It's the economy, stupid

During the 1992 US Presidential elections, Democratic candidate Bill Clinton's strategist James Carville coined a phrase that continues to resonate throughout the world: "It's the economy, stupid." 

With that one-liner, Carville pointed out the single most important factor that influences voter behaviour: the state of their personal finances, with jobs at the heart of it. The phrase exploited public anxiety over the recession-hit economy under President George HW Bush. 

Incumbents, no matter how clean or relatable their image, can see their popularity crash if the economy is not delivering the goods for the public. This dictum should be of particular interest to Prime Minister Tarique Rahman as he gears up to navigate the second half of his first year in office. 

Social media optics have done wonders for Rahman's personal image in the first six months. Videos of the prime minister holding up an umbrella over his wife in the rain, or of him driving around Dhaka without holding up traffic, or greeting supporters in an informal manner etc., have been creating the image of a modern family man, who is also a man of the people. A prime minister for the ages. 

But beneath the gloss of the videos and social media clicks, there is a world which has yet to be impressed. This is the world where the vast majority of the people live, for whom the price of essential commodities at the marketplace, employment, safety on the roads, peace in schools etc., are of paramount importance. 

What weighs most heavily on their mind is whether they'd be able to provide for their family.  

Optics vs reality

During the first six months of Tarique Rahman's tenure, social media optics and real-world living conditions do not seem to have aligned. For Rahman, reducing the gap between optics and economic reality is going to be the biggest challenge in the months ahead.

Much has already been said about the launch of the Family Card within a month of Rahman assuming office. This card, expected to benefit some 20 million families, was the centre-piece of the BNP's election pledges. 

Throwing such a safety net over some of the country's poorest has clear benefits for social stability and can produce political dividends for the prime minister. Launching a programme that aims to dish out cash benefits as well as subsidised commodity access for millions, at a time when the finance minister says government coffers are "empty," is also a brave and bold move.  

The overall economy, however, has not performed as well as the government may like the people to believe, despite healthy forex reserves driven by higher remittances from expatriate Bangladeshis. 

After a decade of decent growth between 2011 and 2021 (with a blip at the height of Covid-19,) the rate of GDP increase began to falter in the wake of Russia's war in Ukraine in 2022. Political upheavals at home in 2024, followed by a long period of uncertainty, lawlessness and lack of investor confidence further depressed growth. 

It was sheer misfortune on the part of the BNP government that the US and Israel launched their war on Iran just 11 days after it came to power. The war hit energy supplies hard for import-dependent countries like Bangladesh. 

Low growth, slow money

If people were expecting signs of a turn-around, the beginning of economic recovery, then they would have been disappointed by the performance of the government in its first six months.

Growth prospects remain stubbornly stagnant. The IMF puts it below 5% for 2026, even going down to 3.5% for 2027; the World Bank predicts 3.8%, while the Asian Development Bank sees possibilities of a slight rebound in 2027. 

While revenue generation remains a major challenge for the government, the immediate risk is of deepening stagflation. With high inflation, low growth and high employment, the government faces the danger of not just economic erosion, but social unrest and political instability. The energy crisis is at the centre of this brewing storm.

Inflation on the other hand, continues to hover between 8% and 9%. The rate of increase is moving down at a snail's pace, leaving prices of many essential items in the market at the high end. There is no relief in sight. 

One of the biggest issues affecting the economy is what is euphemistically called "resource mobilisation" — meaning, collecting taxes. Bangladesh has one of the lowest tax-to-GDP ratios in the world and it does not look to be getting any better anytime soon. 

The government in its budget for 2026-27, has projected a 21% increase in tax revenue over the target set for the previous year. But as economists such as KAS Murshid has pointed out, tax collection in the previous year fell well short of target as well, meaning the new target is closer to a 50% increase over the actual amount collected in 2025-26. 

"This is not a fiscal target. It is a fiscal aspiration," Murshid wrote in his Dhaka Brief column on Substack. "The honest question is what happens to the deficit when revenues fall short — as they are almost certain to." 

Taxing too few

There is unlikely to be an honest answer to the honest question. The finance minister has already begun to get his excuses lined up, by talking of empty treasury, looted banks and blaming it all on the government that was overthrown two years ago. 

It is a time-honoured habit of governments to blame all ills on the previous regime. But there comes a point where the blame game begins to wear thin, as the public looks to the incumbents to deliver the goods. For the BNP, that point may come sooner rather than later. 

It is interesting to note that while Bangladesh's tax-to-GDP ratio is below 7%, neighbouring countries such as India (12%) Sri Lanka (10%) and China (19%) are all achieving greater resource mobilisation. Only Pakistan performs nearly as poorly as Bangladesh in this area. 

Unlike advanced nations such as Denmark or France, where personal income tax, social security contributions etc, drive massive revenue collection, Bangladesh relies heavily on indirect taxes such as VAT and import duties to fill up the government coffers. There is often extensive discourse on the need to expand the income tax net to increase revenue, but without any significant progress. 

As recently as 2024, the then chairman of the Revenue Board was reported by The Business Standard as saying that, only 5% of Bangladeshis paid income tax, which compared poorly with India's 23%. Given this scenario, the government's goal of raising revenue to finance all the major objectives set out in the budget may come at the cost of higher borrowing. 

Energy at the centre

While revenue generation remains a major challenge for the government, the immediate risk is of deepening stagflation. With high inflation, low growth and high employment, the government faces the danger of not just economic erosion, but social unrest and political instability. The energy crisis is at the centre of this brewing storm. 

At this juncture, the government appears content to blame the past Awami League government, which may well carry some justification. The AL's fault was not that it did not generate enough electricity. But, as the executive director of Centre for Policy Dialogue Fahmida Khatun pointed out in a recent article published on the CPD website, Sheikh Hasina's government failed to develop the necessary plans to ensure longer-term energy security. 

"Internal policies such as import dependency, inadequate domestic energy investment, and the absence of a credible medium-term plan during the previous political government are also responsible for the power sector's critical condition," Khatun wrote.  

But the time to point fingers and blame the government from two years ago is long past. Industry is under-producing or shutting down altogether, putting jobs at risk; electricity production at gas and oil-fired power stations is at risk; households are suffering from lack of gas as well as frequent loss of electricity supply; and small businesses are taking hits that they may not be able to handle without support.

The Finance Minister has assured the country that the government is drafting a new energy policy to map out medium and long term plans, which would include utilisation of all types of fuel source, from solar to coal. While such a policy with clearly thought-out, fully costed plan with a realistic time-line, is essential, the economy is in need of immediate remedial action.  

Tarique Rahman's misfortune has been that factors beyond his control such as the wars in Europe and the Persian Gulf have continued to put the economy under pressure. But his government has also enjoyed political legitimacy, no unrest in the streets, support of the international community, a supportive media and a reservoir of goodwill following the February 12 elections.

However, the government should know that goodwill, or "political capital," is not infinite. At the end of the day, it is the economy, not social media optics, which will determine how fast that capital is eroded. 

The writer is a journalist and podcaster. Email: sabir.mustafa@gmail.com. X handle: @Sabir59.