its own right.
At its core, the challenge is one of capability formation. Countries that successfully moved into upper-middle-income status invested heavily in education, health, technical skills and innovation systems. The long-term success of Bangladesh’s development strategy will depend on whether public expenditure increasingly shifts from consumption support towards investments that enhance productivity and human potential.
INCLUSION AND THE CONCENTRATION OF ECONOMIC POWER: A deeper structural concern underlies these sectoral challenges. Bangladesh’s development model has, over time, produced significant concentrations of economic power. In banking, large-scale industry, import trade, energy and real estate, economic resources and market influence are increasingly concentrated among a relatively narrow set of actors. Bangladesh Bank data show a high concentration of credit among a relatively small number of large borrowers, while SMEs continue to receive a disproportionately small share of formal financing. Over 70 per cent of loans concentrated among a small number of business groups. The banking sector’s non-performing loan crisis is, in part, a symptom of this concentration: large enterprises have historically absorbed a disproportionate share of institutional credit, while small and medium enterprises—the primary engines of employment and local economic dynamism—face persistent financing constraints.
This is a paradox of inclusive development. Those who generate the greatest share of jobs often face the greatest barriers to capital and opportunity. Inclusive growth cannot be achieved through social transfers alone; it requires competitive markets, accessible finance, lower barriers to entrepreneurship, and institutional safeguards against the capture of economic rents by politically connected elites.
The budget emphasises redistribution through social protection mechanisms and places comparatively less weight on the structural and institutional reforms necessary to democratise access to economic opportunities.
WHAT KIND OF DEVELOPMENTAL STATE IS EMERGING?: Bangladesh has already demonstrated that it can generate growth. The challenge of the next decade is whether it can broaden access to the opportunities created by that growth. A democratic, humane and inclusive economy will not emerge from social transfers alone. It will require stronger investment in human capabilities, productive employment, competitive markets and a more progressive fiscal system. The success of Budget 2026–27 should therefore be judged not by the size of its allocations, but by whether it expands the economic agency of ordinary citizens and makes growth more broadly shared.

Golam Rasul, Ph.D is a Professor of Economics at the International University of Business Agriculture and Technology (IUBAT), Dhaka.
golam.grasul@gmail.com