[🇧🇩] Monitoring Bangladesh's Economy

[Saif]

Macroeconomic management matters

The danger of macroeconomic mismanagement was aptly highlighted by Paul Krugman (1994) and William Easterly (2001), who cautioned that inefficient resource allocation can undermine the gains from openness and investment, leading to economic stagnation even amid high levels of public spending. Soun

thefinancialexpress.com.bd

Macroeconomic management matters
Bangladesh's growth story is unsustainable indefinitely otherwise

N N Tarun Chakravorty
Published :
Dec 31, 2025 22:59
Updated :
Dec 31, 2025 23:14

The danger of macroeconomic mismanagement was aptly highlighted by Paul Krugman (1994) and William Easterly (2001), who cautioned that inefficient resource allocation can undermine the gains from openness and investment, leading to economic stagnation even amid high levels of public spending.

Sound macroeconomic management, which involves prudent fiscal, monetary, and exchange rate policies, builds the foundation upon which growth can occur. What are these sound macroeconomic indicators? Stable prices, manageable debt, and a credible currency. Before domestic and foreign investors plan, invest, and take risks, they look at this stability. In contrast, high inflation, fiscal indiscipline, or currency instability shoo away investor and thus erode savings and distort incentives.

Bangladesh has been experiencing chronic fiscal deficits financed by borrowing from the central bank, have contributed to inflationary pressures. The government's policy of extending subsidies, granting tax exemptions, and allowing non-performing loans (NPLs) to persist in state-owned banks has weakened fiscal discipline and constrained private investment.

Good macro management ensures that resources flow to productive sectors rather than being wasted on rent-seeking or politically motivated projects. Fiscal policy must prioritise infrastructure, education, and innovation over populist subsidies or politically driven spending. Monetary policy must support productive investment by maintaining real interest rates that encourage saving and discourage speculative activities.

In recent times, Sri Lanka appeared to be an example of macroeconomic mismanagement. Sri Lanka's government payroll has expanded dramatically over the decades. Many of these positions were created for political patronage rather than productivity. This distorted resource allocation has diverted fiscal resources from capital investment-in infrastructure, technology, and industrial upgrading-to recurrent expenditures like salaries and pensions.

The Rajapaksa government focused heavily on large-scale infrastructure projects-ports, airports, and stadiums-many financed through Chinese loans. It appeared to be fancy project which was a sheer populist move. This move increased public debt without generating proportionate growth, crowding out more productive investments such as export diversification and SME development. Sri Lanka's chronic fiscal deficits and mounting debt service-largely due to unproductive expenditure-culminated in the 2022 debt crisis, which in turn caused huge public uproar and ultimately, the fall of the government.

Bangladesh's case is slightly different from Sri Lanka's regarding big projects. Bangladesh's big projects are not unproductive meaning that they exerted a positive impact on economic activities leading to higher growth. Secondly, its public debt remained moderate (around 40 per cent of GDP) and external debt was largely concessional, keeping debt service manageable while Sri Lanka's debt exceeded 120 per cent of GDP by 2022) and ultimately, sovereign default.

Bangladesh maintained relatively prudent fiscal policies for much of the past two decades. However, fiscal pressure has been rising in recent years due to mounting subsidies, inefficient state-owned enterprises, and revenue stagnation. Following the COVID-19 shock Sri Lanka went into a crisis triggered by foreign exchange depletion because its overreliance on tourism and remittances. But COVID-19 shock was relatively low Bangladesh as it historically enjoyed a robust current account surplus due to garment exports and remittance inflows, which was not much disrupted by COVID-19.

Sri Lanka's politically motivated currency overvaluation depleted reserves and crippled exports, while Bangladesh's managed float - marked by delayed adjustments and multiple exchange rates since 2022 - reflects a milder, yet increasingly risky, version of the same mismanagement.

Strong macro management means consistent policies, fiscal transparency, independent central banking, rule-based governance and institutional strength. All these are essential for gaining trust, attracting foreign direct investment (FDI) and aid. In Bangladesh the loss of central bank independence and intervention have undermined confidence in economic governance. The recent IMF program itself is a reminder of the cost of delayed adjustment and policy complacency.

Macroeconomic stability is not just about growth rates - it determines whether growth is inclusive and sustainable. In Bangladesh high inflation and fiscal mismanagement have been prevalent. High inflation, low tax-GDP ratio (less than 9 per cent of GDP),cuts in subsidies and allocation for safety nets and spending on health, education, and climate resilience have disproportionately hurt the poor, eroding real incomes and inequality. Fiscal mismanagement limits the state's ability to finance social safety nets and human capital development. These phenomena have prevented redistribution, public investment, and social protection. It has given rise in real poverty and inequality.

We all must keep in mind that good macroeconomic management is not just about balancing budgets or not a technocratic issue; it is deeply political and institutional. It reflects whether a government prioritises long-term national interest over short-term political gain. It's about balancing politics, institutions, and incentives. It creates the stability and confidence that allow entrepreneurship, innovation, and development to flourish.

We have the examples of countries like South Korea or Vietnam achieving sustained rapid growth precisely because they maintained fiscal prudence, export competitiveness, and policy credibility even under political transitions.

The World Bank, in its 2024 and 2025 updates for Bangladesh, has reiterated urgent monetary reform and introduction of a single-rate exchange regime for improving foreign-exchange reserves and taming inflation. It advised to raise revenue earnings (domestic resource mobilisation), so as to free up fiscal space for infrastructure and human-capital investment. It has highlighted the need for bold and urgent reforms particularly in the financial sector. At the moment, Bangladesh's fiscal deficit is around 4.5 per cent of GDP. The WB has projected continuing pressure unless fiscal consolidation, monetary discipline, and structural reforms take place.

As Nobel laureate Robert Solow (1956) showed, long-run growth depends not only on capital and labour but also on the efficiency with which resources are used-something that macroeconomic stability makes possible. Yet, efficiency is rarely discussed in Bangladesh's growth narrative. For decades, the economy has thrived on garments exports, remittances, and a demographic dividend, but this model-built on low-cost labour and export-led production-cannot sustain growth indefinitely. The next phase must focus on innovation-driven development, supported by disciplined macroeconomic management. Building efficiency demands credible institutions, fiscal prudence, and incentives that channel resources toward productive use-through better public finance and banking discipline, reduced corruption and red tape, and greater investment in skills and innovation.

Dr N N Tarun Chakravorty is professor of economics, IUB, and Editor-At-Large, South Asia Journal.​

 

[Saif]

What a cashless turn means for our economy

Bangladesh is moving steadily towards a cashless economy.

www.thedailystar.net

What a cashless turn means for our economy

VISUAL: FREEPIK

With mobile banking, QR payments, digital wallets, and instant transfers becoming common, Bangladesh is moving steadily towards a cashless economy. Bangladesh Bank has accelerated this shift by launching initiatives for interoperable digital payments and advocating universal adoption. While much of the public debate focuses on convenience, transparency, and financial inclusion, one critical question has received far less attention: how will cashless transactions affect the money multiplier—the banking system's capacity to create credit?

Economic theory around fractional-reserve banking offers a clear mechanism. In a cash-based system, a significant portion of money remains outside the banking system, limiting banks' ability to lend. This "currency leakage" reduces the effective money multiplier, which depends on the proportion of deposits relative to the total money supply. In a cashless economy, people hold less physical cash and more deposits, giving banks a larger base for lending. Lower currency holdings, combined with faster electronic circulation of money, can theoretically raise the multiplier, allowing each unit of base money to generate more broad money in the economy.

Empirical evidence from other countries supports the argument. In Kenya, the introduction of M-Pesa sharply reduced currency in circulation relative to GDP, while the ratio of broad money to base money rose from under five to above 10 within a few years. Similar patterns have been observed in countries adopting widespread digital payment systems, where mobile money and interoperable platforms expand deposit bases and enable banks to create more credit.

In Bangladesh too, between 2018 and 2021, mobile financial services (MFS) transactions contributed approximately 10.88 percent of narrow money (M1) and 11.29 percent of broad money (M2). In absolute terms, roughly Tk 22,219 crore of previously informal cash flowed into the formal banking system through MFS. Through successive rounds of lending and deposit creation, this expanded to Tk 35,723 crore in M1 and Tk 166,218 crore in M2. These figures demonstrate that cashless transactions are not simply a substitute for cash but actively increase the money available for lending, effectively raising the money multiplier.

Moreover, the rapid adoption of mobile banking during Covid-19 accelerated access to formal financial services, particularly in urban and semi-urban areas. QR-based merchant payments, salaries paid directly into digital accounts, and agent-mediated transactions in rural communities are all contributing to a broader deposit base. This suggests that the multiplier effect may grow further as cashless penetration deepens.

However, a higher money multiplier is a double-edged sword. While it can expand credit availability and stimulate economic activity, the benefits depend on how banks deploy these funds. If banks hoard excess reserves due to risk aversion, regulatory constraints, or high levels of non-performing loans, the theoretical gains may not translate into real lending. Similarly, if digital money circulates largely in non-bank wallets rather than formal deposits, the multiplier effect remains limited. Rapid credit expansion without corresponding productive investment can also create inflationary pressures.

Moreover, gaps in digital literacy, mistrust of digital systems, and connectivity problems in rural areas can slow adoption, leaving large segments of the population excluded from the benefits of a higher multiplier.

International experience shows that poorly managed digital money adoption can exacerbate inequality, concentrate financial power, and create systemic vulnerabilities. In Kenya, while M-Pesa boosted deposits and access to credit, it also created regulatory challenges and increased reliance on a few dominant platforms. Bangladesh could face similar risks if integration, oversight, and inclusion are not prioritised.

In sum, Bangladesh's move towards a cashless economy has the potential to increase the money multiplier, supporting greater credit creation, financial inclusion, and economic dynamism. The evidence—more than a 10 percent contribution to both M1 and M2 by mobile financial services—shows that digital finance is already reshaping the banking system.

Yet, whether this outcome is beneficial depends on careful management. A higher multiplier is desirable if it leads to productive lending, inclusive access, and financial stability. It can be harmful if it fuels credit bubbles, reinforces digital inequality, or concentrates economic power in a handful of private platforms. Bangladesh is at a pivotal moment. Cashless payments offer a structural opportunity to enhance credit creation, formalise informal money flows, and strengthen the financial system. But policymakers must ensure that infrastructure, trust, financial literacy, and regulation keep pace.

To manage potential risks and make the cashless transition effective, policymakers need a balanced strategy. Strong digital regulation is essential to ensure transparency, consumer protection, and fair competition among banks and fintech platforms. Bangladesh Bank should closely monitor digital transaction flows and adjust reserve requirements when necessary to keep the money multiplier stable. Expanding digital literacy programmes, improving network reliability, and setting clear rules on data privacy will help build trust, particularly in rural and low-income communities. Creating a unified, low-cost digital payment infrastructure and encouraging banks to link digital deposits with productive lending can ensure that the growth of electronic money genuinely supports economic development. With coordinated action, Bangladesh can enjoy the benefits of a higher multiplier while keeping inflation, financial exclusion, and systemic risks under control.

Md Mominur Rahman is assistant professor at the Bangladesh Institute of Governance and Management (BIGM).​

 

[Saif]

Can economy turn around in 2026?

After a couple of challenging years, economists are cautiously optimistic about 2026. The national election scheduled for February is expected to boost confidence among entrepreneurs and investors, both local and foreign.

www.thedailystar.net

Can economy turn around in 2026?

After a couple of challenging years, economists are cautiously optimistic about 2026. The national election scheduled for February is expected to boost confidence among entrepreneurs and investors, both local and foreign.

Many hope this political clarity will create the conditions for higher job creation and stronger GDP growth.

Inflation, stubborn through much of 2025, is also expected to ease. Analysts cite softer global food and energy prices alongside stabilisation in the domestic economy. Yet a full economic turnaround may take time, as any new government will need several months to implement policies effectively.

A source of some relief is progress in the balance of payments and foreign exchange reserves. Over the past year, the interim government tried to mend gaps in the macroeconomy and halt the erosion of foreign reserves.

The financial sector also endured a difficult 2025, grappling with mounting non-performing loans. The merger of five struggling banks provides a stronger foundation for lending and financial stability in 2026.

Prof Mustafizur Rahman, distinguished fellow at the Centre for Policy Dialogue (CPD), said that the primary hope for the year is the democratic transition in February.

He added that a new government must channel this political mandate into higher economic growth that is inclusive, equitable, and just.

M Masrur Reaz, chairman and CEO of Policy Exchange Bangladesh, expressed a similar view, saying, "The big hope for next year is the national election."

He said that ongoing reforms, combined with the stability offered by a five-year policy horizon, would give businesses the confidence to invest. Higher investment, he said, would boost employment, purchasing power, and overall growth.

Reaz also mentioned the role of international partners. He said global investors, trade partners, and development agencies are expected to engage more actively if political and economic stability is maintained.

According to him, lower energy and food prices, along with stronger global supply chains, could further support growth, provided no major disruptions occur.

Meanwhile, CPD's Rahman said several challenges from 2025 will continue into the new year. Investment remains sluggish, and creating decent jobs is an urgent task.

He said inflation requires careful management through market oversight and supply-side measures. Rising debt repayments demand stronger domestic revenue mobilisation, which can be achieved through the digitisation of the tax system, reducing VAT leakages, and expanding income tax collection.

He added that income and asset inequalities must also be addressed. Export growth has slowed in recent months, highlighting the need to reduce the cost of doing business, improve turnaround times, and develop specialised industrial parks.

According to economists, product and market diversification has long been discussed, but progress remains limited. As Bangladesh prepares to graduate from LDC club this year, these measures will gain greater urgency.

Reaz listed four priorities for 2026. First is addressing ongoing macroeconomic challenges.

Second, stimulating growth drivers that have slowed, including investment, exports, small businesses, and domestic demand. Third, restoring economic governance across the financial sector, including banks, insurance firms, non-banks, and the capital market. Fourth, rolling out a structured economic reform programme.

He said that despite some improvement, inflation is still high, private investment lags at around 22 percent of GDP, and export and product diversification are weak. Small businesses have received limited targeted support over the last 15 months.

Kamran T Rahman, president of the Metropolitan Chamber of Commerce & Industry, Dhaka (MCCI), said, "All of our focus is on the election. If it is held and a democratic government comes to power, they will address all the economic problems."

He added that a stable democratic government allows people to engage in dialogue and anticipate long-term policy, which in turn boosts the confidence of entrepreneurs. "Once a democratic government is in place, the law-and-order situation is expected to improve," he said.

However, he cautioned that progress will not happen overnight.​

 

[Saif]

New Year brings no unmixed blessing

Bangladesh joins the world in hailing 2026 with cautious expectations of a socioeconomic resurgence, as 2025 draws to a close amid historic political developments and unresolved economic strains. The passing of former prime minister and BNP chairperson Khaleda Zia cast a long shadow over the year,

thefinancialexpress.com.bd

New Year brings no unmixed blessing
Opportunities, challenges in experts' sights in 2026

Jasim Uddin Haroon
Published :
Jan 01, 2026 08:25
Updated :
Jan 01, 2026 08:25

Bangladesh joins the world in hailing 2026 with cautious expectations of a socioeconomic resurgence, as 2025 draws to a close amid historic political developments and unresolved economic strains.

The passing of former prime minister and BNP chairperson Khaleda Zia cast a long shadow over the year, yet the announcement of election schedule and the homecoming of BNP's acting chairman, Tarique Rahman, reshape the country's political landscape.

Juxtaposed together, these events have made the upcoming February polls a single-most consequential moment for Bangladesh's democratic trajectory and economic outlook.

Political analysts and economists agree the credibility and acceptance of the first post-uprising election will determine whether the country enters a period of stability or slides back into uncertainty.

"The biggest and most historic event will be the February election, and everything depends on it," says Dr Zahid Hussain, an independent economist, who had previously served the World Bank.

"If it is accepted by all participating parties, the democratic journey will begin. If not, the opportunity could be lost."

A smooth political transition, the analysts argue, would provide long-awaited certainty to investors and restore confidence in state institutions wrecked by years of political polarisation done by the "fascist" Awami League-led government, toppled through student-mass uprising.

From a macroeconomic perspective, Bangladesh steps in 2026 with a mixed balance sheet, offering, perhaps, no unmixed blessing.

On the external front, conditions have improved to some extent.

Foreign-exchange reserves have stabilised, remittance inflows reached record levels and pressure on the balance of payments has eased, offering a stronger platform for the next elected government.

"I know the external sector -- for example, reserves and balance of payments -- is now in a favourable position, and this is a good foundation for the next government," Dr Hussain notes.

However, the internal economy remains under strain.

Inflation has stayed stubbornly high, eroding purchasing power, growth slowed while private investment has failed to recover meaningfully.

Employment generation has also remained sluggish, particularly in urban areas, adding to social pressures.

"There has been a drought in investment in the country for several years now," Dr Hussain goes on. "It may pick up once a credible, elected democratic government assumes power."

Economists also warn that without renewed investor confidence and policy predictability, growth could remain stymied below potential despite external stability.

The next administration will also inherit a stack of reform proposals prepared by many commissions set up in recent years by the interim government.

Analysts say translating those reports into action will be a critical test of political will.

"The next government will get a series of commission reports," Dr Hussain mentions. "It should prioritise these to strengthen governance and institutions."

Dr M Masrur Reaz, chairman and chief executive of Policy Exchange Bangladesh, echoes the emphasis on political legitimacy, saying that the election would shape the country's reform prospects.

"There is a huge opportunity, and everything depends on the election," he says. "If it fails, the opportunity will be missed."

He mentions that tensions in the financial sector, particularly in banking, have eased to some extent over the past year, but deep-rooted vulnerabilities remain.

"Banks, non-banks and the insurance sector still need much stronger governance," Dr Masrur recommends, citing weak supervision, rising non-performing loans and persistent confidence gaps.

From the business community, expectations are similarly tied to political stability.

Abul Kasem Khan, chairman of BUILD -- Business Initiative Leading Development -- says businesses are hoping for a credible election followed by decisive reforms.

"We hope the next elected government will take reform steps and expedite business activities."

He stresses the need for faster public services through digital platforms, along with reforms in licensing and taxation to make administration more business-friendly.

Logistics and port inefficiencies remain major bottlenecks, he points out, despite reform initiatives taken by the interim government.

"There is scope for much more reform to make domestic trade efficient," Mr Khan told The Financial Express, urging the next government to fast-track the long-delayed Bay Terminal project in Chattogram, which he argues is a major opportunity for the economy.​

 

[Saif]

Remittances hit record $32b in 2025, shoring up reserves

Bangladeshis abroad sent home a record $32.8 billion in 2025, according to central bank data, as economists say more expatriates are now using formal banking channels, with informal routes siphoning off less since the August political changeover.

www.thedailystar.net

Remittances hit record $32b in 2025, shoring up reserves

Bangladeshis abroad sent home a record $32.8 billion in 2025, according to central bank data, as economists say more expatriates are now using formal banking channels, with informal routes siphoning off less since the August political changeover.

The historic-high inflows offered a much-needed tonic to the country's fragile external balance.


The amount is 22 percent higher than the $26.88 billion recorded in the previous year, according to Bangladesh Bank (BB) data released yesterday.


In December alone, remittances reached $3.22 billion, the highest monthly inflow in nine months, up 22 percent from the same month last year.


Foreign currency streaming in helped lift gross reserves to $33.18 billion on December 30, up from $25 billion a year earlier.

"Remittances have been a key driver for the recent increase in reserves, indicating improved performance of the external sector," said Mohammed Nurul Amin, former chairman of the Association of Bankers Bangladesh (ABB).


After the fall of the previous government, remittance inflows started to rise every month. Previously, demand for hundi was growing amid large sums of money reportedly being siphoned abroad


"Forex reserve figures are now closely watched, as a rise strengthens confidence and attracts foreign interest," he said.


He hoped that the trend could ease pressure on the external sector in the months ahead.


During the July-December period last year, expatriates sent home $16.26 billion, an 18.1 percent increase on the same period in 2024, according to the BB data.


Industry insiders said government incentives, banks' efforts to attract foreign funds, and the decline of the hundi system -- an illegal yet popular cross-border transfer mechanism -- helped push inflows higher after the political changeover in August 2024.


After the fall of the previous government, remittance inflows started to rise every month. Previously, demand for hundi was growing amid large sums of money reportedly being siphoned abroad. That stopped under the interim government.


Mohammed Nurul Amin, former independent director and chairman of Global Islami Bank, said incentives have played a major role in boosting the inflow. "As a result, people are sending more money through formal channels," he added.

Remittance senders currently get a 2.5 percent government incentive.


He also pointed to a psychological change after the fall of the previous government. "People believe that corruption is no longer as prevalent as before," he said, adding that overseas employment has risen, with more skilled workers leaving home for jobs abroad.


Between January and December 28 last year, as many as 1,116,725 men and women went overseas. In 2023, 1,303,453 workers went abroad, while 1,011,969 left the country for overseas jobs in 2024, according to official data.


According to the Bureau of Manpower, Employment and Training, Saudi Arabia welcomed 744,619 Bangladeshi workers, Qatar 106,805, and Singapore 69,491 during the first 11 months and 28 days of the year.


Zahid Hussain, former lead economist at the World Bank's Dhaka office, said more expatriates are using official channels because less money is now being siphoned abroad, reducing demand for hundi transfers.


"Higher reserves boost confidence in the exchange rate, thereby limiting depreciation," said the economist. "Although investment may rise after the election, the strong reserve position should prevent pressure on the exchange rate."


In December, Islami Bank Bangladesh received the highest inflow at $671 million, followed by Bangladesh Krishi Bank with $353 million, Janata Bank $281 million, and BRAC Bank $261 million, showed BB data.


With rising remittances easing demand for US dollars, the central bank purchased over $3 billion in the current fiscal year, a reflection of ongoing efforts to shore up foreign exchange reserves.​

 

[Saif]

Bangladesh economy in 2025 and expectations for 2026

The outlook for FY2026 indicates a modest recovery, although some risks remain.

www.thedailystar.net

Bangladesh economy in 2025 and expectations for 2026

VISUAL: ANWAR SOHEL

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.​

 

[Saif]

Remittances hit record high in 2025

Remittance inflows to Bangladesh surged to an all-time high of US$32.82 billion in the calendar year 2025, underscoring the growing role of migrant workers in supporting the country's economy at a time of persistent domestic and global challenges. The record inflows have provided crucial relief to

thefinancialexpress.com.bd

Remittances hit record high in 2025

Overseas workers send a historic $32.82b, easing pressure on external accounts

FE REPORT
Published :
Jan 02, 2026 08:27
Updated :
Jan 02, 2026 08:27

Remittance inflows to Bangladesh surged to an all-time high of US$32.82 billion in the calendar year 2025, underscoring the growing role of migrant workers in supporting the country's economy at a time of persistent domestic and global challenges.


The record inflows have provided crucial relief to the external sector, bolstering the current-account balance, strengthening foreign- exchange reserves and stabilising the forex market, even as concerns lingered over global uncertainty and tighter immigration policies in key host countries.

The 2025 figure marks an increase of more than 8.0 per cent from the US$30.32 billion received in 2024, according to Bangladesh Bank data released on Thursday.

December capped the year on a strong note, with inward remittances reaching US$3.22 billion during the month, up 22.35 per cent year-on-year.

The strong performance contrasts with earlier concerns that global economic uncertainty and tighter immigration policies in some host countries, including the United States, could dampen inflows.

Remittances remain the country's single largest source of foreign currency, surpassing foreign direct investment and official development assistance, except for export earnings.

Central bankers and commercial bankers attribute the rise to a combination of factors, including cash incentives for remitters, the seasonal tendency of overseas workers to send more money in December, and a gradual recovery in labour markets across several major destination countries.

"Banks have expanded digital and banking channels for overseas workers, making formal transfers cheaper, easier and more convenient," said Syed Mahbubur Rahman, managing director and chief executive officer of Mutual Trust Bank PLC.

He said the wider use of digital platforms is helping divert remittance flows from the informal hundi system to regulated channels, improving transparency and lifting official inflow figures.

The increase in remittances is particularly significant as the central bank and the government seek to restore macroeconomic stability, amid persistently high inflation, said Dr Zahid Hussain, an independent economist.

He noted that stronger inflows have placed the external sector in a more comfortable position.

"However, the sustainability of remittance growth will depend on labour market conditions abroad and a stable political and economic environment at home," he added.

According to the Bureau of Manpower, Employment and Training (BMET), more than 4.0 million Bangladeshis left the country for overseas employment over the four years up to fiscal year 2024-25, reinforcing the critical role of migrant workers in the national economy.​