Originally posted in The Daily Star on 25 December 2025
Bangladesh is facing moderate stagflation
Says former WB lead economist
Bangladesh is facing a moderate form of stagflation, said Zahid Hussain, a former lead economist at the World Bank’s Dhaka office, as economic growth remains weak, inflation stays high, and job creation has been limited in recent years.
In developing economies, he said, stagflation does not necessarily mean negative growth. Instead, it occurs when growth remains below its potential or target while inflation continues to rise.
Hussain made the remarks at an event jointly organised by Voice for Reform and the Bangladesh Research Analysis and Information Network in Dhaka yesterday.
Since the Covid-19 pandemic, inflation has surged sharply, while economic growth has shown a persistent decline. Although gross domestic product growth remains positive at around 3.5 to 4 percent, inflation in the high single digits points to clear stagflationary pressure, he said.
Sustained economic growth, he added, depends fundamentally on political and macroeconomic stability. Without a stable political environment, progress cannot take root.
According to the economist, three elements are essential for macroeconomic stability. Those are controlling inflation, maintaining balance of payments stability, and restoring the health of the financial sector.
Under the current institutional framework, Bangladesh’s potential growth is capped at roughly 6.5 percent. Achieving growth closer to 8 percent would require deep structural reforms, Hussain said.
He also noted that the financial sector remains fragile, particularly because of high levels of non-performing loans. However, it appears to have reached its lowest point and is beginning to stabilise.
Reaching a trillion-dollar economy by 2035 will require inclusive growth driven by labour market reforms that ensure economic gains reach the wider population rather than relying on trickle-down mechanisms, he added.
Fahmida Khatun, executive director of the Centre for Policy Dialogue (CPD), said Bangladesh risks falling into a low-level economic equilibrium if constraints on productivity, investment, and human capital are not addressed urgently.
Aspirations for a trillion-dollar economy require more than ambitious targets. They require sustained improvements in investment, inflation management, and inequality reduction, she said.
Inflation has remained elevated for nearly three years, fuelled by successive shocks from the pandemic, global conflicts, and domestic instability, she added.
Fahmida highlighted a great skills mismatch in the labour market. Unemployment is highest among the educated, while employers report shortages of skilled workers.
The private sector, which accounts for 80 percent of the economy, has not expanded sufficiently, placing increased pressure on government employment, she said.
This reflects deeper structural problems in banking, energy, taxation, and labour markets. The tax-to-GDP ratio has fallen to between 6.4 and 6.8 percent, severely limiting fiscal space, she added.
Political stability alone will not suffice. Strong commitment from the highest levels of government is essential to dismantle rent-seeking structures and implement long-overdue reforms. Without decisive action, growth will remain fragile, and the goal of a trillion-dollar economy will remain out of reach, she added.
Monzur Hossain, member of the General Economics Division of the Planning Commission, said gross domestic product targets are inherently political, but they must be grounded in economic reality and private sector capacity.
Sustaining 8 percent growth until 2035 is an ambitious goal that cannot be achieved without first rebuilding the economic foundation and committing to inclusive and sustainable development, rather than cosmetic modernisation, he said.
Rashed Al Mahmud Titumir, a professor of Development Studies at Dhaka University, said Bangladesh faces a deep political-economic crisis rooted in institutional capture.
Power, capital, and the state have become mutually reinforcing, creating a predatory system that prioritises narrow interests over productivity and public welfare, he said.
This is not a temporary shock but the outcome of prolonged centralisation, weakened accountability, and systematic resource extraction, he added.
The country’s challenges are fundamentally structural. Without institutional reform, replacing individuals or changing governments will not deliver meaningful change, he said.
Political parties must move beyond slogans and present credible economic manifestos that clearly explain how growth, jobs, and public services will be financed, he added.
Jyoti Rahman, executive editor of the Counterpoint, delivered the keynote presentation, while Fahim Mashroor, convener of Voice for Reform, moderated the event.
