Bangladesh's economic success over the past two decades is undeniable. Yet behind this narrative of steady growth lies a fundamental weakness that threatens the sustainability of that progress-namely, sustainable development. This weakness is the abnormally low tax-to-GDP ratio.
With tax collection amounting to only 7-7.5 per cent of gross domestic product (GDP), Bangladesh ranks among the lowest in South Asia and remains far below international standards. While many lower-middle-income countries collect a significantly higher share of revenue, and developing economies on average collect around 18-25 per cent of GDP in taxes, Bangladesh continues to operate with a narrow and structurally weak revenue base. Even within South Asia, several peer economies outperform Bangladesh by a considerable margin.
This is not merely a statistical shortfall-it is a structural constraint. A state that cannot collect adequate revenue cannot invest sufficiently in its own agricultural and social welfare sectors, cannot build strong institutions, and cannot sustain inclusive development. In other words, Bangladesh's growth is outpacing its revenue capacity.
Therefore, increasing the tax-to-GDP ratio is not a technical adjustment, it is an economic necessity. Without a certain expansion of the tax base, the strengthening of tax administration, and the proper use of tax revenues, the country's development is bound to remain fragile. Under these circumstances, it is impossible for Bangladesh to enter the next stage of development.
Over the past two decades, Bangladesh's economic performance has been widely praised. From attaining lower-middle-income status in 2015 to maintaining respectable GDP growth rates, the country has often been presented as a development success story. Yet behind these achievements lies a more fragile reality: an economy that has reached a crossroads, where the past drivers of growth are losing momentum and structural weaknesses are becoming increasingly difficult to ignore.
The question is no longer whether Bangladesh can achieve growth; rather, the question is whether the country can grow well, sustainably, and inclusively.
At this crossroads, let us consider what the "Ten Commandments," or "ten essential imperatives," for Bangladesh's economy should be.
First, investment is the driving force of growth. Therefore, mobilising funds for investment is the most important task. The first and foremost means of raising these funds is tax collection. For this reason, expanding the tax base and making the collection process efficient and free from corruption are essential duties.
Second, for the country's hundreds of thousands of small savers to participate in investment, a well-organised, credible, strong, well-regulated, vibrant, and effective system-namely, a capital market-is needed. In Bangladesh, such a system is entirely absent. Most dynamic economies have such a capital market. In Bangladesh, the stock market has remained largely ineffective for years, marked by volatility, governance failures, and a continuous erosion of investor confidence. As a result, small savers are either discouraged from participating or exposed to undue risks, while institutions become excessively dependent on bank loans.
Third, to encourage hundreds of thousands of small savers to save, interest rates on savings certificates and government bonds need to be increased. To encourage savings, bank deposit rates should be increased. At the same time, lending rates for loans taken for consumption and investment purposes should be reduced. Expert opinion suggests that the difference between deposit and lending rates, known as spread, should be 5 per cent, but in Bangladesh this gap is much wider. To restore health to the banking sector, the recommendations of the Banking Reform Committee must be implemented. The main point is that rise in default loans will not stop unless political considerations are removed. It should be mentioned here that almost all loan defaults are intentional; only a small portion is due to inefficiency.
Fourth, there is a strong belief that foreign debt is not good because once a country is trapped in a debt cycle, it becomes difficult to escape. Many cite Pakistan as an example of a country caught in such a debt trap. American economist Jeffrey Sachs holds a different view on this matter. If funds are not available from domestic sources, he believes, borrowing becomes essential, because without development in sectors such as education, health, and infrastructure, achieving growth is impossible. However, certain conditions must be observed in the case of foreign borrowing. Loans must be long-term, at least 40 years, bearing low rate of interest. If so, repayment becomes easier and can be covered from government revenue. Bangladesh would not have to borrow again to repay loans, as Pakistan has done. Again, the benefits of investing borrowed funds-especially in education, health, and infrastructure-take around ten years to materialise. Once returns from investments in these sectors begin to appear, the economy will move forward rapidly.
Fifth, without increasing allocations to education and health, achieving the desired level of growth is impossible. Growth depends on resources and on how efficiently those resources are used. The efficient use of resources is productivity. This means that the quantity of resources alone is not enough. The principal determinant of growth is productivity. Without productivity, growth is bound to remain limited. For example, productivity played the central role in Japan's economic development. Higher allocations to education and health will create this productivity by producing an educated, trained, healthy, and skilled workforce.
Sixth, the future of Bangladesh's economy will depend on its ability to mobilise funds for investment and allocate them efficiently. But here, too, a structural weakness remains. The financial system is heavily bank-dependent, and the banking sector itself is burdened by defaulted loans, weak governance, and politically influenced lending. This has obstructed the efficient flow of capital into productive sectors.
Seventh, Daron Acemoglu and James A. Robinson won the Nobel Prize in 2024 for their book, 'Why Nations Fail: The Origins of Power, Prosperity, and Poverty'. The conclusion of their book is that a country's economic success or failure is not determined by geography, culture, or natural resources, but by its political and economic institutions. In Bangladesh, however, institutions have been nearly destroyed by political misuse and corruption. Development will be impossible unless these institutions are genuinely revived.
Eighth, capital flight must be stopped at any cost, and that capital must be ensured for investment within the country.
Ninth, all necessary measures must be taken to build import-substituting industries and factories. In this regard, public-private partnership (PPP) projects may produce good results. The rapid and remarkable development of China has been rooted in the role of the state. However, what happened in China is somewhat different from the usual PPP model. There, the state provides capital and all kinds of guidance to capable and genuine entrepreneurs so that they invest in designated sectors with the aim of increasing national welfare and competing in international markets with other countries. If an enterprise incurs losses instead of profits, the state provides subsidies.
Tenth, diversification of export markets is a basic principle of economics. In this regard, Bangladeshi embassies or high commissions located abroad can play a role.
N N Tarun Chakravorty is a Professor of Economics at Independent University, Bangladesh, and Editor-at-Large of South Asia Journal.
nntarun@gmail.com
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