Next government’s challenges: sustaining macroeconomic stability and curbing inflation

Over the past year, and during the tenure of the interim government, a degree of macroeconomic stability has returned to Bangladesh's economy. Preserving this stability will be one of the biggest challenges for the next government. The new administration will have to ensure that this stability is not undermined, while at the same time bringing inflation under more effective control.

Although the inflation rate has eased somewhat, it cannot yet be described as satisfactory. It is essential to identify, sector by sector, why inflation is not declining in certain areas. Rather than relying solely on headline indicators, attention must be paid to weaknesses in the supply chains for food, energy and essential commodities, as well as to areas where market manipulation is taking place.

A more realistic and market-aligned approach to exchange rate management is urgently needed. Depending on market conditions, depreciation of the taka may be necessary, while appreciation should also be allowed when circumstances permit. Artificially holding the exchange rate down and purchasing dollars to build reserves cannot be seen as a sustainable solution.

One of the most positive factors behind the recent improvement in reserves has been the flow of remittances. As illicit transfers through informal channels have declined, remittances through the banking system have increased. However, strengthening reserves in the long term will require a significant increase in foreign direct investment (FDI). Without political stability, good governance in the banking sector and investor-friendly policies, sustainable growth in FDI will not be possible.

Bangladesh is on the threshold of graduating from Least Developed Country (LDC) status. This is both an achievement and a major challenge. Graduation may lead to the loss of certain export-related benefits, particularly duty-free market access. Preparations, therefore, need to be intensified without delay.

Although the inflation rate has eased somewhat, it cannot yet be described as satisfactory. It is essential to identify, sector by sector, why inflation is not declining in certain areas. Rather than relying solely on headline indicators, attention must be paid to weaknesses in the supply chains for food, energy and essential commodities, as well as to areas where market manipulation is taking place.

Reforms such as the customs single window, trade facilitation, and industrial and export diversification must be implemented more effectively. With LDC graduation-related activities now coming under the purview of the General Economics Division (GED), there is an opportunity to align them more closely with the country's overall economic strategy. In consultation with stakeholders, greater emphasis must be placed on improving skills and productivity.

Economic growth is not possible without investment. Once the political transition is completed and a democratic government is in place, investment momentum is likely to pick up naturally. However, this will require a genuinely business-friendly environment.

High interest rates, instability in the banking sector, delays and bureaucratic complexity remain major obstacles to investment. Effective implementation of one-stop services, targeted support for the SME sector, and the restoration of investor confidence are essential.

A balanced approach to monetary policy is crucial. While a tight policy stance is necessary to control inflation, it should not stifle investment entirely. In particular, increasing investment in agriculture and manufacturing will require close attention to private sector credit growth.

Employment cannot be created overnight. The reality is that employment grows when investment grows. There is scope for job creation through both public and private investment.

At the same time, it is necessary to reduce the cost of doing business, create a business-friendly environment, and introduce sector-specific employment programmes. Sustainable employment is not possible without skills development. Training and curricula must be updated in line with the skills demanded in overseas labour markets.

Reducing the cost of overseas migration, curbing dependence on intermediaries, and strengthening coordination in training programmes are also essential. The capacity of the National Skills Development Council must be enhanced to ensure better coordination among various training initiatives.

The core problems in the health and education sectors do not stem solely from inadequate budget allocations, but from poor planning. In the past, emphasis was placed on buildings and equipment, while insufficient attention was paid to human resource development. As a result, ICU facilities in many hospitals and the capacity in educational institutions are not being used effectively.

For this reason, reforming the Planning Commission and strengthening its authority is necessary. With a clear national-level strategic plan, relevant ministries will be able to undertake projects aligned with long-term objectives, and genuine priorities will be reflected in public spending.

Inflation is not driven only by demand; supply-side problems play a significant role as well. Where syndicates, extortion and artificial shortages exist, the impact of monetary policy becomes limited. Timely imports, effective stock management and stronger market oversight are essential for staples such as rice, lentils and onions.

Sustainable control of inflation is not possible without coordinated administrative and market-based measures alongside monetary policy.

While the growth rate is important, the quality of growth is even more so. Even growth of 5–6 per cent can be considered a success if it is sustainable and inclusive. Employment generation, the effectiveness of social safety net programmes, and rural-based development are the three most effective tools for poverty reduction.

A rural development model: towards a sustainable future

Sustainable growth is not possible through mega projects alone; without development at the grassroots level, it cannot be sustained. Problems such as waterlogging, unemployment, drug addiction, social degradation and widespread online gambling distracting youths from development and empowerment must be addressed starting from rural areas.

With this objective, there are plans to pilot the 'SDG Village' model in Dumuria in Khulna, Ulipur in Kurigram, and Rangamati Sadar. This initiative has been undertaken at GED under my leadership to facilitate and strengthen grassroots-level sustainable development. The government's various development initiatives can be integrated in this model to scale up in the future. If successful, the model will be expanded nationwide.

Maintaining macroeconomic stability, prioritising rural-based development, and placing employment at the top of the policy agenda—these three pillars together can ensure sustainable development for Bangladesh in the years ahead