Upon returning to the country after 17 years, Prime Minister Tarique Rahman said, “I have a plan.” Several elements of that plan are reflected in the BNP’s election manifesto.
Since assuming power, some of those plans have already begun to be implemented—such as family cards, farmer cards, and similar initiatives. Let us assume these are all part of “Plan A.”
The problem is that, in the meantime, the world has changed significantly.
First, Bangladesh itself has changed considerably over the past 20 years. The economy has expanded. People’s aspirations, mindsets, and expectations have evolved. Yet, listening to some ministers, it sometimes feels as though they are still living in the Bangladesh of two decades ago.
Second, the world has changed dramatically in just the past two months. Each global crisis reshapes the world in its own way. But the current crisis is so large that no one yet knows where these changes will ultimately lead.
At such a time, “Plan A” may not be sufficient—what is needed is a “Plan B.” The energy security crisis triggered by the Iran war is forcing countries worldwide to rethink their economic strategies.
Bangladesh is no exception. In fact, it is widely acknowledged that among developing countries, those like Bangladesh are likely to be among the hardest hit by the fallout of the Iran war.
2.
The annual meetings of the World Bank and the International Monetary Fund (IMF) have just concluded. As per practice, the IMF releases a detailed report on the global economic outlook ahead of these meetings. In its latest report, published on 14 April, the IMF outlined three major economic impacts of the Iran war.
First, prices of fuel and other commodities will rise. This will increase production and transportation costs, pushing up market prices. In other words, inflation will rise and people’s purchasing power will decline.
Second, businesses and workers will attempt to offset their losses. This could lead to further price increases and greater pressure for wage hikes, increasing the risk of inflation spiraling out of control.
Third, if investors anticipate further deterioration, financial markets may become unstable. Stock markets could decline, the US dollar could strengthen, and capital could flow out of many countries. This would make borrowing more difficult, reduce investment, and slow economic growth further.
Now consider Bangladesh’s situation. The IMF’s concerns largely apply to countries like Bangladesh, which lack the financial resilience to absorb additional shocks. Bangladesh is almost entirely dependent on imports for its energy needs. At the same time, remittances from the Middle East have become the backbone of the economy.
However, the IMF noted that not all countries will be affected equally. Countries heavily dependent on oil and gas imports will face greater risks.
Low-income and developing countries are particularly vulnerable, as they lack the fiscal and policy space to absorb such shocks.
At the same time, Gulf oil-exporting countries will also face challenges. War could damage infrastructure, disrupt production and exports, and hurt tourism and business activity. As a result, countries that rely on sending workers to the Middle East face another risk—declining remittances.
3.
The IMF also noted that rising fuel prices do not always require immediate strict policy responses, as such shocks naturally slow economic activity. However, if the impact spreads to other sectors and people begin to expect higher inflation in the future, central banks may need to take tougher measures, including raising interest rates.
Now consider Bangladesh’s situation. The IMF’s concerns largely apply to countries like Bangladesh, which lack the financial resilience to absorb additional shocks.
Bangladesh is almost entirely dependent on imports for its energy needs. At the same time, remittances from the Middle East have become the backbone of the economy.
Meanwhile, as global fuel prices rise, Bangladesh has already taken a strict step—raising domestic fuel prices.
Interestingly, defying basic economic principles, some ministers have begun claiming that fuel price hikes will not increase inflation. They may have forgotten that inflation in Bangladesh has remained high for over three and a half years, while wage growth has lagged behind—meaning real incomes have steadily declined.
Now, with fuel prices rising, people’s expenses will increase further. In this situation, the only institution capable of “reducing” inflation, at least statistically, is the Bangladesh Bureau of Statistics (BBS). It remains to be seen whether ministers will pressure the BBS to report lower inflation figures to align with their statements.
4.
In reality, a key component of “Plan B” should be ensuring that not all ministers speak on every issue. During crises, how policymakers communicate matters greatly. The IMF has guidelines on this, titled “Public Communication During Financial Crises.” Policymakers would do well to consult them.
To further explain why “Plan B” is necessary: just over two months remain in the current fiscal year (2025–26). Data shows that in the first nine months, the trade deficit has widened. Export earnings have seen no growth for eight consecutive months, while import costs have increased.
A major driver has been rising food imports. Now, due to the Iran war, energy import costs are also increasing, which will further widen the trade deficit. This will put pressure on the exchange rate and foreign exchange reserves.
If remittance inflows decline due to the impact of the Iran war, the situation could worsen significantly. Consumption would fall, bank deposits could shrink, and overall economic activity would slow.
This would necessitate even tighter monetary policy, which would in turn reduce investment. It is worth noting that investment rates are already at their lowest in a decade.
5.
To implement the BNP government’s “Plan A,” increased public spending will be required. The major constraint here is the government’s very low revenue base. It is so limited that the government is increasingly relying on borrowing from the banking system.
In the last fiscal year, the tax-to-GDP ratio fell below 7 per cent for the first time in 15 years. The situation has not improved in the current fiscal year. Therefore, a “Plan B” is needed to determine where spending should be prioritised and how revenue can be increased.
During the Iran war, the world’s largest LNG export facility at Ras Laffan in Qatar was damaged. According to Qatari estimates, it could take three to five years to rebuild. Countries heavily dependent on Qatari LNG—including Bangladesh—will be significantly affected.
Does this mean Bangladesh will need to import more LNG from the United States? If so, how much will costs rise? These are questions that must be addressed. There are already concerns regarding various clauses in trade agreements with the US—managing those will also require a “Plan B.”
6.
In its April update on Bangladesh, the World Bank highlighted several specific risks stemming from the Iran war:
The current account deficit could rise to around 1 per cent of GDP due to higher energy prices;
Inflation could increase by at least 0.5 percentage points;
Industrial growth may slow, exports may weaken, and rising imports could worsen the trade balance;
Remittances may come under pressure, potentially leaving around 1.6 million people below the poverty line by 2026–27;
Government expenditure could increase by about 0.8 percentage points of GDP, pushing public debt to around 46.3 per cent of GDP.
Finally, the report warns that an already fragile banking sector could weaken further, reducing investment and undermining job creation.
Taken together, the economy is once again facing a serious test. Bangladesh has been under strain since the Covid-19 pandemic, and the responsibility for navigating this crisis now lies with the BNP government.
The IMF has repeatedly emphasised that developing countries face heightened risks from this conflict. However, appropriate policy measures can help mitigate the damage.
The question is: are those policies part of “Plan A”? Unlikely. So what is the government’s “Plan B”?
* Shawkat Hossain is Head of Online at Prothom Alo.
* The views expressed are the author’s own.