While Bangladesh’s economy has demonstrated gradual recovery in the third quarter of fiscal year 2024-25, challenges such as inflation, a shortfall in revenue collection, and a sluggish investment climate persist. The banking sector’s mounting bad loans and the lack of public confidence further complicate the outlook. The government’s fiscal landscape remains strained, and the political situation will be a key determinant in shaping the country’s economic future.
Bangladesh’s economy exhibited a gradual recovery in the third quarter of fiscal year 2024-25, with higher growth in exports and remittances. However, substantial hurdles remain, including inflationary pressures, a shortfall in revenue collection, slow public spending, and a sluggish investment climate.
The banking sector’s growing bad loans pose another significant challenge. Additionally, a lack of public confidence in the banking system continues to be a concern. Confidence among entrepreneurs is also wavering, as they seek clarity on the economic outlook for the upcoming months. Whether 2025 will be better or worse than the current state largely depends on the political situation and the deteriorating law-and-order environment in the country.
The fiscal landscape remains complex, with limited revenue generation capacity and an over-reliance on indirect taxes. Implementation of the Annual Development Programme (ADP) has been low, hindered by political turmoil during the first two months of FY2025 and the reprioritization of projects.
As of January 2024, the National Board of Revenue (NBR) collected Tk 195,860 crore, a 2.96% year-on-year increase. However, the tax administration is still far from reaching its 21% growth target to meet the Tk 480,000 crore goal, as per NBR data.
Inflation has been a persistent issue, remaining above 9% since March 2023. While inflation eased slightly in February, it continued to stay above the 9% mark for the 24th consecutive month, eroding consumers’ purchasing power.
On a positive note, the external sector showed encouraging trends during the first half of FY2025, driven by robust export growth and strong remittance inflows. The slide in foreign exchange reserves has halted, and the exchange rate of the Bangladeshi taka against major currencies has stabilized, though some volatility in reserve positions persists.
Total exports in the first eight months of FY25 (until February) reached $32.94 billion, a 10.5% year-on-year increase, according to data from the Export Promotion Bureau (EPB). In the same period, inward remittances grew by 23.8%, as reported by Bangladesh Bank (BB).
The strong export and remittance growth has helped reduce the current account deficit, improving the balance of payments situation. However, despite the increase in remittances, capital goods imports remain subdued, reflecting low investment. Private investment remains weak, as indicated by declining credit growth, FDI, and challenges in financing small and medium enterprises (SMEs).
Several banks in Bangladesh face systemic challenges, including poor governance, inefficiencies, and weak regulatory frameworks. Weak internal controls, ineffective risk management, and inadequate legal frameworks exacerbate non-performing loans (NPLs), with defaulters exploiting legal loopholes and delays in the judicial system.
Defaulted loans in the country’s banking sector reached a record Tk 345,765 crore at the end of 2024, accounting for over 20% of total loans. Comprehensive reforms are crucial to restore stability and efficiency in the banking sector, but these reforms must be backed by strong political commitment.
The power and energy sector faces a deepening crisis, marked by unsustainable debt and slow progress in renewable energy development. While the interim government has made some reforms—such as open tenders for solar plants and extended tax holidays for renewable energy producers—significant challenges remain.
Despite claims of economic growth by the previous government, the economy has continued to face vulnerability. Bangladesh’s economy has been grappling with weak revenue generation, constrained fiscal space, heavy reliance on bank borrowing to meet budget deficits, tight liquidity in banks, high prices for essential commodities, low investment, and declining foreign reserves—all of which have affected macroeconomic stability.
Following the July 2024 mass uprising, the interim government was tasked with addressing the economy’s critical challenges. Tackling these issues requires a comprehensive approach—balancing short-term relief for the public, addressing long-standing problems, and implementing sustained reforms to strengthen economic fundamentals.
Restoring law and order remains a critical priority to create a stable environment for economic activities.
