Soon after assuming office, the new government led by the Bangladesh Nationalist Party (BNP) has been confronted with a challenging economic situation, aggravated by the ongoing conflict in the Middle East involving the United States. The conflict has had global repercussions, affecting many countries, including Bangladesh. Initially, the government attempted to stabilise fuel prices through subsidies but was later compelled to raise prices, significantly impacting people's livelihoods. In this context, questions have arisen over the challenges ahead for the government and the measures required to overcome the situation.

Speaking in Parliament, Finance Minister Amir Khosru Mahmud Chowdhury on Thursday clearly stated that it would take two more years to come out of the economy's present doldrums. Depicting the current picture of the economy with a series of indicators, the finance minister said Bangladesh's tax-to-GDP ratio has fallen below 7 percent - the lowest in South Asia and among the lowest globally. He noted that the ratio was around 10 percent in 2005-06 and had a growing trend during the last BNP government.

Public sector investment under the annual development plan has remained lacklustre for almost two years now. Among other constraining factors is the poor collection of public revenue. The National Board of Revenue (NBR) is running nearly Tk 98,000 crore behind its revised collection target for the current fiscal, even as it posted over 11 percent growth in revenue. Private sector credit growth, which is crucial for investment, production and employment, has declined sharply, and even export growth has turned negative.

The finance minister also pointed to mounting fiscal pressures due to large subsidies in the power and energy sectors. He said the government is currently providing around Tk 36,000 crore in power subsidies and may need to provide an additional Tk 20,000-30,000 crore in light of the situation in the Middle East.

The ongoing crisis in the Middle East-particularly tensions affecting the Strait of Hormuz and the Red Sea shipping routes-poses significant risks for Bangladesh. A large share of the country's fuel imports and remittance inflows depend on the region.

Disruptions to key maritime routes, including the Suez Canal, have already increased freight costs, forcing shipments to take longer alternative routes via the Cape of Good Hope. Bangladesh's export-oriented sectors, particularly ready-made garments, could face further challenges due to rising logistics costs and weakening global demand.

Remittance inflows may also come under pressure if economic conditions in Gulf countries deteriorate. A significant portion of Bangladesh's overseas earnings originates from the Middle East. Recent estimates suggest that over one million people have fallen below the poverty line amid ongoing economic stress, while youth unemployment remains high. Foreign direct investment and private sector growth have also slowed in recent years.

All these factors challenge the government to prove its mettle, and the finance minister's vision will be of utmost importance. Amir Khasru came to office championing widespread deregulation to stimulate Bangladesh's economy, promising to reduce bureaucratic control and empower the private sector. With his first budget due in a month, he will soon have to shine a light on how he plans to make it happen.