Bangladesh economy strained despite gradual rebound

The report says depleted foreign exchange reserves, shifting global buyer preferences and geopolitical disruptions have weighed heavily on overall economic performance.

General Economic Division (GED) published the report at National Economic Commission of the Planning Commission in the city.

Investor sentiment remains fragile, with foreign direct investment (FDI) stuck at critically low levels and unlikely to improve significantly without stronger structural reforms, it said.

With revenue mobilisation remaining chronically low, the government’s capacity to undertake essential public investment has been severely constrained, said the report.

A provisional estimate by the National Board of Revenue (NBR) indicates a significant shortfall from the annual revenue target.

The situation worsened in June when revenue collection was hampered by NBR officials’ protest activities against a government move to split the NBR into two separate divisions.

Although the standoff was eventually resolved and normal operations resumed, the temporary disruption added pressure to an already strained fiscal framework.

Inflation—hovering at 8–9% during FY25—continues to erode real incomes, particularly for low-income and rural households.

The report attributes this persistent inflation to food price shocks, higher import costs driven by a weakening taka, rising energy prices, and ongoing supply chain disruptions.

It warns that controlling inflation is central to rebuilding investor confidence, stabilising the financial sector, and creating conditions for stronger economic growth in FY2025–26.

Despite these headwinds, the last six months of FY25 have shown “signs of promise”driven by improvements in domestic demand and stabilisation in key external indicators, it said.

However, the repirt said, major multilateral institutions maintain cautious growth projections.

The World Bank expects GDP growth between 3.3% and 4.1% in FY2025, while the Asian Development Bank (ADB) forecasts 3.9%. A modest rebound to 5.1%–5.3% is projected for FY2026, contingent on improved macroeconomic stability and policy reforms.

Remittance inflows have remained stable, helping to ease pressure on the balance of payments.

Import patterns indicate a gradual revival in domestic economic activity, with capital machinery imports showing encouraging signs of recovery—an indication of renewed investment intent. Export earnings, led by the ready-made garments (RMG) sector, have stayed resilient due to compliance improvements, innovation, and broader market diversification.

Foreign exchange reserves stabilised at just above three months of import coverage, marking an improvement from earlier periods of volatility.

Even so, the report stresses that Bangladesh stands at a “critical juncture”.

The prospects for accelerated economic recovery will hinge on decisive policy actions and the ability to address several looming vulnerabilities including high inflation, financial sector weaknesses, governance gaps, and an investment climate that remains unattractive to local and foreign investors.

According to the analysis, the country must prioritise job creation to absorb a rapidly expanding labour force, strengthen manufacturing sectors particularly garments and small and medium enterprises (SMEs) boost remittance flows, and scale up investments in human capital.

Without these reforms, Bangladesh risks slower long-term growth, deteriorating living standards, rising poverty rates, and widening inequality.

The report emphasised that the coming year or two will be crucial in determining whether Bangladesh can consolidate recent gains or fall behind its development trajectory.

It underscores the need for a comprehensive national strategy for sustainable development, supported by structural reforms and economic policy realignment.

Such reforms would need to focus on innovation, promoting both domestic and foreign investment, improving regulatory efficiency, and ensuring that the benefits of growth are broadly shared, reports UNB. 

“With proactive and coherent policy actions, Bangladesh has a real chance to re-accelerate,” the report said.

“Clear communication, strong policy credibility, and reforms that directly improve the lives of ordinary people—not just macroeconomic indicators—will be critical for restoring confidence and securing resilient, inclusive growth,” it added.