Experts See Hope in Bangladesh Economy Despite Forecasts

Bangladesh’s economy is showing signs of a gradual recovery, though GDP growth remains under pressure due to historically low tax revenues and a struggling banking sector burdened by about 35 percent of defaulted loans.

Professor Selim Raihan of the Economics department at Dhaka University, and also Executive Director of the South Asian Network on Economic Modelling (SANEM), told UNB that the IMF has downgraded Bangladesh’s GDP growth forecast, citing weak revenue collection, persistent inflation and growing fiscal stress.

“This signals a slowing economy characterised by declining job creation, fragile private sector investment and increasing external vulnerabilities. Inflation is likely to remain high, placing further strain on household budgets and eroding purchasing power,” Dr Raihan explained.

To address these issues, he recommended widening the tax base, cutting subsidies, and enhancing public financial management, and stressed the importance of bolstering the central bank’s independence, containing inflation and encouraging private investment through regulatory reforms.

Dr Raihan also emphasised that diversifying exports, improving infrastructure, and investing in education and healthcare would strengthen economic resilience and support sustainable long-term growth.

Bangladesh’s banking system continues to face major challenges, with a large share of defaulted loans constraining the flow of credit to the private sector, contributing to the downward revision of GDP growth forecasts by global lenders.

Dr Raihan also noted that the government’s move to reduce allocations for mega development projects has compounded the slowdown.

The IMF recently adjusted its GDP growth projection for the current fiscal year (FY 2024–25) to 3.76 percent – a slight drop from the 3.8 percent forecast in December 2024 and a notable decrease from the 4.5 percent projected in October 2024.

Despite the revised outlook, Bangladesh ranks as the ninth-largest economy in Asia based on total GDP, now valued at US$450.5 billion according to 2024 data.

The Asian Development Bank (ADB), in its 2025 Basic Statistics report, placed Bangladesh as the second-largest economy in South Asia, after India, among 46 countries surveyed (excluding Japan).

The IMF’s projected 3.76 percent growth would mark the lowest since FY 2019–20, when the COVID-19 pandemic severely disrupted economies worldwide. For FY 2025–26, the IMF has also trimmed its growth forecast to 6.53 percent from the previously estimated 6.7 percent.

While the IMF report did not provide detailed reasons for the downward revision, Chris Papageorgiou, Chief of the Development Macroeconomics Division in the IMF’s Research Department and head of a recent mission to Bangladesh, said the economy continues to face “multiple challenges amid elevated global uncertainty”.

He highlighted a slowdown in GDP growth to 3.3 percent year-on-year during the first half of FY25, down from 5.1 percent during the same period in FY24.

The decline was attributed to domestic unrest, tighter monetary and fiscal policies, and a general climate of uncertainty that has dampened investment sentiment.

The ADB’s latest outlook closely mirrors that of the IMF, projecting 3.9 percent growth for FY 2025, rising to 5.1 percent in FY 2026.

The Bank also warned of challenges such as subdued domestic demand linked to political transitions, the threat of natural disasters, labour unrest and persistently high inflation.

Inflation remains one of the key concerns. The IMF expects inflation to stay around 10 percent during the current fiscal year, potentially easing to 5.18 percent in FY 2026.

The ADB, meanwhile, forecasts an increase to 10.2 percent in FY 2025, with a projected decline to 8 percent in the following year.

Despite these downward adjustments, both the IMF and ADB foresee a gradual recovery in Bangladesh’s economic trajectory over the medium term. But, the current outlook underscores the significant headwinds the country must navigate to sustain its previous high-growth momentum.

Dr M Masrur Reaz, macroeconomist and Chairman of Policy Exchange Bangladesh, told UNB that despite the sluggish pace, the economy is gradually moving towards recovery.

He highlighted that export earnings and remittance inflows are helping to stabilise the foreign exchange reserves and revitalise the rural economy – factors which are contributing positively to macroeconomic stability.

“Severe regulatory lapses in the banking sector and massive loan scams have delayed the recovery of the macroeconomy. However, recent efforts to reform the banking sector and restore public confidence in financial institutions will be vital to reviving GDP growth,” he said.

He cautioned that the IMF’s projections should not be interpreted as an indication that the economy is in dire straits.