The global leather industry is changing rapidly. Environmental sustainability, resource efficiency, traceability and responsible production have become essential for competing in international markets. For Bangladesh, which has one of the world’s largest supplies of naturally available hides and skins, this shift presents both challenges and opportunities. At the centre of this changing landscape is the Leather Working Group (LWG), the world’s leading sustainability assessment system for leather manufacturers.

A common misconception is that LWG imposes foreign environmental standards on leather-producing countries. In reality, it does not set environmental laws. Instead, it assesses whether a tannery complies with the environmental regulations of its own country while adopting internationally recognised best practices. LWG certification should therefore be seen as internationally accepted verification of environmental compliance and responsible manufacturing.

For Bangladesh, this distinction matters. The Environment Conservation Act and the Environment Conservation Rules 2023 provide the legal framework for pollution control, environmental clearance, wastewater discharge, waste management and environmental monitoring. Many requirements assessed under the LWG protocol closely match these regulations. As a result, investment in complying with Bangladeshi environmental laws also strengthens readiness for LWG certification.

The LWG Leather Manufacturer Audit covers environmental and operational indicators including environmental management systems, chemical management, traceability, water use, energy efficiency, air emissions, waste management, occupational health and safety, emergency preparedness and governance.

Modern leather production depends on a wide range of chemicals throughout tanning and finishing. International buyers expect manufacturers to maintain strict control over chemical storage, handling, use and disposal. Effective chemical management reduces environmental risks, improves workplace safety, enhances product quality and supports sustainable production.

Water management is another key part of the certification process. Leather manufacturing requires large amounts of water. Tanneries that monitor consumption, adopt cleaner production techniques, recycle water where practical and reduce waste demonstrate environmental responsibility and operational efficiency. Buyers are also placing greater emphasis on energy efficiency as they seek suppliers with lower carbon footprints.

Traceability is one of the fastest-evolving parts of the LWG framework. Global brands increasingly want visibility across their supply chains to ensure responsible sourcing and meet sustainability commitments. Bangladesh has a natural advantage because most raw materials come from domestic livestock. Stronger traceability systems can improve transparency and increase buyers’ confidence.

Waste management and effluent treatment remain the biggest environmental challenges for Bangladesh’s leather industry. The tanning process generates large volumes of wastewater, sludge and other by-products that require proper treatment, disposal or recovery.

The relocation of tanneries from Hazaribagh to the Savar Tannery Industrial Estate was a major environmental reform. The estate was designed to support cleaner leather production through shared infrastructure, including a CETP. Although progress has been made, further improvements are needed in CETP performance, sludge management, hazardous waste handling, chromium recovery and environmental monitoring. These issues increasingly shape how international buyers judge a country’s commitment to sustainable leather production. Better environmental infrastructure strengthens not only regulatory compliance but also industry reputation, market confidence and long-term competitiveness.

The future of Bangladesh’s leather sector will depend on its ability to demonstrate environmental responsibility. Sustainable production is no longer optional. By strengthening compliance with national environmental regulations and expanding LWG certification, Bangladesh can establish itself as a trusted source of responsibly produced leather.

The writer is former director of the Institute of Leather Engineering and Technology

Think of it like driving with one foot on the accelerator and the other pulling the handbrake. All you get is burnt tyres, a damaged engine, and no movement at all.

That's the direction Bangladesh's economic policy is heading. The government has announced an expansionary budget designed to jumpstart a sluggish economy, while the central bank holds the line on a bruising 10% policy rate to fight stubbornly high inflation. It's a classic macroeconomic standoff and in this collision, it is the private sector, the engine of growth, that takes the hit.
Economists say that when fiscal policy is expansionary and monetary policy is contractionary at the same time, the typical outcome is predictable: interest rates stay high, suppressing private investment; government spending crowds out private spending through the credit channel; inflation moderates, but at the cost of weaker growth than the fiscal expansion intended.

The newly elected government's first budget took an expansionary stance - cutting taxes, protecting local industries, boosting investment incentives, raising the development outlay, deregulating business processes, and expanding social protection. The message to businesses and investors: the cost of operating is lower, the environment more supportive, now is the time to invest and hire.The central bank's contractionary stance sends the opposite signal: borrowing is expensive, credit is constrained, conditions are tight.The million-dollar question is whether businesses will invest when lending rates sit at 12-14%. Businesses say they need 15-18% operating profit just to service debt but profits remain thin or nonexistent. Without that margin, investment stalls.The numbers bear this out. Private sector credit growth has stayed below 5% for months, down from the usual double digits. Many mills are shutting down for want of working capital and energy supply. Private investment as a share of GDP sits at around 21% and, per the government's own medium-term macroeconomic outlook, will stay there for the next two fiscal years. Against this backdrop, absorbing the roughly 25 lakh people entering the job market each year looks increasingly difficult.

Two legitimate priorities, one policy clash

This mismatch isn't accidental or irrational, according to Dr Fahmida Khatun, executive director of the Centre for Policy Dialogue (CPD). It reflects two genuinely competing priorities that are both legitimate given Bangladesh's current conditions: the government needs to stimulate growth through investment, while also reining in inflation.

"It's a double whammy for the government," she said. It creates a problem of policy coherence, yet an expansionary monetary policy now could have been more devastating.

Even with an expansionary fiscal stance, she said, the government must be disciplined about how public money is spent - earning real returns on that spending, and plugging leakages and corruption so investment actually pays off. She hopes fiscal and monetary policy will eventually align, and that the central bank may review its tightened stance within six to twelve months.

Dr Mustafa K Mujeri, former chief economist of Bangladesh Bank, agreed the two policies appear mismatched on the surface. But he argued that contractionary monetary policy has limited real impact on inflation in Bangladesh, since price pressures stem largely from market management and supply chain issues rather than credit conditions alone.

Still, he said the expansionary budget could work if the government channels spending into productive activity while controlling leakage and corruption. "If the government can do this, then there will be no mismatch visible but that is a tough task," he said.

How the mismatch plays out in practice

Tax cuts lower businesses' operating costs, but the interest rate environment determines the cost of the capital they need to expand. A factory owner who saves Tk50 lakh in annual taxes gains little if his working capital loan costs 14-15% and term loan repayments are eating into cash flow. For most businesses in Bangladesh right now, financing cost, not the tax rate, is the binding constraint.

The credit channel itself is broken. Private credit growth at 4.7% isn't primarily a function of high interest rates; it reflects a banking system stressed by over 32% classified loans, wary of borrower quality, and hoarding liquidity overnight rather than lending term. Bangladesh Bank's stance doesn't fix this structural problem - keeping interbank liquidity costly potentially makes it worse by discouraging lending further.

An investor weighing a new project looks at the whole environment: tax rates, energy supply reliability, regulatory ease, political stability, financing cost, and expected demand. The budget improves some of these variables; monetary policy worsens ao critical one. Whether the net effect is positive depends on which factor binds for that particular investor.

For many factories - from spinning, weaving, ceramics - energy supply is the constraint, and neither fiscal nor monetary policy touches it. For domestic-market businesses, weak consumer demand, itself partly a legacy of four years of inflation eroding real incomes - is the constraint. For new investment projects, financing cost and banking sector health are critical. The budget helps with some of these; monetary policy helps with none.

Rising government borrowing compounds the problem. The budget's NBR revenue target of Tk6.04 lakh crore is, by any honest assessment, unlikely to be met given the NBR's recent track record. When revenue falls short, as it has for years, the government borrows more from the domestic banking system to cover the gap and that borrowing competes directly with private credit for the same pool of funds. Every Tk1,000 crore the government borrows is Tk1,000 crore unavailable for private sector loans. With Bangladesh Bank keeping rates high and liquidity tight, that crowding-out effect is even larger than it would be in a looser monetary environment.

The United States in the early 1980s offers the textbook parallel: Reagan's expansionary fiscal policy - tax cuts, defence spending - collided with Paul Volcker's Federal Reserve holding extremely tight monetary policy. The result was high real interest rates, a strong dollar, a recession, and eventually lower inflation but the growth benefits of the fiscal expansion were significantly delayed and diluted.

Bangladesh's financial system is far less developed, its monetary transmission mechanism weaker, and its fiscal capacity more constrained than the US in the 1980s. But the directional logic holds. Perhaps Bangladesh's development partners have already priced this in as the ADB projected on Thursday that GDP will grow just 4.5% in FY27, well below the government's 6.5% target.

The National Board of Revenue’s (NBR) collection of more than Tk360,000 crore during the first eleven months of the fiscal year deserves recognition. At a time when Bangladesh is grappling with mounting fiscal pressures, this performance signals improvement in revenue administration despite a challenging economic environment.

Higher revenue collection strengthens the government’s ability to finance infrastructure, education, healthcare, and social protection while reducing excessive dependence on domestic and external borrowing.
Yet, beyond the headline figure lies a more important policy question: Is Bangladesh pursuing revenue growth in a sustainable manner?

The answer depends not only on how much revenue is collected today, but on whether the country’s revenue strategy is built on realism, efficiency, and trust.

Every year, Bangladesh announces ambitious revenue targets as part of the national budget. While optimism has its place in public finance, persistent gaps between targets and actual collections have become a recurring feature of our fiscal landscape.

When revenue targets consistently prove unattainable, they gradually lose their value as planning instruments. Revenue forecasting must therefore be grounded in economic realities rather than aspirations. Tax collection ultimately reflects economic activity. Ignoring these realities while setting ambitious targets only widens the gap between expectations and outcomes.

A balanced revenue strategy begins with acknowledging the economy’s actual capacity.

Bangladesh continues to have one of the lowest tax-to-GDP ratios among comparable developing economies. However, the real issue is not necessarily tax rates but a narrow tax base and uneven compliance. A small segment of formal businesses and salaried individuals continues to shoulder a disproportionate share of the tax burden, while large parts of the economy remain outside the formal tax net.

Expanding the taxpayer base should therefore become the central objective of tax reform.

Rather than repeatedly imposing additional obligations on compliant taxpayers, policymakers should focus on identifying new taxpayers, formalising informal businesses, strengthening digital record-keeping, and improving data sharing among government agencies. Technology offers opportunities to detect tax evasion while reducing compliance costs for honest taxpayers. Equally important is simplifying the tax system. Businesses are more likely to comply when tax rules are clear, predictable, and consistently applied. A modern tax administration should view taxpayers as partners in national development rather than merely subjects of enforcement.

This is particularly important as Bangladesh seeks greater domestic and foreign investment. Frequent regulatory changes and inconsistent interpretation of tax laws increase business uncertainty and discourage long-term investment. A stable and transparent tax environment ultimately generates more sustainable revenue than short-term collection drives.

Another often overlooked aspect of revenue mobilisation is public trust. Citizens are more willing to pay taxes when they see visible improvements in public services and infrastructure. Revenue collection should therefore be viewed not merely as a fiscal exercise but as part of a broader governance framework where accountability and service delivery strengthen voluntary compliance.

Bangladesh’s development ambitions will require steadily rising public revenues in the coming years. These objectives cannot be financed indefinitely through borrowing alone. The solution lies in building a tax system that is broader, fairer, more efficient, and more trusted.

The recent progress made by the NBR demonstrates that improvements are possible. The next phase of reform should focus less on announcing ambitious collection numbers and more on strengthening institutional capacity, expanding the formal economy, reducing tax evasion, and making compliance easier.

Balanced revenue growth is not about collecting the maximum amount in a single fiscal year. It is about creating a tax system capable of supporting Bangladesh’s long-term economic transformation. Realistic target-setting, efficient administration, and greater taxpayer confidence will ultimately produce more credible fiscal outcomes and a stronger foundation for sustainable economic growth.

In 2021, banks earned most of their income the traditional way -- by lending. Four years later, lending, the core business of banking, became a relatively minor source of earnings, according to their financial reports.

As private sector credit growth slowed and non-performing loans (NPLs) mounted, net interest income of banks came under increasing pressure. At the same time, sluggish imports also weighed on commission income from trade-related services such as opening letters of credit (LCs).
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To survive and, for many, to thrive, commercial banks, whose DNA is to create credit and take calculated risks by backing businesses, instead took shelter in the safety of Treasury bills, lured by their higher returns.

On paper, banks now appear highly profitable because of those elevated Treasury yields. They are earning strong returns without taking credit risk.

But economists and bankers say the windfall comes with two risks.

If banks continue to favour government securities over lending, private investment could weaken further, slowing the country’s economic recovery. And if Treasury yields begin to fall, banks will simply fail to maintain their current level of earnings.

INCOME PATTERN SHIFTS SWIFTLY

In 2021, the country’s 52 major banks generated a combined Tk 40,793 crore in income.

Interest income accounted for 47 percent of the total, while investment income contributed 34 percent. The remaining 19 percent came from commission income, according to financial reports of the commercial lenders.

In 2022, investment income increased but remained below interest income. The overall pattern changed little in 2023.

The balance shifted swiftly in 2024, when investment income overtook interest income to become the largest source of banks’ earnings.

By 2025, net interest income accounted for just 6.8 percent of total income, while investment income surged to 73 percent. Commission income contributed around 20 percent.

Syed Mahbubur Rahman, managing director and chief executive officer of Mutual Trust Bank, said this is a matter of serious concern.

He said foreign investors have already warned that banks could face significant difficulties if Treasury bond yields start to decline.

Explaining the shift in banks’ income sources, he said the cost of deposits has risen alongside overall operating expenses, narrowing lending margins.

“The biggest issue is that NPLs [non-performing loans] in the banking sector have risen sharply. As a result, banks are not receiving interest income from a large portion of their loans, yet they still have to pay interest to depositors.”

“Consequently, net interest income has declined. Ideally, a bank’s primary source of income should be its net interest income, as lending is its core business,” he added.

The CEO said the growing volume of bad loans has handicapped banks. At the same time, credit growth has slowed, prompting commercial lenders to increase their investments in Treasury bonds.

“Commission income has also declined because the country’s trade volume has weakened. In addition, the margins that banks previously earned from foreign exchange transactions have largely disappeared.”

“For the long-term sustainability of banks, their core income remains critically important. However, given the current state of private sector investment, sluggish credit growth, and the fact that NPLs have yet to improve,” he said, adding, “I do not expect the situation to improve in the near future.”
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CONCERNS OVER INVESTMENT, GROWTH

Another notable trend is the steady decline in banks’ net interest income over the past three years. Commission income also fell by around 8 percent year-on-year in 2025.

Investment income, however, has risen gradually over the past five years.

Kazi Monirul Islam, chief executive officer of Shanta Asset Management, said banks had a clear incentive to invest in Treasury securities because they offered attractive yields while lending became significantly riskier.

“That is why investment income has increased,” he said.

Monirul said banks naturally gravitate towards areas where they can earn higher returns with lower risk.

However, when banks choose government securities over extending loans, the wider economy suffers. If the trend continues, it will constrain private investment and slow the country’s economic recovery, he added.

As long as Treasury yields remain high, banks are likely to continue posting strong earnings. Once yields begin to fall, banks may initially benefit from capital gains on their Treasury portfolios, said the CEO of the asset management firm.

“Over time, however, their overall income is also likely to decline,” he added.

He believes that unless economic growth strengthens, banks will struggle to redirect the large volume of funds currently invested in government securities into productive private sector lending.

On the decline in commission income, Monirul said subdued imports and weaker export earnings had reduced trade-related fees and commissions.

Banks that operate brokerage houses also earned less commission because of weak trading activity in the stock market. However, he expects commission income to improve this year.

According to data from the Dhaka Stock Exchange (DSE), average daily turnover stood at Tk 1,474 crore in 2021. It fell to Tk 960 crore in 2022 and Tk 578 crore in 2023.

Turnover declined further to Tk 566 crore in 2024 before plunging to Tk 51 crore in 2025.

There has been a serious concern about economic growth because of the liquidity crisis, huge volumes of bad and doubtful loans, inadequate revenue collection, pressure on foreign debt repayments, declining remittances from non-resident Bangladeshis and uncertainty over export growth. Some of these challenges are beyond our control, while others, including revenue collection, debt recovery and liquidity management, can certainly be addressed through appropriate policy measures.

Bad and doubtful loans reported so far need to be categorised in a dispassionate and objective manner. A large portion of these outstanding loans resulted from fraudulent lending, with funds siphoned out of the financial sector. These are criminal offences and should be dealt with through legal action. Some loans have become bad because of adverse economic conditions, including slower imports caused by the foreign currency crisis, the wars in the Middle East and Ukraine, inadequate power supply to industrial units, rising fuel prices and production costs, weaker exports and other related factors. There is also another category comprising wilful and habitual defaulters. Even in these difficult circumstances, many borrowers continue to repay their loans regularly, demonstrating their commitment and honest intention.

Loans that have become bad because of economic factors beyond borrowers’ control warrant rehabilitation schemes in both the short and long term. Such support should follow careful review on a case-by-case basis, taking industry-specific issues into account. Working capital financing is another critical requirement for boosting production and, where applicable, increasing exports.

Unfortunately, since independence, Bangladesh has seen the persistent presence of habitual and wilful defaulters, with or without political patronage. This has seriously undermined the repayment culture, encouraged corruption and ultimately weakened economic growth. This issue should be addressed firmly, with no further incentives or concessions for wilful defaulters. Strict measures could include restrictions on business expansion, overseas travel by family members, children’s overseas education, infrastructure development and donations to institutions used to fulfil political ambitions. It is unfortunate that many wilful defaulters have never been brought to account, while a large number have escaped responsibility one way or another. This should not be allowed to continue.

Where appropriate, legal action should be initiated without further delay. Inter-company loans are another important area requiring close review. It is necessary to determine whether such funds have been extended to subsidiaries and associated entities and whether those entities have the capacity to repay them on time. It is well established that borrowers often overstate the value of their personal assets when securing loans. Subsequently, those assets may be diverted or disposed of, with or without the knowledge of banks or financial institutions. As a result, loans become effectively unsecured, exposing banks to greater risks in recovering overdue advances.

Increasing revenue collection is equally important. For many years, Bangladesh has failed to raise revenue to the expected level, leaving its tax-to-GDP ratio below that of neighbouring countries and comparable economies. Weak measures by the National Board of Revenue (NBR), inadequate digitalisation and corruption remain major obstacles. Required tax payments cannot be expected solely on a voluntary basis. Greater emphasis should be placed on credible financial statements, effective tax audits as practised in many countries, third-party verification of key financial information, adoption of a faceless assessment system and stronger action against corruption. Good governance is equally important, as poor governance encourages corruption, which ultimately undermines economic growth.

Bangladesh must overcome these challenges. Otherwise, economic growth will be seriously affected at a time when the world is already facing severe pressures from wars and continuing economic uncertainty.

Recently, Bangladesh's national budget for the fiscal year 2026-27 was presented to the Jatiya Sangsad. Following it, public discussions have focused on issues such as: where the necessary financing for the budget will come from; how much scope there is for being frugal by cutting on expenditures; and how the obstacles to implementing the proposed initiatives can be overcome.

Furthermore, more than 100 days have already passed since the current government assumed office. From a geopolitical perspective, the government faces various global economic challenges while also confronting numerous domestic economic problems. Against this backdrop, a relevant question arises: what should Bangladesh do on its journey forward?

In the post-budget period, the government must focus on three key areas. The first is the reform of revenue collection. This requires increasing the tax-to-GDP ratio as well as widening the tax net and the tax base. Bangladesh currently relies more heavily on indirect taxes than direct taxes. As a result, the tax burden falls disproportionately on ordinary citizens, and government revenues become more volatile to global economic shocks. Bangladesh should, therefore, shift toward greater reliance on direct taxation.

In addition, the efficiency in tax collection must be improved. In this regard, there was a proposal to divide the National Board of Revenue into two units, assigning tax policy to one unit and tax administration to another. This proposed reform is yet to be implemented.

The second one is the reform of the structure and the process of government expenditure. Given the significant constraints on financing public spending in the current fiscal year, the government must carefully prioritise its expenditures. Both in fulfilling the electoral manifesto of the government and in selecting development projects, decisions must be made objectively regarding which initiatives deserve priority. Projects that are necessary and that directly contribute to productive economic activity should receive precedence. Large-scale mega projects should, for the time being, be deferred. For the time being, economic realities rather than political considerations should guide future government initiatives.

Third, project implementation processes must be reformed to ensure the swift execution of budget proposals. Traditionally, government programmes and projects have faced various obstacles – some arising from legal complexities, others from excessive procedural requirements and bureaucratic layers. As a result, projects are delayed and prolonged, while also creating opportunities for corruption. Reform across every stage of implementation should therefore be a government priority.

In the post-budget period, the government must focus on three types of challenges: lingering problems, deepening problems, and emerging problems. Among Bangladesh's lingering problems are poverty and deprivation, economic slowdown, unemployment, inflation, and inadequate investment. Poverty appears to have increased recently, and around 36 million people are currently living below the extreme poverty line.

Bangladesh's economic growth rate is currently just above 3%. Both agriculture and industry are experiencing sluggish growth. According to government data, around 3 million people are currently unemployed. Inflation has remained high for an extended period and shows little sign of declining. Domestic and foreign investment have also slowed noticeably.

In the coming years, the government must focus on an inclusive, pro-poor growth strategy, centred on employment-led growth. This requires greater emphasis on the agricultural sector. Human resource development is essential for achieving higher growth, which in turn requires increased investment in education and healthcare, as well as policies oriented toward human development.

To reduce inflation, structural reforms in market systems are necessary, alongside the creation of strategic reserves of essential commodities. In terms of investment, incentive-based economic policies alone are insufficient. Reforms are also needed in the investment environment, including infrastructure, political stability, law and order, and security.

Among the deepening problems are inequality, financial sector distress, the burden of foreign debt and subsidies, violence against women, and environmental degradation. Inequality has become a profound issue in Bangladesh, where the wealthiest 10% of the population own three-fifths of the nation's wealth, and the richest 1% control one-quarter of all wealth. Loan defaults in the banking sector amount to nearly Tk6 trillion. Thousands of crores of taka have been illicitly shipped abroad. Bangladesh's external debt currently stands at approximately $110 billion. In the last fiscal year, the government provided subsidies worth Tk109,000 crore across various sectors. Violence against women has reached a toxic level, not only curtailing women's economic empowerment but also threatening their very existence. Climate and environmental degradation are not merely environmental crises; they are also development challenges.

There is no alternative to economic democratisation if inequality and disparity are to be reduced. Inequality exists not only in outcomes but also in opportunities. Therefore, merely removing structural regulations within the economy is not sufficient; access to resources and opportunities must be ensured for poorer segments of society. In the financial sector, establishing economic discipline and a visible framework of transparency and accountability is essential.

Addressing defaulted loans may require a combination of legal action, loan restructuring, and other coordinated measures. Regarding foreign debt, Bangladesh could engage with international financial institutions, explore debt restructuring arrangements, and also seek financing opportunities from international capital markets.

Subsidies across various sectors should be rationalised and carefully evaluated. A phased roadmap for reducing subsidies should then be developed. At the same time, efficiency and productivity must be increased in order to lessen reliance on subsidies. The state has a unique role in promoting gender equality and women's empowerment. Achieving this requires government commitment and prioritisation, effective policies and law enforcement, and partnerships with families and society. Under no circumstances should violence against women be tolerated. A sustainable development strategy that integrates economic growth with environmental protection deserves government commitment and priority. Existing effective plans should be implemented without delay.

Among the emerging challenges are wars and conflicts arising from geopolitical shifts, global political instability, and the spread of "economic nationalism." As Bangladesh is part of the global economic system, issues such as the Ukraine war, the Covid-19 pandemic, and the recent Middle East war have negatively affected its energy situation, import-export trends, overseas employment and remittances, exchange rates, and foreign exchange reserves.

At the same time, the rise of economic nationalism means that many major powers and developed countries are adopting more inward-looking economic policies. This could create difficulties for Bangladesh in securing grants, loans, and trade preferences. Developed countries are increasingly favouring bilateral relations over multilateral arrangements with developing nations like Bangladesh, potentially depriving them of the benefits of multilateral cooperation.

To address these issues, the government must adopt forward-looking and proactive policies. For example, Bangladesh could establish strategic energy reserves, diversify energy import sources, develop alternative energy options, and improve energy efficiency. Likewise, in response to economic nationalism, Bangladesh may consider forming regional alliances with other developing countries to strengthen trade and economic cooperation.

Another emerging issue is Bangladesh's graduation from the category of Least Developed Countries to that of developing countries. Bangladesh has requested the United Nations to delay this graduation process by three years, and a decision is expected next month.

If the request is approved, Bangladesh must strengthen its capabilities and capacities over the next three years to ensure that no obstacles remain to graduation. This requires careful preparation. It should also be remembered that, after graduation, Bangladesh will lose certain international benefits such as grants, concessional loans, and preferential tariff treatment. Therefore, preparation is also needed for the post-graduation period. Bangladesh has already developed a strategy paper for this transition. What is now required is its effective and phased implementation. In light of a possible delayed graduation, a revised and clearly defined roadmap could be prepared.

Let me conclude by saying that Bangladesh will face many obstacles in the coming years due to both global and domestic factors. These challenges are complex, but they are not insurmountable. With commitment, goodwill, integrity, and strong leadership, the government can confront them and, through collective effort, find effective solutions.

Despite efforts by Bangladesh Bank to promote a cashless economy, cash remained the country's preferred payment method in 2025, accounting for 67.2% of total transaction value, according to the central bank's latest annual report.

Central bank data show that digital channels made up the remaining 32.8% of transaction value, highlighting the slow pace of the transition towards digital payments.

Informal economy a major hurdle

Experts say the persistence of cash reflects the size of the informal economy, where a significant portion of transactions remains outside the formal banking system.Although mobile financial services, digital banking and QR-based payment solutions have expanded rapidly, many businesses and individuals continue to prefer cash for convenience and to avoid greater financial scrutiny.

Syed Mahbubur Rahman, managing director and CEO of Mutual Trust Bank, said, "The country's informal sector remains outside the banking system. A large share of economic transactions takes place there in cash, and we have not yet been able to bring these activities into formal financial channels."
Cash still accounts for 67.2% of transactions in Bangladesh despite cashless push

Zahid Hussain, former World Bank lead economist in Dhaka, said building a cashless society will remain difficult unless the informal sector is brought under the formal financial system.

"Large businesses in transport, agriculture and wholesale-retail trade continue to operate outside banking channels. Many of them are reluctant to join the formal system because doing so would expose them to taxation and regulatory oversight," he added.

Infrastructure, trust challenges

Bankers also point to infrastructure constraints as a major barrier to digital adoption.Many consumers still lack access to smartphones, reliable internet connections or the digital skills needed to use electronic payment systems.Small merchants and rural businesses often lack the infrastructure required to accept digital payments.

Mutual Trust Bank CEO Mahbubur said policy support alone will not be enough to accelerate the shift.

"Digital payment systems must become easier, more accessible and more convenient if we want people to adopt them on a larger scale," he added.

Md Touhidul Alam Khan, managing director and CEO of NRBC Bank, said banks face a dual challenge of ensuring security while making digital services simple enough for users with limited digital literacy.

He warned that fraud incidents, failed transactions and complicated interfaces may erode trust and push users back toward cash.

The banker also stressed the need for an inclusive transition, saying the objective should be to expand consumer choice rather than eliminate cash.

Digital payment adoption remains sluggish even as the country continues to bear the substantial costs of a cash-driven economy.

According to banking sector estimates, Bangladesh spends between Tk20,000 crore and Tk22,000 crore annually on printing currency notes.

The UN CDP’s recommendation to consider an extension of Bangladesh’s preparatory period for LDC graduation is a highly significant development. It is also consistent with the findings of the Graduation Readiness Assessment, earlier commissioned by UNOHRLLS at the request of the interim government. Overall, these assessments strengthen the case that Bangladesh’s LDC timeline extension request is a justified appeal to manage a complex transition under exceptional circumstances.

The CDP’s assessment confirms two things at once. First, Bangladesh continues to meet the graduation criteria by a wide margin, and its graduation eligibility is not in question. Second, Bangladesh has faced a combination of shocks, including the lingering effects of the pandemic, global economic instability, geopolitical tensions, supply-chain disruptions, and a major domestic political transition, all of which have constrained the implementation of critical preparatory measures. The recommendation therefore gives Bangladesh’s request stronger legitimacy within the UN process.

The next step will be to secure support in the UN General Assembly. Bangladesh should not assume that the CDP recommendation alone will automatically translate into approval. A focused diplomatic drive is now essential. The government will need to engage with UN member states, explain the evidence behind the request, demonstrate that the extension will be used for concrete reform actions, and reassure partners that Bangladesh remains fully committed to graduation.At the same time, Bangladesh must navigate the process with care. In the current global environment, geopolitical issues have become a serious development risk. While support should be sought from all relevant partners, the LDC graduation extension should not become a bargaining chip in ways that compel Bangladesh to make costly concessions to major powers. Diplomatic engagement should therefore be broad-based, principled, and carefully coordinated, with the extension framed as a development-transition issue rather than a matter of geopolitical alignment.

The CDP recommendation makes the case for an extension considerably stronger. It gives Bangladesh a credible basis for arguing that additional time is warranted on developmental, institutional, and transition-management grounds. However, we must treat this extension as a time-bound window for accelerating long-overdue reforms and strengthening graduation preparedness, not as a pause or a justification for delaying difficult policy decisions. Three years will pass very quickly.

Immediate priorities must include urgently securing post-graduation trading arrangements with the European Union, which absorbs nearly half of Bangladesh’s exports and where the country’s garment sector will face intensifying competitive pressure in the aftermath of the EU’s free trade agreements with Viet Nam and India. Failure to secure favourable market access could significantly erode Bangladesh’s export competitiveness. At the same time, Bangladesh must strengthen export resilience by accelerating diversification beyond traditional products and markets, reducing the longstanding anti-export bias embedded in domestic policies, enhancing productivity and compliance standards, and fast-tracking the implementation of the key measures identified in the Smooth Transition Strategy for LDC graduation.

This is where foreign direct investment becomes central. Bangladesh’s limited progress in non-RMG exports shows that export diversification cannot be achieved through domestic production capacity alone. The missing link has been FDI. While Bangladesh has developed a large and competitive garment sector, its non-RMG sectors have remained weakly connected to global value chains, international buyers, quality-control systems, design networks, and distribution channels. FDI can help close this gap by bringing technology, managerial capability, compliance systems, global sourcing relationships, and access to established markets.

Successful diversifiers have used foreign investors and joint ventures to anchor domestic firms within global production networks. Bangladesh must now treat FDI not as a general investment objective, but as a core instrument of export transformation. This requires a more focused investment strategy. Rather than spreading policy attention thinly across too many economic zones and sectors, a few selected special economic zones should be prioritised and made fully functional for export-oriented investors. These zones should offer reliable power and gas, customs facilitation, serviced land, duty-free input access, compliance infrastructure, labour-skills support, and fast-track regulatory services.

If needed, generous but disciplined incentives should be offered to attract a small number of large foreign multinational export manufacturers. Securing a few credible anchor investors can have a demonstration effect: once global firms begin producing successfully in Bangladesh, suppliers, logistics providers, buyers, and other investors are more likely to follow. As multinational firms seek to reduce excessive dependence on major geopolitical power manufacturing locations, Bangladesh can position itself as a competitive, non-power-aligned production base for global exports. Bangladesh has already demonstrated its ability to produce at scale, supported by abundant labour, an established export culture, and proximity to Asian supply chains. These advantages will count only if Bangladesh presents itself as a reliable, reform-oriented, and export-ready location.

Several long overdue actions require urgent attention. Foremost among them is fixing the Central Effluent Treatment Plant in Savar and ensuring environmental compliance in the leather sector. This would restore credibility and signal seriousness to investors. Other priorities include creating affordable export-support financing for man-made fibre-based apparel, improving product quality and compliance standards in agro-processing and other promising export sectors, reducing logistics and trade-related costs, and preparing for emerging regulatory requirements such as the EU’s Corporate Sustainability Due Diligence Directive and the Carbon Border Adjustment Mechanism.

The issue of export incentives also deserves special consideration. While many broader policy reforms have stalled, the reduction of export incentives appears to have been placed on a much faster track. This sequencing is questionable. The resurgence of industrial policy globally, and recent experience from export success by various economies, suggest that carefully designed support for exports remains important for building supply-side capacity and strengthening competitiveness. With the possibility of an extension of Bangladesh’s graduation timeline, the country must use any available policy space strategically. Export support should not be indiscriminate, but it should be targeted and linked to export expansion, diversification, technology upgrading, compliance, and new market entry. Removing support before alternative competitiveness-enhancing reforms are in place could weaken the very sectors Bangladesh needs to build for the post-LDC period.

More fundamentally, the success of any extended preparatory period will depend on domestic economic management. Tackling inflation, restoring macroeconomic stability, addressing banking-sector weaknesses, and strengthening implementation capacity remain critical. Without progress in these areas, an extension may provide temporary relief but not a stronger transition. The real test, therefore, will be whether Bangladesh can use the additional time to accelerate reforms, deepen productive capacity, attract export-oriented investment, and enter the post-LDC phase with greater confidence and resilience.

The government’s ongoing effort to formulate a new five-year strategic framework presents a timely opportunity to embed LDC graduation preparedness within a broader national development action plan. Rather than treating graduation-related measures as a parallel exercise, the plan should explicitly align its priorities, targets, and implementation mechanisms with the requirements of a successful post-LDC transition.

In this regard, Bangladesh already possesses a valuable foundation in the STS, which contains a comprehensive set of actions covering macroeconomy, export competitiveness and diversification, productive capacity, institutional strengthening, and international partnerships. Many of these measures can be incorporated directly into the forthcoming development framework. The new strategic plan should therefore establish clear priorities, assign institutional responsibilities, define implementation timelines, and allocate the necessary resources to ensure that the most critical graduation-related reforms are carried out within the available window of opportunity.