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Bangladesh is entering a critical reform phase ahead of its graduation from the Least Developed Country (LDC) category, with weak governance, fiscal vulnerabilities and institutional fragmentation posing major risks to long-term economic growth, according to the Asian Development Bank (ADB).

In a report titled Bangladesh at a Crossroads of Reforms, the Manila-based lender said the country needs broad institutional and macroeconomic reforms to sustain growth momentum and successfully manage post-LDC transition challenges.

The report comes as the government pursues an ambitious goal of transforming Bangladesh into a $1 trillion economy by 2034 through investment-led and employment-intensive growth.

The strategy aims to create 10 million jobs, reduce dependence on debt-driven growth and raise foreign direct investment (FDI) inflows from 0.45 per cent to 2.5 per cent of GDP.

However, the ADB warned that Bangladesh still faces deep structural weaknesses across fiscal management, governance and public institutions.

The report highlighted the country’s persistently low tax-to-GDP ratio of around 7.5 per cent, alongside weak revenue administration caused by overlapping mandates and fragmented tax structures.

It also flagged rising debt vulnerabilities, noting that public and publicly guaranteed debt reached nearly 41 per cent of GDP in FY2025.

According to the report, debt management remains fragmented across multiple agencies without a unified database, limiting effective fiscal oversight and risk monitoring.

The ADB also identified weaknesses in public financial management, saying the existing Integrated Budget and Accounting System (iBAS++) still fails to fully capture arrears, contingent liabilities and financial commitments.

State-owned enterprises (SOEs) were another major concern.

The lender said returns on equity of SOEs fell by 88 per cent and returns on assets by 78 per cent between 2018 and 2022, reflecting deteriorating efficiency and rising fiscal risks.

It noted that overlapping oversight responsibilities between the finance ministry and line ministries continue to create conflicts of interest in SOE governance.

The report further said institutional accountability remains weak, with the Office of the Comptroller and Auditor General facing limited financial and administrative independence.

The Anti-Corruption Commission also remains vulnerable to bureaucratic influence, while public trust has weakened, reflected in a 29 per cent decline in complaints between 2019 and 2023.

To address the challenges, the ADB proposed a broad reform roadmap.

It recommended restructuring the National Board of Revenue by separating tax policy from tax administration, strengthening domestic resource mobilisation and improving international tax cooperation to curb illicit financial flows.

The report also called for establishing an integrated public debt management office supported by a unified debt database.

In public financial management, the lender recommended upgrading iBAS++ and expanding electronic government procurement systems to improve transparency, accountability and expenditure control.

The ADB further urged greater financial independence and stronger institutional capacity for the Comptroller and Auditor General’s office and the Anti-Corruption Commission.

For state-owned enterprises, it suggested introducing a comprehensive state ownership policy, enacting a dedicated SOE law and improving performance monitoring systems to reduce fiscal risks and improve operational efficiency.

“The success of these reforms will depend on sustained political commitment, transparency and stronger engagement with non-government stakeholders,” the report said.