Coordinated policies, disciplined finance

Bangladesh is not short of ambition; it is short of coordination.
Over the past decades, the country has demonstrated remarkable economic resilience. Export-led growth, remittance inflows, infrastructure expansion, and demographic strength have powered steady progress. Yet today, inflation remains elevated, the banking sector struggles with governance and asset-quality concerns, foreign-exchange reserves face pressure, and the capital market has yet to mature into a dependable source of long-term financing.
The question is no longer whether Bangladesh can grow; the real question is whether it can grow sustainably.
To secure the next phase of development, Bangladesh needs coordinated fiscal and monetary policy-anchored by a strong, disciplined banking system and a transparent, development-oriented capital market.
Given our current position, fiscal policy continues to prioritise infrastructure and social spending. However, revenue mobilisation remains limited relative to development ambitions. This constrains fiscal flexibility and increases reliance on borrowing.
Monetary policy, under the Bangladesh Bank, has focused on managing inflation and stabilising the external sector. Tightening measures have aimed to control price pressures and currency volatility. Yet inflation-particularly food inflation-continues to affect household purchasing power.
Beyond these, our Banking sector has been grappling with multiple structural weaknesses for a considerable period. Broadly speaking, the key factors underlying these challenges are as follows: elevated non-performing loans, weak credit risk assessment, governance shortcomings, concerns over politically influenced lending, and pressure on depositor confidence.
Besides, the capital market, overseen by the Bangladesh Securities and Exchange Commission, remains shallow and volatile. Equity trading is often driven by short-term sentiment rather than long-term capital formation. The corporate bond market is underdeveloped. Institutional investors remain limited in scale.
In short, Bangladesh's growth engine is active-but its financial transmission system is under strain.
Now the question arises, why does coordination become critical?
A closer examination of this question reveals that fiscal and monetary policies cannot operate in isolation from each other.
If fiscal expansion increases demand without improving supply capacity, inflation rises. If monetary tightening responds aggressively, productive investment slows. If policies move in conflicting directions, uncertainty deepens. Bangladesh needs a calibrated balance.
Fiscal policy must prioritise productivity-enhancing investment in transport, energy, agricultural modernisation, SME development, logistics, and digital infrastructure. These investments expand supply capacity and reduce structural inflationary pressures.
Monetary policy must anchor inflation expectations while ensuring that productive sectors retain access to credit. A medium-term inflation range of around 5-6 per cent may strike a practical balance between growth support and price stability.
Coordination does not mean undermining central bank independence. It means aligning macroeconomic signals so that investment, credit, and production reinforce one another.
In such a scenario, bringing discipline to the banking sector could be the primary means of reform because no fiscal or monetary strategy can succeed without a disciplined banking system.
Banks channel national savings into productive investment. When loan appraisal is weak, recovery mechanisms are ineffective, or governance is compromised, economic policy loses traction.
Hence, we must reinforce these areas to overcome the following obstacles, such as: transparent and strict credit appraisal standards, political neutrality in lending decisions, timely classification and resolution of non-performing loans, strong supervisory enforcement, and protection of depositor confidence
It is important to keep in mind that public deposits are not private instruments-they are national resources. Safeguarding them is central to both microeconomic stability and macroeconomic resilience.
A disciplined banking sector improves credit allocation at the firm level while strengthening financial stability at the national level.
Alongside the banking sector, maintaining stability in the capital market and ensuring long-term financing are essential. Bangladesh cannot depend indefinitely on short-term deposit-funded bank loans to finance long-gestation infrastructure and industrial diversification.
A strong capital market must share this responsibility through reforms that strengthen listing and disclosure standards, accelerate corporate and infrastructure bond development, expand pension, insurance, and mutual fund participation, and enhance post-IPO monitoring and enforcement.
Deep capital markets mobilise domestic savings, diversify risk, and reduce pressure on banks. They support entrepreneurship, innovation, and industrial upgrading.
Without capital market discipline, growth financing remains structurally incomplete.
Furthermore, a bridge must be established between the microeconomy and the macroeconomy. To this end, the following policies can be effective at the micro-level: stable, affordable credit for SMEs; predictable input costs for manufacturers; accessible agricultural finance; and improved business confidence.
Similarly, the policies that are vital for the macro-level economy include managing inflation, strengthening financial stability, reducing external vulnerability, and promoting sustainable investment expansion.
Herein, growth becomes more resilient, not merely higher.
Apart from ensuring theses aspects, Bangladesh's next development phase requires four integrated commitments and that are: growth-focused fiscal reform - prioritise productive spending and strengthen revenue mobilisation, credible and balanced monetary policy - anchor inflation while supporting productive credit, strong and disciplined banking governance - enforce accountability and protect deposits, deep and transparent capital market reform - develop long-term financing instruments and institutional participation.
Finally, it can be said that Bangladesh does not face a choice between growth and stability. It must secure both.
Coordinated fiscal and monetary policy-supported by disciplined banking and strong capital markets-is not a theoretical framework. It is the practical foundation of sustainable development.
The country's next growth chapter will depend less on how much it spends and more on how well it coordinates, governs, and disciplines its financial system.
The future of Bangladesh's economy will not be determined only by ambition; it will be determined by coherence.

The writer is vice-chairman, AB Bank.