They say there's no use to cry over spilt milk. It may be prudent not to waste time dwelling over past mistakes, but that does not apply to the economy. Here, one must investigate why the milk was spilt , so that this doesn't happen again in the future.
The core research of Nobel laureate economist Ben Bernanke focused on the Great Depression of the 1930s, an event long past. He used that knowledge to navigate the global financial crisis of 2008. 'Time' magazine named him “Person of the Year” in 2009. Similarly, to understand what needs to be done for the economy going forward, we must first examine why an emerging tiger has suddenly been assailed by all sorts of ailments.
Amir Khasru Mahmud Chowdhury has been sworn in as the Minister of Finance and Planning in the cabinet of the Bangladesh Nationalist Party (BNP) government. He understands not only business and trade, but also macroeconomics quite well. During my tenure at Bangladesh Bank from 2015 to 2016, I had the opportunity to hear him speak at various forums on multiple occasions. He would highlight the policy mistakes that were harming the financial system.
He was deeply dissatisfied with the banking sector, which he attributed to political interference. He claimed that the BNP government had abolished the Financial Institutions Division (FID) under the Ministry of Finance. After 2009, however, the Awami League government revived it, further fueling a surge in non-performing loans in the banking sector. That very issue has now become his responsibility.
Over the past one and a half years, most economic indicators had been on a steady decline. Toward the end of its tenure, the government led by Muhammad Yunus signed a number of agreements that appear to serve foreign interests. It was clear that the new government would begin its tenure in a difficult situation. Without undertaking any meaningful reforms in revenue collection, the Yunus administration showed enthusiasm for introducing a new pay structure, effectively planting a landmine for the incoming government.
The finance minister could propose the creation of a separate ministry for revenue. To elevate tax compliance to a national duty, leadership by a capable elected representative is essential. This task cannot be effectively handled by a bureaucrat or an academic alone.
In this period, 3 million people have newly fallen into poverty. Despite being a Nobel laureate known for poverty alleviation, Professor Yunus did not even form a commission to address the issue. While there are valid reasons for increasing salaries, ensuring food for the extremely poor is far more urgent from the standpoint of social justice.
According to data from a national daily, 327 factories have shut down over the past one and a half years, leaving more than 150,000 workers unemployed. The Labour Force Survey for the third quarter of 2024 shows that the number of unemployed people in the country has reached 2.66 million, up from 2.49 million during the same period in 2023. By January 2026, several hundred thousand more have joined the ranks of the unemployed. A former president of the Federation of Bangladesh Chambers of Commerce and Industry recently said at a seminar that the tightening of monetary policy had cost 1.2 million jobs over the past six months.
While salary increases are necessary for those who remain employed, it is far more humane and urgent to reopen the factories that shut down during the Yunus period and to arrange employment for those who lost their jobs. Ensuring food for their families is a more pressing matter of justice. Allowances are not a long-term solution, but in emergencies they must be provided, much like relief aid. Research can later determine why 3 million people have newly fallen into poverty. Before that, ensuring minimum food security for these vulnerable groups and providing modest allowances for those who have lost their jobs should be the finance minister’s first priority from both a humane and a justice-oriented perspective.
The second priority should be to launch a comprehensive program to increase revenue. The growing anemia in revenue collection is the root cause of many other economic ailments. The Yunus government did not undertake any significant reforms in the financial sector. Instead, following advice from the World Bank, it merely split the National Board of Revenue (NBR) into two parts and considered that reform complete, worsening the situation instead.
The finance minister could propose the creation of a separate ministry for revenue. To elevate tax compliance to a national duty, leadership by a capable elected representative is essential. This task cannot be effectively handled by a bureaucrat or an academic alone.
The third priority is to grant autonomy to Bangladesh Bank and empower its governor with the status of a full cabinet minister. Had the previous “learned” government’s economic adviser implemented this, he would have been remembered. The Awami League finance minister Abul Maal Abdul Muhith raised various objections to such autonomy in dealings with then-governor Atiur Rahman. It was not expected that the same hesitation would emerge in the case of Dr. Salehuddin, himself a former governor.
Granting autonomy would also effectively bring about the end of the Financial Institutions Division under the Ministry of Finance. On this third priority, we can place full confidence in Finance Minister Mr. Chowdhury, as he has long advocated for it, and the Bangladesh Nationalist Party’s election manifesto also includes provisions for central bank independence.
The fourth priority is to form a commission for the revival of the capital market. Currently, non-performing loans in the banking sector stand at nearly 40 per cent of total loans. A key reason behind this is the reliance of industrialists and traders on large bank loans for capital expansion, funds that should ideally have been raised through the capital market. At the root lies a weak capital market and the failure to bring those responsible for market scandals to justice. The absence of a robust equity market has shifted excessive pressure onto banks.
Meanwhile, weak revenue collection has led the Ministry of Finance to rely heavily on the banking sector. Caught between these two pressures, the banking sector has become fragile, rendering the entire financial system ineffective.
The fifth priority is to rein in the surge in government borrowing, which would also help curb inflation. A frugal budget must be drafted from now. The central bank cannot maintain high interest rates indefinitely. Private sector credit growth has already dropped to around 6.25 percent, the lowest in recent memory, further complicating efforts to control inflation.
At the same time, the inefficient Yunus government failed to reduce operating expenditures. Within this short period, government borrowing increased by nearly 26 per cent. On an annualised basis, the interim government, despite its rhetoric of austerity, expanded public borrowing at a faster rate than the Awami League government. Unless this wasteful spending is curbed, inflation will not decline.
It is true that the final “Darbesh era” of the Awami League government and the entire one-and-a-half-year “mob era” of the Yunus government have left the economy in a difficult position. However, if these five priorities are properly implemented, it would not be difficult to restore the economy within a year and a half.
* Dr. Birupaksha Paul is a professor of economics at the State University of New York at Cortland
* The views expressed here are those of the author.