SINCE independence in 1971, Bangladesh has gone through several political transitions, many of which involved interim or caretaker governments. During these times, significant institutional reforms have often been introduced that tend to last beyond their immediate terms. The current government, now responsible for leading the country through a critical period, has a unique chance to implement foundational reforms that could transform Bangladesh’s economic and governance systems.
Bangladesh has made significant progress by reducing poverty, expanding education and becoming a manufacturing powerhouse. However, recent shocks such as the Covid outbreak, the war in Ukraine and domestic financial mismanagement have exposed serious vulnerabilities in the economy. Growth has slowed sharply, with revised data showing the economy having under-performed previous estimates. Capital flight, currency depreciation and depleted foreign exchange reserves have strained macroeconomic fundamentals. Inflation, meanwhile, remains persistently high, hitting lower- and middle-income households the hardest.
To its credit, the Bangladesh Bank has taken early steps to stabilise the economy. The steps include implementing a crawling peg exchange rate, tightening monetary policy, aligning banking regulations with international standards, launching an asset quality review and appointing independent boards in troubled banks. The reforms demonstrate intent, but they are only the beginning. For Bangladesh to emerge strong, the country must address core issue of its current crisis: governance.
A governance crisis, more than any external shock, has undermined institutions and diminished public trust. The government has pledged transparency and extensive public consultation and this promise must now translate into concrete action. The core of the governance reform agenda includes three key areas: public finance, the banking system and digital infrastructure.
Tackling public finance
EVERY year, Bangladesh loses about 7 per cent of its gross domestic product, about Tk 3.5 lakh crore, to tax exemption. While targeted tax incentives can help to achieve development goals, many exemptions are given arbitrarily, without proper process or transparency. As a result, the country has one of the highest tax exemption rates in the world, weakening public trust and government revenue.
One important reform is to transfer tax policy authority from the National Board of Revenue. In almost all democratic countries, tax decisions are a legislative task rather than an administrative one. This change would improve accountability in fiscal policy and ensure that exemptions are debated, justified and accessible for public scrutiny.
Equally important is separating tax policy from tax administration. This would clarify the mandate and reduce conflicts of interest within the revenue board. Reform is also urgently needed in the governance of public procurement. Disclosing beneficiaries and ownership of public contracts would help to prevent patronage and waste. Furthermore, operational independence for the Office of the Comptroller and Auditor General would enhance budget oversight.
In the area of social spending, Bangladesh is making progress by developing a unified, dynamic social registry. This will improve how social assistance is targeted, ensuring that support reaches the most vulnerable and is not diverted through political or bureaucratic interference.
Fixing financial system
ONE clear example of governance failure is in the banking industry. Years of lax regulation and political interference have allowed well-connected groups to secure large loans, many of which remain unpaid. This has led to a buildup of non-performing loans that now threatens the stability of the entire financial system.
To address this, the Bangladesh Bank needs to establish a robust bank resolution framework. This will enable the central bank to step in when banks fail, enforce capital adequacy rules and safeguard depositors. Regulatory authorities should also require banks to reveal the ultimate ownership of shareholders and borrowers, along with any links between them. Such transparency is vital for managing systemic risks and preventing insider lending practices.
Encouragingly, Bangladesh is now working with international partners to recover assets illegally transferred abroad. If the efforts continue, they could help to rebuild trust in the banking system. A transparent and well-regulated financial sector would also attract vital investments, reduce credit risk and increase private sector lending, especially to small and medium enterprises, which are essential for job creation.
Harnessing digital dividend
THE third frontier of governance reform lies in the digital realm. Bangladesh, home to one of the world’s largest populations of digital gig workers, is uniquely positioned to lead among developing countries in digital transformation. However, technology alone is not enough. For digital systems to be effective, they must be supported by strong governance, legal protections and user trust.
Reforms are already in progress to enhance the quality and independence of the statistical system, a vital step to ensure that policy decisions rely on accurate and timely data. This should be paired with the development of a digital public infrastructure: an interoperable system that integrates digital identity, mobile payment, data protection and consent-based data sharing. Such a framework would cut down on inefficiencies, prevent fraud in social programmes and make government services more user-friendly. Countries from Estonia to India have demonstrated that transparent digital systems can significantly improve service delivery and empower citizens. Bangladesh must keep pace.
Institutional integrity
BEYOND specific reforms, the success of this agenda relies on the credibility of institutions. Regulatory agencies such as the Anti-Corruption Commission and the judiciary must be empowered to function independently. Rules should apply equally to everyone, regardless of political or economic influence. Public consultation should go beyond rhetoric to become genuine, with meaningful channels for citizens to participate in shaping policies that impact their lives.
At the same time, whistleblowers, journalists and civil society actors must be protected. They are essential for holding institutions accountable and promoting transparency in the public sphere. The rule of law, impartial enforcement and institutional autonomy are not luxuries. They are the foundation of a just society.
A legacy moment
THE interim government is operating within a limited time frame, but within that constraint, there is an opportunity to initiate governance reform that elected governments can build on. Stabilising the economy is urgent. However, restoring trust in institutions is even more critical for long-term resilience. If Bangladesh can strengthen public financial management, reform its banking sector and develop a digital government rooted in trust and transparency, it will not only recover but also lead.
In this rare moment, reform is necessary. The choices made today will shape the future.
Raihan Riaz ([email protected]) is a senior research associate (climate change and disaster risk reduction) at Network for Information, Response and Preparedness Activities on Disaster.