Wednesday, 27 August, 2025
Bangladesh’s economy is struggling under mounting pressures, with slowing growth, stubborn inflation, and sharply declining private investment creating fresh challenges. Economists warn that without political stability, these strains may intensify, particularly in the run-up to the national election scheduled for February.
Chief Adviser Professor Mohammad Yunus has confirmed that the election will be held in early February, while other advisers in the interim government have repeatedly stated their determination to follow the schedule. Yet many analysts remain cautious, fearing that any political turmoil could further undermine an already fragile economy.
Professor Yunus, a Nobel laureate, has acknowledged the precarious state of the economy, which has been downgraded by the World Bank, IMF, and Asian Development Bank following political unrest in 2024 and years of corruption and money laundering under the previous Awami League government led by Sheikh Hasina.
A recent report by the Dhaka Chamber of Commerce and Industry (DCCI) attributes the country’s economic strain to both global shocks and domestic weaknesses. It notes that private investment fell to 22.48 percent of GDP in FY25, the lowest in five years, while the opening of letters of credit and imports of capital machinery have declined significantly.
The report highlights that efforts to control inflation have squeezed credit to the private sector, dampening economic activity and creating what it calls a medium-term crisis. To restore confidence, the DCCI recommends stabilising the banking sector, ensuring political stability, and cutting bureaucratic red tape to improve the ease of doing business.
It also calls for lower interest rates, export diversification, and long-term solutions to the country’s worsening energy shortage, which has forced industries such as the readymade garments sector to operate below capacity.
For millions of Bangladeshis struggling with high prices, shrinking incomes, and uncertain prospects, the national election is more than a political contest – it is increasingly seen as a turning point that will determine whether the economy can return to stability or slip deeper into crisis.
The financial system remains a critical point of concern, with non-performing loans now exceeding Tk 5.3 lakh crore, or over 27 percent of all outstanding loans. This erosion of confidence has spilled into the capital market, where the DSEX index fell 6 points lower at 5,448 Tuesday since Aug 3, when it briefly crossed the mark.
Bangladesh’s graduation from Least Developed Country status in 2026 is expected to add further strain, as the country is seen as unprepared for the loss of trade privileges. Economists caution that reforms in taxation, financial management, and investment policy will be essential if Bangladesh is to withstand the transition.
High inflation has emerged as the single most damaging factor, eroding the purchasing power of low-income households and exposing millions to poverty.
According to Professor Mustafizur Rahman of the Centre for Policy Dialogue, even a short disruption in income could push millions into destitution. He has warned that the central bank cannot reduce its current 10 percent policy rate until inflation is brought under control, but he emphasised that investment in infrastructure, logistics, and the business climate must be accelerated to stimulate job creation.
In April, the World Bank downgraded its growth forecast for Bangladesh to 3.3 percent for FY25, the lowest in 36 years, compared with an earlier projection of 4.1 percent. It warned that between FY24 and FY25, millions of Bangladeshis could fall into extreme poverty, with job losses, wage cuts, and rising inequality compounding the crisis.
The bank’s outlook suggests extreme poverty will rise to 9.3 percent in FY25, up from 7.7 percent the previous year, pushing an additional three million people into hardship.
Domestic concerns are mirrored by global risks. The World Bank cautioned that instability ahead of the elections, weak reform implementation, and fragile banking conditions could further weigh on growth.
Business leaders have echoed this sentiment, saying that without credible assurances of political stability, large investors – particularly foreign ones – are likely to wait until after the election before making significant commitments.
Tax revenues have also emerged as a weak point. Bangladesh’s tax-to-GDP ratio has fallen to 6.6 percent, far below regional peers such as Pakistan and India.
National Board of Revenue Chairman Md Abdur Rahman Khan described the situation as “alarming”, warning that the government’s ability to service its growing debt burden will be in jeopardy unless revenues increase.
Despite the challenges, some sectors have shown resilience. Stock markets have performed strongly in recent months, with Bangladesh ranking third among Asian economies in market gains last month. Analysts attribute this to a surge in global markets and improved investor sentiment after the political transition in July.
Bangladesh Bank Governor Ahsan H Mansur has admitted that the banking sector is in serious difficulty but insisted that stabilisation is possible if reforms are pursued steadily. He identified three priorities: controlling inflation, restoring financial stability, and improving financial literacy.
Dr Mansur noted that irregularities and politically influenced loan scams under previous administrations had hollowed out balance sheets across state-owned and private banks, creating a cycle of mistrust that continues to undermine the system.
The governor emphasised the need for improved revenue collection, pointing out that Bangladesh lags far behind regional peers in mobilising domestic resources. He also criticised resistance to reform within the revenue authority, warning that unless structural changes are made, dependence on foreign borrowing will continue to grow.
Projections for recovery remain mixed. The World Bank expects growth to recover to 4.9 percent in FY26, provided critical reforms are implemented, with inflation easing to 7.7 percent. The IMF is more optimistic, projecting 6.5 percent growth, while the Asian Development Bank forecasts 5.1 percent.
But all three institutions underline the same condition: without political stability and credible elections, sustainable recovery will remain out of reach.
For millions of Bangladeshis struggling with high prices, shrinking incomes, and uncertain prospects, the national election is more than a political contest – it is increasingly seen as a turning point that will determine whether the economy can return to stability or slip deeper into crisis.
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Bangladesh’s economy is struggling under mounting pressures, with slowing growth, stubborn inflation, and sharply declining private investment creating fresh challenges. Economists warn that without political stability, these strains may intensify, particularly in the run-up to the national election scheduled for February.
Chief Adviser Professor Mohammad Yunus has confirmed that the election will be held in early February, while other advisers in the interim government have repeatedly stated their determination to follow the schedule. Yet many analysts remain cautious, fearing that any political turmoil could further undermine an already fragile economy.
Professor Yunus, a Nobel laureate, has acknowledged the precarious state of the economy, which has been downgraded by the World Bank, IMF, and Asian Development Bank following political unrest in 2024 and years of corruption and money laundering under the previous Awami League government led by Sheikh Hasina.
A recent report by the Dhaka Chamber of Commerce and Industry (DCCI) attributes the country’s economic strain to both global shocks and domestic weaknesses. It notes that private investment fell to 22.48 percent of GDP in FY25, the lowest in five years, while the opening of letters of credit and imports of capital machinery have declined significantly.
The report highlights that efforts to control inflation have squeezed credit to the private sector, dampening economic activity and creating what it calls a medium-term crisis. To restore confidence, the DCCI recommends stabilising the banking sector, ensuring political stability, and cutting bureaucratic red tape to improve the ease of doing business.
It also calls for lower interest rates, export diversification, and long-term solutions to the country’s worsening energy shortage, which has forced industries such as the readymade garments sector to operate below capacity.
For millions of Bangladeshis struggling with high prices, shrinking incomes, and uncertain prospects, the national election is more than a political contest – it is increasingly seen as a turning point that will determine whether the economy can return to stability or slip deeper into crisis.
The financial system remains a critical point of concern, with non-performing loans now exceeding Tk 5.3 lakh crore, or over 27 percent of all outstanding loans. This erosion of confidence has spilled into the capital market, where the DSEX index fell 6 points lower at 5,448 Tuesday since Aug 3, when it briefly crossed the mark.
Bangladesh’s graduation from Least Developed Country status in 2026 is expected to add further strain, as the country is seen as unprepared for the loss of trade privileges. Economists caution that reforms in taxation, financial management, and investment policy will be essential if Bangladesh is to withstand the transition.
High inflation has emerged as the single most damaging factor, eroding the purchasing power of low-income households and exposing millions to poverty.
According to Professor Mustafizur Rahman of the Centre for Policy Dialogue, even a short disruption in income could push millions into destitution. He has warned that the central bank cannot reduce its current 10 percent policy rate until inflation is brought under control, but he emphasised that investment in infrastructure, logistics, and the business climate must be accelerated to stimulate job creation.
In April, the World Bank downgraded its growth forecast for Bangladesh to 3.3 percent for FY25, the lowest in 36 years, compared with an earlier projection of 4.1 percent. It warned that between FY24 and FY25, millions of Bangladeshis could fall into extreme poverty, with job losses, wage cuts, and rising inequality compounding the crisis.
The bank’s outlook suggests extreme poverty will rise to 9.3 percent in FY25, up from 7.7 percent the previous year, pushing an additional three million people into hardship.
Domestic concerns are mirrored by global risks. The World Bank cautioned that instability ahead of the elections, weak reform implementation, and fragile banking conditions could further weigh on growth.
Business leaders have echoed this sentiment, saying that without credible assurances of political stability, large investors – particularly foreign ones – are likely to wait until after the election before making significant commitments.
Tax revenues have also emerged as a weak point. Bangladesh’s tax-to-GDP ratio has fallen to 6.6 percent, far below regional peers such as Pakistan and India.
National Board of Revenue Chairman Md Abdur Rahman Khan described the situation as “alarming”, warning that the government’s ability to service its growing debt burden will be in jeopardy unless revenues increase.
Despite the challenges, some sectors have shown resilience. Stock markets have performed strongly in recent months, with Bangladesh ranking third among Asian economies in market gains last month. Analysts attribute this to a surge in global markets and improved investor sentiment after the political transition in July.
Bangladesh Bank Governor Ahsan H Mansur has admitted that the banking sector is in serious difficulty but insisted that stabilisation is possible if reforms are pursued steadily. He identified three priorities: controlling inflation, restoring financial stability, and improving financial literacy.
Dr Mansur noted that irregularities and politically influenced loan scams under previous administrations had hollowed out balance sheets across state-owned and private banks, creating a cycle of mistrust that continues to undermine the system.
The governor emphasised the need for improved revenue collection, pointing out that Bangladesh lags far behind regional peers in mobilising domestic resources. He also criticised resistance to reform within the revenue authority, warning that unless structural changes are made, dependence on foreign borrowing will continue to grow.
Projections for recovery remain mixed. The World Bank expects growth to recover to 4.9 percent in FY26, provided critical reforms are implemented, with inflation easing to 7.7 percent. The IMF is more optimistic, projecting 6.5 percent growth, while the Asian Development Bank forecasts 5.1 percent.
But all three institutions underline the same condition: without political stability and credible elections, sustainable recovery will remain out of reach.
For millions of Bangladeshis struggling with high prices, shrinking incomes, and uncertain prospects, the national election is more than a political contest – it is increasingly seen as a turning point that will determine whether the economy can return to stability or slip deeper into crisis.
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