Khaleda Zia’s economic legacy, lessons, and the road ahead
Over the 55 years since Bangladesh's independence, the processes of state-building, political transformation, and economic reconstruction have unfolded in deeply interconnected ways. During this period, the country has traversed multiple political turning points, each leaving a lasting imprint on its economic direction and institutional architecture. Within this long and complex history, Begum Khaleda Zia's leadership represents an important phase, particularly regarding economic reform and policy realignment.
First, her tenure, which began in 1991, coincided with a critical phase as Bangladesh gradually shifted from a state-controlled economic framework towards a market-oriented, export-led development model. This was not merely a moment of policy adjustment. It marked a broader reconfiguration of the relationship between the state, the market, and society. One may recall that the major impetus for this came from the Bretton Woods Institutions (BWIs), notably the World Bank and the International Monetary Fund, through the Structural Adjustment Programmes (SAPs) introduced during the 1980s. These programmes emphasised macroeconomic stabilisation through fiscal and monetary discipline, reduced state intervention, trade liberalisation, and greater openness to global markets. SAPs, however, attracted widespread criticism for their uniform policy prescriptions, which were often linked to rising inequality, weakened social protection, and pressures on domestic industries with weak institutional capacity. While debates over SAPs remain part of a broader ideological and developmental literature, Bangladesh's reform trajectory led to improved macroeconomic performance in the mid-1990s. However, the BWIs recognised the need for improved governance and further reform to achieve better outcomes. Any assessment of Khaleda Zia's economic role must therefore situate her leadership within this wider national transition, as part of an evolutionary reform process rather than an isolated intervention.
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Second, in 1991, Bangladesh had recently emerged from military rule and returned to democratic governance after a long period. At the time, low productive capacity, a weak revenue base, and heavy reliance on regulatory controls constrained the economy. Against this backdrop, her government placed the private sector at the centre of the development process by expanding the role of markets, fostering an investment-friendly environment, and redefining the state as a facilitator rather than a direct controller.
Third, the RMG industry, which emerged in the 1980s, received crucial structural support in the 1990s through policy instruments such as export performance benefits, bonded warehouse facilities, back-to-back letters of credit, cash incentives and trade facilitation measures. These policies were pragmatic, enabling Bangladesh to rapidly secure a significant position within global apparel value chains, a success that continued to drive economic growth in subsequent decades.
Fourth, one of the most consequential initiatives of Khaleda Zia's first term was the enactment of the Value Added Tax (VAT) Act in 1991, marking a fundamental shift in Bangladesh's tax system. The reform aimed to replace a narrow, inefficient revenue structure with a modern, broad-based framework. Although implementation encountered obstacles and later required further adjustments, the initiative strengthened the foundations of revenue administration, essential to financing development expenditure, expanding social protection, and supporting infrastructure investment.
Fifth, two significant changes in the external sector were introduced during her time in office. In 1994, Bangladesh adopted current account convertibility, which energised import and export activity. This was followed in 2003 by the transition to a floating exchange rate regime. Together, these reforms enhanced flexibility in trade and monetary policy and deepened Bangladesh's economic integration with the global economy, contributing to greater macroeconomic resilience and stability over the long run.
Sixth, financial sector reform emerged as one of the most critical yet complex chapters of this period. The enactment of the Bank Companies Act (1991) and the Financial Institutions Act (1993) was aimed at strengthening regulatory oversight, while the Financial Sector Reform Programmes (FSRP) and Financial Sector Adjustment Credit (FSAC) were implemented with support from development partners, including the World Bank. The Bangladesh Bank Amendment Bill 2003 was enacted to allow autonomy to the central bank. Although outcomes fell short of expectations, the reforms laid critical structural foundations. The establishment of the Bangladesh Securities and Exchange Commission (BSEC) in 1993, under the Bangladesh Securities and Exchange Commission Act, was also a notable reform, providing an institutional framework for capital market development and strengthening the financial system's architecture.
Seventh, economic growth during this period, driven by export expansion and rising remittance inflows, created new employment opportunities. From the 1990s through the mid-2000s, gross domestic product (GDP) increased, and poverty rates declined significantly. Programmes aimed at poverty reduction, such as rural employment schemes, food security initiatives, and targeted assistance, were expanded. At the same time, the gradual extension of social safety nets sought to strengthen state support for vulnerable and low-income groups. Together, these initiatives helped reinforce the foundations of social progress. It must be acknowledged that this achievement cannot be attributed to any single government. It reflects the cumulative impact of sustained policy continuity. Nevertheless, the relative policy stability during Khaleda Zia's tenure helped accelerate this process.
These economic policies and reforms collectively constitute Khaleda Zia's economic legacy. Despite several achievements on the economic front, governance deficits, political polarisation, and uneven enforcement limited the full impact of the reforms. Notwithstanding the implementation challenges faced, these measures remain an important chapter in Bangladesh's development trajectory.
The lessons from that period remain relevant today, when governance weaknesses continue to be unaddressed. A lack of discipline in the banking sector, persistent political influence, and weak enforcement mechanisms have slowed the pace of reform. These challenges are structural and long-term. They remind us that reform is not merely a matter of policy design. It requires political commitment, institutional continuity, and a sustained, long-term vision working in concert.
As Bangladesh approaches the February 12 national elections, political parties must move beyond rhetoric and reflect seriously on the economic policies of all governments in power to understand what worked well, what failed, and why. The credibility of future agendas will depend on translating these lessons into reforms that strengthen institutions, restore discipline, and address citizens' everyday economic needs through inclusive and accountable governance.
Dr Fahmida Khatun is executive director at the Centre for Policy Dialogue.
Views expressed in this article are the author's own.
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