MAMUN RASHID

Bangladesh’s economy is confronting three interconnected structural vulnerabilities: a surge in non-performing loans (NPLs), weakness in revenue mobilisation and a rise in debt-dependent fiscal management. These are no longer isolated technical concerns. Together, they amount to a systemic stress test of economic governance.

The International Monetary Fund’s (IMF) growing pressure on Bangladesh should not be seen merely as loan conditionality. It is a reminder that macroeconomic fragility can no longer be masked by temporary adjustments, regulatory forbearance or accounting manoeuvres.

The banking sector reflects this reality most clearly. When Bangladesh entered the IMF programme, one target was to reduce NPLs to below 10 percent by 2026. Instead, the opposite has happened. Years of politically influenced lending, weak governance, repeated rescheduling and evergreening delayed recognition of the problem. As hidden distress surfaced, the default loan ratio crossed 30 percent, an extraordinary level for an aspiring middle-income economy. By most assessments, it could rise further.

A banking system in which one-third of loans are impaired cannot intermediate capital efficiently or support sustainable private sector growth. More troubling is the condition of some merged weak banks, where nearly 84 percent of loans have reportedly turned non-performing. This is not simply a banking issue. It is a fiscal and confidence risk.

The IMF is justified in demanding not only broad commitments but a credible, time-bound recovery plan. Asset seizure of wilful defaulters, stronger legal enforcement, operationalising the Bank Resolution Act, effective bankruptcy processes and institutional independence for Bangladesh Bank are unavoidable. Cosmetic reform will not suffice.

Banking distress, however, is only part of the challenge. The revenue system is equally fragile. A shortfall nearing Tk 1 lakh crore in nine months is not just a budgetary inconvenience. It signals a state struggling to mobilise resources in line with its development ambitions.

For decades, Bangladesh has maintained one of the world’s lowest tax-to-GDP ratios. This weakness has created a simple paradox: rising expenditure without matching domestic mobilisation. The result is predictable -- greater dependence on borrowing.

Here lies the third danger.

Government borrowing from the banking sector has exceeded annual targets within nine months. Heavy reliance on local banks creates a crowding-out effect, as the state absorbs liquidity that would otherwise finance businesses. When central bank financing expands, inflationary pressure follows. When commercial bank borrowing rises, private investment slows. In either case, economic momentum weakens.

Debt management, therefore, cannot be viewed as narrow fiscal arithmetic. It shapes inflation, employment, business expansion and public trust.

Bangladesh stands at a policy crossroads. The economy cannot borrow its way out of structural inefficiency. Nor can it tolerate a financial architecture where poor banking governance and weak tax administration are repeatedly postponed. What is needed is a coherent reform compact.

First, the banking sector must be depoliticised, professionally supervised and empowered to recover distressed assets. Second, revenue reform must go beyond raising rates. It must expand compliance, digitise administration and widen the tax net. Third, fiscal discipline must be restored through expenditure rationalisation and prioritisation of productive investment.

Most importantly, reform must be pursued not because the IMF insists but because Bangladesh’s own economic future demands it.

The IMF programme matters not only for financing but also for signalling discipline to markets. Losing that anchor could raise borrowing costs, weaken investor confidence and complicate access to capital. Bangladesh has overcome economic tests before. This moment is different because the risks are structural and reinforcing. The question is no longer whether reform is necessary. It is whether there is the political will to act before these vulnerabilities become a full-scale crisis.

The writer is an economic analyst and chairman at Financial Excellence Limited