The Centre for Policy Dialogue (CPD) on Wednesday said the interim government requires a comprehensive approach that balances short-term relief with handling long-term issues, while implementing sustainable economic reforms.

“The interim government has been tasked with addressing the critical challenges of the economy. Addressing these multifaceted challenges requires a comprehensive approach— balancing short-term relief for the public, tackling longstanding issues, and implementing sustained reforms to strengthen economic fundamentals,” it said.

The independent think tank came up with this prescription in a report titled 'State of the Bangladesh Economy in FY2024-25', released Wednesday at its Dhanmondi office in the capital.

CPD Executive Director Dr Fahmida Khatun presented the report highlighting its salient points, while other members of her team were present and answered questions.

As per the report, Bangladesh's economy has come under significant challenges during the last few years.

Among several problems, weak revenue generation leading to constrained fiscal space, heavy reliance on bank borrowing to meet budget deficits, tight liquidity in banks, high prices of essential commodities, low investment and declining foreign reserves were highlighted as the most urgent issues affecting macroeconomic stability.

Given the ongoing economic situation, the report said that a coordinated approach is needed to overcome the multifaceted challenges, that include stabilising the economy, and protecting the vulnerable, low- and limited- income households.

“To address Bangladesh’s economic challenges in the coming months, the interim government must adopt a balanced and effective strategy that addresses immediate crises and initiates medium to long-term reforms to be carried out by the politically elected government.”

The report said that in the public finance sector, the interim government should prioritise preventing tax evasion, limiting tax avoidance, and bolstering compliance systems to create a more inclusive fiscal base and reduce revenue leakages.

The recently implemented practice of excluding non-productive initiatives from the ADP will need to be continued.

Special emphasis should be placed on ADP projects nearing completion, setting a benchmark at those over 85 percent complete by June 2025, since these can help to quickly stabilise the economy, attract private investment, and create additional jobs.

To contain inflation, the report suggested market monitoring, limiting intermediaries, connecting farmers directly to buyers, and regulating hoarding and stockpiling by rice warehouse operators and millers.

Provision of improved storage facilities and adequate transportation systems are integral to reducing post-harvest loss of agricultural commodities.

Educating farmers to adapt agricultural best practices, expanding the use of existing modern technologies, and improving their negotiation skills to secure fair prices are also advised.

To tackle the external sector, it said that given the emerging global and regional trading scenario, including the uncertainties as regards USA trade policy under the new Trump administration, the government should undertake renewed efforts to realise untapped export potentials in the markets of neighbouring regions of South Asia, East Asia and ASEAN by pursuing Free Trade Agreements and Comprehensive Economic Partnership Agreements, and through triangulation of investment, transport and trade connectivities.

It is advised to implement the Smooth Transition Strategy, which has been prepared in anticipation of Bangladesh’s upcoming LDC graduation, particularly because any request for deferment of graduation is unlikely to succeed. Meanwhile it will leave Bangladesh as the only LDC in South Asia other than the war-torn Afghanistan.

CPD mentioned that the government should prioritise immediate improvements in the law-and-order situation to ensure businesses can operate safely without the threat of extortion.

It also called for exploring further reductions in fuel prices using a market-based pricing model, with the potential to lower costs by Tk 10-15 per litre, as suggested by CPD. It also suggested designing a subsidised credit facility with lower interest rates to support SMEs.

In Agriculture, CPD said that given the rise in demand for non-household consumption, particularly animal feed and industrial use, a proper estimation of annual rice demand is highly required.

The government may explore long-term contracts with Middle Eastern countries to import fertiliser, which would reduce fertiliser costs.

The rice procurement process must be revised and made transparent, open and accessible to all.

In the Power and Energy sector, CPD's report said that a specific two-year plan with an agenda to end the cycle in which the whole sector is caught needs to be identified.

The government should deprioritise importing LNG and focus on the exploration of domestic natural gas.

All documents and reports related to public procurement, especially power plants, should be accessible to the public as these are not confidential documents by law.

For the troubled Banking sector, CPD mentioned that concrete measures such as improving loan sanctioning practices, enforcing single borrower exposure limits, an end to loan rescheduling at will, strengthening internal controls and developing an exit policy for troubled banks should be initiated by the Bangladesh Bank.

Bank accounts of wilful defaulters and their immediate family members should be frozen immediately upon their defaulting, with their assets liquidated, and their businesses temporarily nationalised.

Although vested interest groups may strongly oppose such moves, an all-out effort should be taken and continued, backed by political commitments from the highest level, to continue banking reforms.