BNP govt facing a three-pronged challenge

What kind of economic challenges do you think BNP has taken on as an elected government after the 18-month rule of the interim government?

Niaz Asadullah: The interim government and the February election did not create a conducive environment to smoothly guide the economy towards low inflation, low interest rates, and high growth. It can be said that Bangladesh's economy is currently in a fragile phase of recovery at best. The economy remains burdened by a crony capitalist structure and a highly politicised bureaucracy—both legacies of the post-2010 autocratic era. Added to this are new uncertainties, especially due to a non-transparent tariff agreement with the United States in the last moments of the interim government's rule, which has complicated the situation further.

In such a scenario, the policymakers of the new government face a major tripartite challenge. They are under pressure to loosen monetary policy, control chronic inflation, and increase loan provisions for those economically deprived for nearly two decades. Needless to say, these goals are conflicting. Among these, the most immediate and significant challenge is inflation. For nearly three years, the inflation rate has been close to double digits, reducing the purchasing power of lower and middle-income families to the bottom.

Therefore, it is vital to manage internal fuel demand and clearly communicate the supply constraints to the public during this time of global fuel price volatility to maintain normalcy.

The second major challenge for the government can be described as a domestic ''investment drought. '' The growth of private sector loans has fallen to an all-time low, the banking sector is facing a severe liquidity crisis, and the capital market remains weak. Therefore, if investors' confidence is not restored, the economic recovery process will be very slow.

The third challenge is primarily one of political economy, which is how the government will create the necessary financial capacity for structural reforms while addressing the strong public demand for economic relief. In this regard, the government must maintain a balance between the IMF's conditional reform commitments and the expectations generated by the 2024 mass uprising.

The government's tripartite tug-of-war is most evident in the banking sector. The current government has inherited a banking system burdened with massive non-performing loans and in deep crisis. Yet there is intense pressure from small and medium entrepreneurs for loan facilities. Therefore, the main challenge for the government now is to ensure increased financing in genuinely productive sectors without returning to the past culture of politically influenced credit distribution.

You mentioned that the government has inherited a banking system in deep crisis. We know that the uprising in 2024 brought institutional reform into sharp focus. In this context, many have not taken kindly to the replacement of the Bangladesh Bank Governor with a businessman. How do you see this issue?

Niaz Asadullah: Institutional integrity is not just about changing individuals; it is a credible message about what the governance framework will look like in the future. Supervisory agencies like Bangladesh Bank are the ''meta-institutions'' of the state. Even though a new government may want to choose its leadership, sudden changes at these top positions indicate a return to the old ''partisan capture, '' undermining public trust in reform commitments.

According to the aspirations of the ''2024 mass uprising, '' there is a strong demand to reorganise state institutions. Transparent and merit-based appointments through ''Independent Search Committees'' in these important positions would have been much more acceptable. Since the people of the country and international allies are closely observing this change of power, there should be no doubt about institutional independence from the start. This could hinder critical tasks like banking sector reform and economic recovery.

Following a transparent process would have signaled breaking away from past corrupt practices. However, the current concern about replacing one group of loyalists with merely ''new loyalists'' reflects a familiar negative political culture. Such incidents in the beginning have jeopardised the overall acceptance and credibility of the government's reform process.

What measures do you think the government should take to address these economic risks?

Niaz Asadullah: The government must now adopt an effective ''strategic protection policy'' based on short-term stability and long-term coordination. In the long term, it is crucial to significantly increase the use of renewable energy, including solar power, to reduce import dependency.

Simultaneously, a realistic and balanced foreign policy must be maintained to ensure uninterrupted energy supply from abroad and sustain the expatriate labour market.

As a short-term measure, it is essential to establish emergency reserves and a ''stabilisation fund'' to manage global fuel price increases. During severe crises, priority must be given to the economical use of fuel, planned load management, and ensuring power supply in the most crucial sectors of the economy.

Most importantly, the government must also consider the ''second-stage effects'' of this global conflict. If the global market faces disruptions in the supply of fertilizers and food stuff, it will create severe inflation in the domestic market. Therefore, adopting a specific and forward-looking plan now to avoid the extreme crisis of rising living costs for ordinary people should be the key focus.

The impact of the Iran war has been felt throughout the Middle East. Nearly 6 million expatriates work in Middle Eastern countries. Bangladesh receives the most remittances from this region. What impact do you think this war could have on Bangladesh's overseas labour market?

Niaz Asadullah: The instability and ongoing conflict in the Middle East create a severe risk for Bangladesh's expatriate labour market and remittance inflow. If large construction projects come to a halt there, the demand for workers will decrease, shrinking the opportunities for new workers to go abroad, reducing the income of those currently employed, and causing many to return home.

To counter this potential shock, the government must take effective and forward-looking measures. Firstly, rather than relying solely on the Middle East, labour market diversification into new markets like East Asia and Europe must be expedited. Secondly, advance preparations must be made to quickly reintegrate returning expatriates into the domestic economic mainstream through employment in infrastructure, agriculture, and small and medium enterprises (SMEs).

If these diversified and realistic initiatives are not undertaken in a timely manner, alongside a disruption of remittances, the large workforce returning home will exert a severe strain on the domestic economy and labour market.

Trump's tariff war has brought not only global trade but the entire global order to a turning point. What steps do you think Bangladesh should take within the changed geopolitical and geo-economic realities?

Niaz Asadullah: The current wave of protectionist trade policies, especially ''Trump 2. 0'' or his second term, has created deep uncertainty for an export-dependent economy like Bangladesh. While some temporary agreements with the United States may mitigate the immediate shock, a well-planned and diversified strategy is now needed to address the long-term uncertainty.

Firstly, market diversification is essential. Reducing reliance on a single market and strengthening existing relations with the European Union, which is currently the largest destination, are crucial. In addition, Bangladesh must closely connect to the supply chains in Asia through regional alliances. Secondly, in the current polarised global order, Bangladesh must maintain ''strategic balance'' with like-minded countries to protect its own national interests without leaning too heavily towards any specific geopolitical bloc.

Thirdly, internal government policies and legal reforms could serve as ''game-changers'' to remain competitive in this protectionist world. Reducing the cost of doing business, improving logistics and infrastructure, and ensuring good governance in financial and taxation sectors are demands of the times. Additionally, Bangladesh must focus not only on the garment industry but also on diversifying exports with a focus on service and digital sectors.

The Iran war and the rise in oil prices have reignited inflation. However, the reality is that we have been experiencing high inflation for over three years. If we look at nearly bankrupt Sri Lanka, we see that it has the lowest inflation in South Asia. Why has Bangladesh failed to control inflation?

Niaz Asadullah: In Bangladesh, persistent inflation is not just due to supply chain disruptions, weak market surveillance, or a dollar crisis. The root of the problem lies deeper, in the indecisiveness of policymakers, delays in taking timely actions, and lack of policy continuity.

Despite a severe economic crisis, Sri Lanka managed to control inflation quickly by taking difficult measures such as maintaining stringent contractionary monetary policy and fiscal discipline. However, Bangladesh has done the opposite. By keeping interest rates fixed for an extended period, the monetary policy was crippled. Simultaneously, the government's tendency to take excessive bank loans has nearly nullified the central bank's ability to control inflation.

Moreover, poor market management, a lack of healthy competition, and the monopolistic dominance of middlemen in supply chains have prevented any government policy benefits from reaching ordinary consumers. Coupled with an overreliance on imported fuel and sluggishness in timely price adjustments, the economy fell into a more vulnerable state.

In Sri Lanka, Bangladesh, and Nepal alike, there were similarities in the pattern of uprisings—authoritarian rule, widespread corruption by certain groups versus the economic struggles of the majority, and youth rebellion arising from rising unemployment and shrinking employment opportunities. Democratic transition processes have commenced through elections in all three countries. What message does this rebellion by Generation-Z leave for South Asian rulers?

Niaz Asadullah: The main message for South Asian rulers is clear: GDP growth statistics alone cannot deceive the young generation anymore without ensuring citizens' dignity and rights. The mass awakenings in Bangladesh, Sri Lanka, and Nepal prove that the combination of unemployment and economic frustration with a lack of good governance is dangerous. These demands were not just for jobs; rather, they were for equality, transparency, and the right of ordinary citizens in state policy-making.

Bangladesh's new government needs to remember that its current public support is not unconditional but rather ''conditional. ''Today's ''Gen-Z'' or young generation expects accountable governance over traditional politics. If the state fails to ensure justice and rights for all, this public support will quickly erode.

These uprisings make it evident that economic models without good governance and equitable distribution are now ineffective. However, if governments acknowledge and work on these legitimate public demands, this awakening could become a powerful foundation for truly inclusive and sustainable development in the future.

What kind of initiatives do you think the government should take for youth education and employment?

Niaz Asadullah: It is crucial for Bangladesh to adopt an inclusive and politically-neutral ''human resource strategy'' combining education, skills, and employment. In addition to academic knowledge, young people must be provided with increased technical and ICT skills, realistic training, and safe opportunities for expatriate employment. Besides relying solely on the garment sector, it is necessary to expand job opportunities in agricultural processing and digital sectors, and create young entrepreneurs through easy financing.

On the other hand, now is the appropriate time to transition from the old model of economic growth to a new phase of development. Instead of delaying reforms using global crises as an excuse, Bangladesh must move towards employment-oriented and skill-based growth instead of a ''benefit-driven'' economy. Establishing strong domestic institutions and an independent central bank is essential to tackle significant internal risks like a lack of good governance and a propensity to flattery.