When the interim government formed following the July 2024 uprising, macroeconomic stability was weak, with several major economic indicators performing poorly. The accumulated costs of governance failures, corruption, and prolonged financial mismanagement had undermined the economy's potential. Since then, the free fall of the economy has been halted, and some negative trends have been reversed. However, the economy now experiences slower growth, elevated inflation, weakened investment sentiment, and rising vulnerabilities in the financial sector.
The macroeconomic environment in Bangladesh in the fiscal year (FY) 2025 (July 2024 - June 2025) and early FY2026 reflects a fragile and uneven recovery. Real growth of Gross Domestic Product (GDP) moderated sharply, registering only 3.97 percent in FY2025. While this represents a partial rebound from the disruptions caused by political unrest, it remains significantly below the country's historical average and far from the levels required to generate adequate employment for a rapidly growing labour force. Industrial production trends suggest that the recovery is underway. However, the pace is slow and insufficient to compensate for earlier losses or to drive a broad-based industrial resurgence.
Inflation remains one of the most persistent macroeconomic challenges. However, headline inflation eased to 8.29 percent in November 2025, largely driven by a deceleration in food prices rather than a comprehensive easing of price pressures across the economy. Although food inflation fell to 7.36 percent during this period offering some relief to households, it is still not at comfort levels as wage growth has failed to keep pace with rising living costs. The wage rate index was 8.04 in November 2025, slightly increased from 8.01 in October 2025. This implies stagnant real wages and eroding purchasing power for large segments of the population, rising vulnerability among low-income groups, and subdued consumer demand.
Weak private investment is another defining feature of the current macroeconomic landscape. Private sector credit growth fell to 6.23 percent in October 2025, reflecting subdued credit demand and tighter lending conditions in the banking system. This contraction signals investor uncertainty, driven by political instability, policy unpredictability, and longstanding governance failures in the financial sector. By contrast, public sector credit growth surged to 24.11 percent over the same period, indicating a growing reliance by the government on domestic borrowing to finance its operations. While such borrowing may be necessary in the short term to maintain fiscal stability, it risks crowding out private investment and exacerbating pressures on the banking system if not carefully managed.
In the banking sector, several banks have struggled to mobilise deposits amid declining public confidence, while non-performing loans (NPLs) have continued to rise. The NPL was 35.73 percent of total disbursed loans as of September 2025, mostly due to the recent scrutiny of several banks' health by the Bangladesh Bank. Earlier, several non-compliant commercial banks would hide the actual amount of NPLs. This alarming figure is not merely a cyclical phenomenon but the result of years of weak regulation, political interference, and repeated loan rescheduling that masked underlying insolvency. The persistence of such vulnerabilities threatens financial stability and undermines the transmission of monetary policy.
Fiscal performance has also weakened. With a tax-to-GDP ratio of only 6.8 percent in FY2025, Bangladesh continues to lag behind its regional peers, limiting the government's capacity to finance development spending without resorting to borrowing. At the same time, growth in public expenditure, particularly development expenditure, declined sharply throughout FY2025, raising concerns about the sustainability of infrastructure investment, human capital formation, and long-term growth potential. The combination of weak revenue mobilisation and constrained development expenditure poses a serious challenge to fiscal sustainability.
External sector indicators present a mixed picture. Export growth was 8.6 percent in FY2025. However, during July–November FY2026, export growth remained sluggish, registering only a marginal increase of 0.62 percent. In contrast, imports rebounded strongly, growing by 5.2 percent during July–November FY2026, driven primarily by higher imports of intermediate goods. While this may signal a gradual revival of industrial activity, it also underscores renewed pressures on the balance of payments.
Remittance inflows have provided a critical stabilising force. During July–November FY2026, remittances reached $13.04 billion, representing a year-on-year increase of over 17.1 percent and reflecting both increased overseas employment and policy measures to receive remittances through formal channels. While this marks a notable improvement from earlier lows, reserves remain vulnerable to external shocks and shifts in global financial conditions.
Other structural challenges compound economic pressure. Private investment fell to 22.48 per cent of GDP in FY2025, its lowest level in five years, raising concerns about future growth and job creation. The energy sector continues to impose heavy fiscal burdens due to high generation costs, unplanned capacity expansion, and excessive capacity payments. Most critically, Bangladesh is set to graduate from Least Developed Country (LDC) status in November 2026, which entails the gradual withdrawal of trade preferences, currently covering approximately 70 percent of global exports. Without adequate preparation, this transition could erode export competitiveness and expose structural weaknesses.
Looking ahead, the outlook for FY2026 indicates a modest recovery, although some risks remain. The Medium Term Macroeconomic Policy Statement of June 2025 by the Ministry of Finance projectd GDP growth to be 5.5 percent and inflation 6.5 percent in FY2026. On the other hand, the Bangladesh Bank forecasts real GDP growth to be 5.38 percent and average inflation to come down to 7.26 percent in FY2026.
Clearly, in the short term, stabilising the macroeconomic environment must be the top priority. Inflation control will require a careful balance between monetary tightening and supportive fiscal measures to protect vulnerable groups. Addressing NPLs and strengthening bank governance are critical to restoring confidence in the financial system and reviving private investment. Policy consistency, regulatory transparency, and political stability will be essential to improve the investment climate.
Over the medium to long term, deeper structural reforms are unavoidable. Strengthening the institutional independence and capacity of the central bank is crucial for effective monetary management. Industrial policy must focus on productivity, skills development, and technological upgrading to diversify exports beyond garments. Social safety nets need to be expanded and better targeted to protect those left behind by structural change. Skills development programmes must be aligned with market needs, particularly for youth and women. Broadening the tax base and reducing reliance on indirect taxation are essential for fiscal sustainability. Investment in climate resilience and disaster preparedness is increasingly urgent in a climate-vulnerable economy. Above all, transparent and accountable governance must be restored to rebuild trust and unlock long-term growth potential.
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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