Late last month, in its inaugural meeting, the new cabinet moved to waive agricultural loans -- both principal and interest -- up to Tk 10,000. This decision offers immediate relief to 1.2 million farmers who had defaulted on their payments.
History is repeating itself.
Some 35 years ago, when Begum Khaleda Zia took office as the nation's first female Prime Minister, her government waived agricultural loans up to Tk 5,000.
This culture of cushioning farmers against debt actually predates that era; the administration of military ruler HM Ershad also granted interest waivers to protect farmers following devastating floods.
Historically, these waivers have served as a recurring tool for disaster relief and social protection during political transitions or natural calamities.
Undoubtedly, such moves provide psychological and financial "breathing space." They potentially improve a farmer’s standing for future credit, signal that a government is honouring its election mandates, encourage reinvestment in seeds and irrigation, and help stem rural-to-urban migration.
However, there is a flip side.
When a government waives debt the liability shifts to the state, requiring compensation to banks from the national budget.
Economists argue that frequent waivers can erode credit discipline, creating an expectation of future forgiveness that may make banks more hesitant to lend to the agricultural sector in the long run.
While the gesture from Prime Minister Tarique Rahman’s government is a welcome relief, financial regulators and policy planners must look beyond the waiver.
The systemic default culture ingrained in farm credit -- largely driven by graft and inefficiency -- must be mended. Without structural reform, periodic waivers are merely a band-aid on a deep-seated crisis.
Central bank data shows that as of October last year, nearly 34% of outstanding farm credit was classified as defaulted. For state-run lenders, the figure is even higher. While recent regulatory changes, such as the narrowing of grace periods, play a role, they do not tell the whole story.
Farmers often suffer due to factors far beyond regulatory tightening. Corruption remains a massive hurdle; Transparency International Bangladesh (TIB) has consistently highlighted the banking and agriculture sectors as areas where households are forced to pay bribes just to have loans sanctioned. Low-income farmers bear a disproportionate burden, paying a larger share of their income in "speed money" than wealthier borrowers.
Furthermore, despite being a mainstay of the economy, large-scale crop insurance is almost entirely absent in Bangladesh.
Our agriculture remains hyper-vulnerable to climate shocks. Cyclones like Aila have caused long-term soil salinity that destroys productivity for years, trapping farmers in multi-year debt cycles.
External shocks have also squeezed margins. The global supply chain disruptions of the pandemic, followed by the Russia-Ukraine conflict and escalating Middle East tensions, have sent the costs of fertilizer, seeds, pesticides, and irrigation soaring.
The escalating Middle East crisis forces Bangladesh to immediately weigh the potential ramifications on its food security. Since the country imports the majority of its chemical fertilizer, it is highly vulnerable to supply chain disruptions in war-impacted regions.
Recent military escalations -- including attacks on Iran and retaliatory strikes against US allies -- have roiled energy markets and disrupted shipping through the Strait of Hormuz.
This narrow passage is a global chokepoint, carrying 27% of the world’s oil, 20% of its LNG, and up to 30% of global fertilizer exports (including urea and phosphates).
A prolonged conflict threatens to choke trade, driving up global energy and nutrient costs. According to the International Food Policy Research Institute (IFPRI), while the immediate impact may be cushioned by existing stocks, a long-term standoff will likely slash yields and spike prices for essential crops like rice across South and Southeast Asia.
On the domestic front, the supply chain remains riddled with intermediaries and illegal toll collectors. Farmers often see little profit because of these "middlemen" and extortionists -- both in plainclothes and in uniform -- who hike costs between the farm gate and the urban consumer. A genuine "disintermediation" process is needed to streamline the path from producer to market.
Finally, the lack of storage infrastructure forces farmers to sell at "throwaway prices" during harvest peaks.
State-owned banks, burdened by "politically-directed" lending and a lack of field-level monitoring capacity, often grant loans without proper risk assessment.
The government must look for avenues beyond the one-time waiver. We need a comprehensive "mid-term bailout package" that includes a functioning nationwide crop insurance system, a streamlined value chain, and robust policy support to absorb the shocks of inflation and climate change.
Only by fixing the system can we truly empower the hands that feed the nation.
Reaz Ahmad is Editor, Dhaka Tribune.
