Bangladesh’s political economy is undergoing a striking shift. For much of the past fifteen years, development was measured in concrete and megawatts. Today, it is increasingly being measured in cards and subsidies.

The transition from infrastructure-led growth to welfare-led governance marks one of the most consequential policy changes in the country’s recent history. Whether it proves transformative or fiscally destabilising will depend less on political ambition than on economic arithmetic.

On April 20, Prime Minister Tarique Rahman stood before a crowd in Bogura and distributed Family Cards to mothers and housewives. The promise was sweeping: within five years, four crore families would receive one.

The scheme forms part of an expansive welfare agenda announced by the new government. Yet even as the programme was being launched, officials were scrambling to secure an additional Tk 24,000 crore to finance fuel and LNG subsidies that had not been included in the budget.

The Prime Minister suggested that many of these programmes would ultimately be financed through the recovery of money allegedly siphoned abroad. The difficulty is that the spending has begun, while the recovered funds remain largely hypothetical.

The contrast with the previous government is revealing. The Awami League pursued a development strategy centred on physical capital.

During its tenure, Bangladesh witnessed the construction of the Padma Bridge, Dhaka Metro Rail, Karnaphuli Tunnel, Rooppur Nuclear Power Plant, Matarbari and Payra power projects, Terminal 3 of Hazrat Shahjalal International Airport and numerous expressways, bridges and ports.

The underlying assumption was straightforward…that sustained economic growth required large-scale investment in infrastructure capable of reducing logistical bottlenecks, increasing productivity and attracting private investment.

The interim administration that followed showed little enthusiasm for such projects, cancelling or postponing several.

The BNP government has not entirely abandoned infrastructure—its support for the proposed Padma Barrage reflects strategic concerns surrounding water security and the future of the Ganges Treaty—but its priorities lie elsewhere.

Rather than investing primarily in roads, bridges and power stations, it is investing in households.

In barely two months, the Prime Minister’s Office announced roughly sixty welfare initiatives.

They range from Family Cards, Farmer Cards and Fuel Cards to loan waivers for small farmers, transport discounts for students and senior citizens, expanded allowances for widows and the elderly, stipends for religious institutions, support for artists and free school uniforms.

The Family Card programme alone is expected to cost approximately Tk 1.34 lakh crore during the government’s tenure. Meanwhile, Tk 5,500 crore has been allocated for a pilot mid-day meal programme in primary schools.

Welfare approach and the financial checkpoints

The intellectual justification is clear.

Finance Minister Amir Khasru Mahmud Chowdhury has repeatedly described the government’s ambition as the creation of a welfare state and a “humane economy”. Politically, the logic is equally compelling.

Welfare programmes generate immediate and visible benefits. A bridge may take a decade to complete and its benefits may appear diffuse. A welfare card delivers assistance every month and leaves no doubt about who provided it.

The relationship between state and citizen becomes direct, personal and electorally rewarding.

There is nothing inherently misguided about such an approach. Many successful middle-income countries have relied on targeted welfare programmes to reduce poverty and improve social outcomes.

Brazil’s Bolsa Família is perhaps the most cited example. Yet its success stemmed not merely from cash transfers but from conditionality. Families received benefits only if children attended school and received vaccinations.

Welfare spending was therefore linked to the accumulation of human capital. It reduced poverty while simultaneously increasing future productivity.

Whether Bangladesh’s emerging welfare architecture can achieve similar outcomes remains uncertain. Much of the current agenda consists of consumption support rather than productivity-enhancing investment.

Cash transfers, subsidies and allowances may provide immediate relief, but they do little to increase the productive capacity of the economy unless linked to education, healthcare, skills development or labour-market participation.

This concern is amplified by the state of Bangladesh’s public finances. The International Monetary Fund has already expressed unease.

In April, it delayed the release of a $1.3 billion tranche under Bangladesh’s $5.5 billion support programme, citing weak tax collection, persistent energy subsidies, shortcomings in banking governance and delays in exchange-rate reforms. These concerns are not merely technical disagreements.

They reflect doubts about whether government expenditure is expanding faster than the state’s capacity to finance it.

Bangladesh’s fiscal position is particularly vulnerable because of its chronically weak tax base. The country’s tax-to-GDP ratio stood at just 6.56% in fiscal year 2025, among the lowest in both South Asia and Southeast Asia.

Such figures are exceptionally low for a country attempting simultaneously to finance welfare expansion, infrastructure maintenance and debt obligations.

In theory, the solution is simple: collect more taxes. In practice, it is far more complicated. Wealthy individuals and politically connected businesses often possess both the legal and informal means to minimise their tax liabilities.

Governments therefore tend to rely on easier forms of revenue extraction: value-added taxes, utility price increases, fuel price adjustments and indirect levies.

Recent discussions regarding inheritance taxation, broader tax coverage and new levies on remittance and freelance income illustrate this dynamic.

The imposition of a 7.5% tax on remittance and freelance earnings is particularly revealing.

While it may generate additional revenue in the short term, it risks discouraging formal financial transactions and incentivising the use of informal channels.

More broadly, it reflects a recurring challenge in developing economies: when taxing wealth proves politically difficult, governments often fall back on taxing economic activity.

Clear and present dangers

The burden falls disproportionately on the middle class and lower-middle class. The poorest households may receive welfare support, while the wealthiest often remain relatively insulated from taxation.

Those in between are left financing a growing share of public expenditure. If welfare expansion is financed primarily through indirect taxation and higher administered prices, the result may be less progressive than it first appears.

Inflation presents a second danger. Large-scale welfare transfers inject purchasing power into the economy. Unless matched by corresponding increases in production, they risk fuelling demand-driven inflation.

The immediate beneficiaries may receive additional cash, but rising prices can erode those gains. For households outside the welfare system, inflation functions as an implicit tax, reducing purchasing power without appearing on any tax bill.

Over time, this dynamic risks creating a redistribution trap. Lower-middle-class families squeezed by taxes and inflation may find themselves sliding toward the very categories of vulnerability that welfare programmes are designed to address.

Rather than redistributing resources from rich to poor, the state may end up redistributing income among different segments of ordinary citizens.

The BNP’s broader vision contains more promising elements. Its emphasis on technical education, skills development, overseas employment, digital industries and entrepreneurship points toward a more productive growth model.

Yet these policies currently appear secondary to a rapidly expanding system of transfers and subsidies. That balance may ultimately determine the success or failure of the government’s economic strategy.

Bangladesh’s long-term development challenge cannot be solved by choosing between infrastructure and welfare.

The country requires both, but neither is sufficient on its own. Sustainable prosperity depends on productive industries, quality education, research and innovation, efficient taxation, accountable financial institutions and labour markets capable of generating high-value employment.

Physical capital without human capital produces limited returns. Welfare without productivity eventually becomes fiscally unsustainable.

As Bangladesh approaches graduation from Least Developed Country status in 2026 and concessional financing becomes scarcer, the margin for fiscal error is narrowing.

The central question facing the government is therefore not whether welfare is desirable. It is whether the country can afford a welfare state before it has built the economic foundations necessary to sustain one.

If those foundations remain weak, today’s welfare expansion may reduce hardship in the short term while merely redistributing its cost to the middle class in the long run.

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