While Bangladesh has demonstrated considerable capacity to withstand economic shocks, structural weaknesses include its banking sector, which has been undermined by years of weak governance, politically directed lending, and rising non-performing loans. Limited fiscal resources have also increased dependence on external borrowing and development assistance.

Bangladesh’s economy has shown considerable resilience despite an uncertain domestic and global economic environment. By June 2026, Bangladesh’s Gross Domestic Product (GDP) crossed the half-trillion-dollar mark, recording an annual GDP growth rate of 4.7 per cent for Financial Year (FY) 2025–26,[1] after slowing to 3.4 per cent in the previous year. Strong remittance inflows, recovering exports, and improved foreign exchange reserves have helped improve macroeconomic stability.

Nevertheless, its recent economic performance remains modest compared to its earlier growth trajectory. Between 2014 and 2019, the country sustained an average annual real GDP growth rate of approximately 7 per cent, establishing itself as one of the fastest-growing economies in Asia. Following the economic disruption caused by the COVID-19 pandemic, Bangladesh staged a strong recovery, with real GDP expanding by 6.94 per cent in 2021 and 7.10 per cent in 2022.[2]

Economic Slowdown in Bangladesh

Rising inflation, driven by surging global energy and commodity prices following the outbreak of the Russia–Ukraine war in 2022, coupled with the depreciation of the Bangladeshi taka, placed significant strain on Bangladesh’s economy, bringing the GDP down to 5.87 per cent in 2023.[3] Higher import costs, particularly for fuel and essential commodities, widened Bangladesh’s trade deficit, eroded its foreign exchange reserves and fuelled persistent inflationary pressures, with the annual inflation rate rising to 9.2 per cent in FY 2022–23.[4]

These developments precipitated a balance-of-payments crisis, compelling Bangladesh to seek financial assistance from the International Monetary Fund (IMF) in January 2023 for a US$ 4.7 billion loan programme (subsequently expanded to US$ 5.5 billion in June 2025) to restore macroeconomic stability, promote inclusive growth, and protect the vulnerable.[5] By June 2025, the IMF had approved the disbursement of US$ 1.3 billion to Bangladesh under its Extended Credit Facility (ECF), Extended Fund Facility (EFF), and Resilience and Sustainability Facility (RSF) programmes.[6]

While the IMF assistance helped ease immediate external financing pressures and supported macroeconomic stabilisation efforts, it was insufficient to reverse the broader economic slowdown. Annual real GDP growth declined to 4.22 per cent in 2024 and further to 3.40 per cent in 2025,[7] reflecting persistent structural weaknesses and subdued investor confidence. The political turmoil culminating in the ouster of Sheikh Hasina in August 2024 exacerbated the economic downturn. The widespread protests, political unrest and subsequent regime change during July–August 2024 disrupted economic activity and generated uncertainty among domestic and foreign investors. In July 2024, overall inflation increased significantly to 11.66 per cent, with food inflation reaching a record high of 14.10 per cent.[8]

High inflation is a major concern because it discourages both domestic and foreign investment by creating uncertainty and reducing the real value of returns. As prices continue to rise, people and businesses prefer to invest in assets such as gold, real estate, foreign currency, or essential commodities rather than in businesses or long-term projects. Since interest rates often do not keep pace with inflation, saving also becomes less attractive. As a result, investors favour short-term and safer investments, which reduces investment in the economy and slows the growth of the financial sector.[9]

These challenges became even more pronounced after the interim government headed by Mohammad Yunus took charge in August 2024. While the interim government inherited an economy already weakened by high inflation, declining foreign exchange reserves, a fragile banking sector, and slowing economic growth, several of its economic and political decisions adversely affected Bangladesh’s economic growth. A major source of economic uncertainty was the absence of a clear timeline for restoring an elected government, which amplified political uncertainty and weakened business confidence. As a result, domestic and foreign investors adopted a cautious approach, postponing investment decisions until greater political clarity emerged.

At the same time, continued political protests and labour unrest over wage demands, particularly in the ready-made garment (RMG) sector, which accounts for more than four-fifths of Bangladesh’s merchandise exports, disrupted industrial production and export activities. Large-scale demonstrations in the country’s major garment manufacturing hubs, first in November 2023 and later during the political upheaval of August 2024, were accompanied by attacks on businesses and industrial facilities, forcing nearly 300 apparel factories to suspend operations, either temporarily or permanently. The resulting factory closures, cancelled export orders, damage to commercial property, and widespread layoffs adversely affected the livelihoods of tens of thousands of workers, further exacerbating the country’s economic challenges.[10]

Economic Impact of Strained Relations with India

The Yunus government’s efforts to strengthen governance through anti-corruption measures and administrative reforms also produced unintended economic consequences. As part of this process, the interim government reviewed infrastructure and connectivity projects, as well as MoUs signed with India under the Sheikh Hasina government. It justified these decisions by citing high project costs, lack of transparency and concerns over economic mismanagement. The ouster of Sheikh Hasina and the consequent straining of relations disrupted investment flows and created uncertainty........

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