Originally posted in The Daily Star on 27 October 2026
The latest growth forecasts from international organisations are troubling: Bangladesh may not just grow more slowly this year, but its economy could remain weak for years—unless its underlying problems are addressed. In its October 2026 report, the International Monetary Fund (IMF) projected the growth to be 3.2 percent in FY2026-27, down from 4.3 percent in April. It expects growth to fall to 2.2 percent in FY2027-28, then recover gradually to around 3 percent by FY2030-31. The World Bank forecasts 3.4 percent growth and the Asian Development Bank (ADB) 4 percent, compared with the government’s projection of 6.5 percent growth in FY2026-27. The IMF also projects an average inflation of 10.9 percent, whereas the government has projected inflation to be 7.5 percent in FY2026-27.
These forecasts are not certainties, nor do they make the government’s target impossible. But they show how far the economy’s current course is from the recovery the country needs. While the IMF, World Bank and ADB all differ in their estimates, they all point to weak growth and persistent inflation. This convergence should prompt an honest assessment of what is holding the economy back. After eight months in power, the government should treat the current economic context as a serious crisis, one that requires coordinated action and deep structural reforms.
Both international and domestic factors contribute to the country’s weaker outlook. Immediate pressures include conflicts in the Middle East, rising energy costs, and disruptions in major trade routes. These factors raise import, transport and production costs. Bangladesh is particularly exposed because it depends heavily on imported energy. Weaker demand in export markets and uncertainty in global trade can further constrain manufacturers. The IMF also identifies conflict, trade tensions, and fiscal vulnerabilities as risks to the global outlook, projecting a 3.1 percent growth.
Domestic obstacles are more persistent. Investment has weakened, businesses face high borrowing and operating costs, and policy uncertainty has undermined confidence. The World Bank reports that private investment contracted for the second consecutive year due to energy shortages, banking sector weaknesses, low revenue collection, and limited public investment capacity. Even when a business sees an opportunity, it may hesitate to invest if it cannot count on a reliable energy supply, access affordable credit, or predict the rules it will face.
Banking problems are central to this impasse. Non-performing loans (NPLs) constituted 32.78 percent of total outstanding loans as of June 2026. A banking system weighed down by bad loans and weak governance cannot reliably channel savings to productive firms. At the same time, businesses with heavy debt or falling revenues may be unable to borrow to invest. Their balance sheet problems reinforce the banks’ vulnerabilities, and vice versa. New credit alone will not solve the problem while losses remain unrecognised, and viable businesses cannot be distinguished from borrowers unable to repay.
The cost of weak growth is already being borne by households. According to World Bank estimates, around 21 lakh more people fell into poverty in FY2025-26 than in the previous fiscal year. High inflation has reduced the real value of wages, while weak labour demand has shrunk income opportunities. Meanwhile, job creation stalled and women lost jobs; female labour force participation fell from 42.8 percent in 2022 to 38.4 percent in 2024, according to the World Bank’s Bangladesh Development Update in October 2026. Remittances have helped families and supported foreign exchange inflows. But they cannot substitute for employment generated by investment and productive businesses.
The ongoing fiscal pressures also make reform increasingly urgent. Revenue collection stood at around 8 percent of GDP in FY2025-26. This constrains the resources available to finance services, infrastructure, and household support. Interest payments also absorb funds that could otherwise be directed to development priorities. Public debt continues to rise, while a wider current account deficit and higher energy import costs could put further pressure on the taka. Depreciation is a risk, not a certainty, but prolonged financial sector problems and weak external inflows could make stability harder to maintain.
The next phase should be built around a few measurable commitments. First, ensuring discipline in the banking sector is crucial because banks must safeguard depositors’ money and channel credit to productive businesses. The Bangladesh Bank should publish the findings of its asset quality reviews and require weak banks to submit time-bound plans to recognise losses, recover loans, and meet capital requirements. Taxpayers’ money should not be used to bail out banks or companies without strict conditions and a credible recovery plan. Any public support for banks must be tied to stronger governance, accountability and measurable progress in recovering bad loans. Indebted companies that remain viable should be offered a transparent, time-bound path to restore their finances.
Second, fiscal and monetary policies should promote stability while safeguarding productive activity. The government should curb low priority spending and avoid excessive domestic borrowing as the monetary policy focuses on containing persistent inflation. It should broaden the tax base, review exemptions, and strengthen compliance through digital records and risk-based audits. The National Board of Revenue should publish its transition plan and timetable. If agreed, a future IMF programme, which the government is currently negotiating, should support a Bangladesh-led reform agenda the country can implement. Measures should be sequenced according to domestic conditions, with realistic milestones and safeguards for vulnerable groups.
Third, the government must ensure that public spending delivers lasting results. Infrastructure projects should undergo rigorous appraisal and begin only once land, designs, financing, and procurement arrangements are in place. Project costs, progress and expected outcomes, and fund maintenance alongside construction should be made public. Ministries should regularly report what public money has delivered. Increased spending alone will not sustain growth if projects are delayed, poorly selected, or fail to improve transport, energy, logistics, or access to services.
Finally, restoring confidence requires dependable energy and predictable investment rules. The government should publish the status, costs and completion dates of the solar tenders, disclose power purchase agreements, and review capacity payments. It should strengthen efforts to expand domestic gas exploration, upgrade the grid, and expand renewable energy connections. It should also speed up business approvals and customs procedures, make them more predictable, and link skills programmes to employers’ needs. Supporting the RMG industry while enabling new export sectors would reduce concentration and create more opportunities for job growth.
Bangladesh does not need a one-size-fits-all policy package; it needs politically owned reforms that address the interplay among banks, indebted businesses, energy costs, weak revenue collection, and poor investment. The government should be transparent to the public about the scale of the challenges, report progress, and explain the costs of delay.
Building towards a trillion-dollar economy depends on sustained growth in productivity, investment, exports, and employment. Bangladesh cannot overcome low growth, high inflation and weak job creation unless it tackles the long-recognised obstacles that it has only partially addressed. The government must now translate laws, commissions and policy announcements into measurable results. Doing so will require difficult decisions and resistance to vested interests. But without these reforms, the country may face prolonged stagflation.
Dr Fahmida Khatun is an economist and distinguished fellow at the Centre for Policy Dialogue (CPD). Views expressed in this article are the author’s own.
