The interim government in Dhaka has been working hard over the last one year and a half or so to guarantee political stability conducive to stimulate economic growth and stabilise the economy of macroeconomic crisis that it has inherited from the corrupt and despotic Hasina regime. This has been a challenging task given the extent of the crisis. The interim government also needs to move forward to undertake a series of necessary reform measures to create a conducive environment for an enduring democratic system to function in the country.  However, amid a highly polarised society, challenges to restoring constitutional order are significant. In fact, political crisis also worsens economic and public finance risks.

The new policy direction is important because political stability based on a well-functioning democratic process is the most essential prerequisite for the government to not only to attain political stability but to attain ability to reform and revive the economy. The Monsoon Revolution of 2024 has offered a unique opportunity to initiate significant reform within the nation’s political system and culture.  

Now, major economic risks facing Bangladesh include political instability, rising import costs and inflation, climate vulnerability and debt, and a weakened governance framework. Political instability is exacerbated by public unrest and has led to a governance crisis, while global events like the Ukraine invasion have increased import costs. Climate change poses significant risks, potentially impacting the ability to repay debt, and internal issues like a weak governance structure can undermine financial discipline and foster risky lending practices. 

The Bangladesh economy historically has shown resilience to global challenges and internal issues that usually contribute to causing major economic stress. Despite positive signs in exports and remittances, a combination of slow growth, high inflation and rising unemployment and income inequality suggest a potential stagflationary trend.

Bangladesh has achieved as claimed an annual average growth rate of about 6.5 percent over the last decade and a half. But the growth rate has slowed down considerably since the onset of the Pandemic and the Russia-Ukraine conflict. The current macroeconomic crisis is manifested in slowing GDP growth, high inflation and unemployment, looming debt burden and a banking system in deep trouble. Between 2013 and 2023, 1.4 million manufacturing jobs were lost. Youth unemployment is more than double now than the national unemployment rate.

The growth that was achieved under Hasia was over-reliant on political patronage enabling a handful of deeply corrupt industrial groups, who borrowed staggering sums of money with minimal or no collateral and that money then siphoned off to Singapore, Dubai, London, Toronto, New York and many other places. Captains of those groups also simply left the country as well like Hasina’s children and family members.

In some cases, such as the figure of Taka 80,000 crore associated with the Islami Bank and Taka 24,000 crore from the Janata Bank borrowed by Beximco, a company run by one of Hasina’s very close associates and an adviser. The loans didn’t merely go unpaid, the money simply migrated invisibly into properties in places like Singapore, Dubai, London, Toronto, New York and many other places.

The Bangladesh Bureau of Statistics (BBS) recently published the provisional GDP estimate for 2024-25 and it stands at 3.9 percent. Multilateral and regional organisations such as the WB, IMF and ADB, all have early this year downgraded Bangladesh GDP growth rate for 2025 to 3.3 percent, 3.8 percent and 3.9 percent respectively. But they all provided a better growth forecast for 2026.

Bangladesh’s economy slowed sharply, according to the IMF’s latest review, with growth dropping to 3.8% in FY2025 amid production disruptions caused by the student-led uprising that toppled the tyrannical and kleptocratic regime of Sheikh Hasina. Inflation remained high at 8.2% in October, while weak tax collection, fragile banks and slow reforms continued to strain the economy.

Ongoing political uncertainty and continued vulnerabilities within the banking sector are expected to further dampen investment growth.  Banks in Bangladesh are undercapitalised and have a significantly higher non-performing loans (NPL) ratio compared to other South Asian countries. As of March 2025, Bangladesh's NPL ratio was 24.1 percent, whereas the regional average is 7.9 percent.  More alarmingly, by September 2025 NPL rose to Tk6.44 trillion accounting for about 36 percent of total outstanding loans. The overall business climate remains subdued, as evidenced by private-sector credit growth falling to a historic low of 6.29 percent in September. This trend highlights both a weak investment environment and declining business confidence.

Hasina recently has been sentenced to death for committing crimes against humanity but remains in India which refuses to extradite her to Dhaka. Interim Government Head Muhammad Yunus announced elections and a referendum for February 2026 as the country works to stabilise its economy and political landscape.  

Now that the debt/GDP ratio is also to rise further at the end of fiscal 2025-26 due further deficit financing stipulated in the current fiscal year’s budget. Interest payment will account for 22 percent of total revenue budget or 15.5 percent of total spending. Between 1979-80 and 2024-25, Bangladesh always ran budget deficits except for four years. It indicates the budget has a structural deficit problem rather than cyclical.

According to the World Bank during the interim government’s tenure, more than 2.7 million people have become new poor. Of these, 1.8 million are women. Sluggish investment contributes to unemployment, leading to increased poverty. The interim administration led by Yunus did not affect the investment climate or investor confidence. Also, not much has been done to deal with underinvestment in infrastructure, a self-serving financial sector, educational decline, and a dysfunctional health care system. 

In a recently published WB report indicates that Bangladesh’s 62 million people who constitute half of non-poor population are now at risk of sliding into poverty. Employment opportunities slowed down since 2016 as industrial growth weakened. More alarmingly the growth pattern has become less inclusive in recent years.

The Gini coefficient was 0.27.6 in 1991, accelerating to 0.32.10 in 2010. Income inequality in Bangladesh has deepened since 2016. The latest value from 2022 is 33.4 index points, an increase from 32.4 index points in 2016. Gini index measures the extent to which the distribution of income or consumption expenditure among individuals or households within an economy deviates from a perfectly equal distribution. Thus, a Gini index of 0 represents perfect equality, while an index of 100 implies perfect inequality.

In Bangladesh, the wealthiest 10 percent of the population now controls a disproportionate 41 percent of the nation's total income, while the bottom 10 percent receives a meagre 1.31 percent, according to government data. Rising income inequality began with Hasina's dynastic and deeply corrupt authoritarian government.  The Yunus government’s reforms failed to stop worsening poverty and income inequality.   

The budget presented for fiscal year 2025-26 continued with the past fiscal practices except trimmed the size by decreasing annual development expenditure by 13.2 percent from the original allocation in the previous budget. The proposed 2025-26 budget exceeds last year's total spending.  A highly bloated public service alone will eat up 24 percent of the budget allocations while interest payments account for 14 percent. These are the two largest expenditure items in the budget.

The budget included unrealistic inflation and growth forecasts, backed by the central bank Governor. This will not enhance investor confidence despite issues like infrastructure deficiency, bureaucratic corruption and delays and extortion rackets which cause distribution costs to outstrip production costs. "The economy" growing often ignores that most people in Bangladesh don't feel this growth.  The projected growth forecasts may not significantly impact most people in the country. 

The proposed fiscal deficit of TK1.25 trillion will further balloon the already accumulated public debt despite the austerity measures. In 2024, Bangladesh's public debt was $181,008 million. This amount represented 40.13 percent of Bangladesh's GDP. Bangladesh's debt per capita in 2024 was $1,056. The public debt is composed of domestic debt (56% of total debt) and external debt (44%). Bangladesh’s Private debt and household debt debts stand at 36.92 percent and 6.69 percent respectively of GDP in 2025.

Bangladesh's balance of payments is facing renewed pressure, with the current account returning to a deficit of $481 million in the first quarter (July-September) of fiscal year 2025-26, a reversal from a surplus the previous year, due to rising import payments. In contrast, remittances continue to show strong growth, with inflows reaching US$2,638.78 million in December 2024 and US$3.29 billion in March 2025, the highest monthly amount on record. 

The latest data on the balance of payments shows that foreign exchange reserves were $26.38 billion in November 2025. As of November 22, 2025, the country's remittance inflow witnessed a year-on-year growth of 24.5%, reaching $2.135 billion during November. 

The latest IMF reports on Bangladesh indicate a slowing economy with a projected GDP growth of 3.8% for 2025, driven by challenges from recent political unrest, global economic conditions, and persistent inflation. While the country is still facing significant macroeconomic headwinds, the IMF notes the government's efforts to address these issues through reforms aimed at improving public finances, containing inflation, and building climate resilience. The combined 3rd and 4th reviews of the country's Extended Credit Facility, Extended Fund Facility, and Resilience and Sustainability Facility were recently concluded in June 2025. 

The IMF essentially issued a cautionary message pointing out that Bangladesh faces major macro-financial risks due to weak revenue collection, a dysfunctional financial sector and continuing high inflation projected at 10 percent for this year. The IMF report essentially gives a clear message on Bangladesh’s long term - policy failures. The Hasina relationship-based access model should be replaced with a rule-based approach. Therefore, the next growth phase can be steadier only if anchored in economic fundamentals, governance, compliance, and long-term value creation rather than political patronage.