Diversifying exports beyond the ready-made garment sector, improving infrastructure, and investing in human capital, particularly in health and education, are also critical to enhancing economic resilience.

Bangladesh’s economy is witnessing the first tentative signs of recovery, even as global financial institutions like the International Monetary Fund (IMF) and the Asian Development Bank (ADB) project lower-than-expected growth for the current fiscal year due to systemic challenges and growing fiscal stress.

The IMF recently downgraded its GDP growth forecast for Bangladesh to 3.76 per cent for FY 2024–25, a slight drop from its December 2024 estimate of 3.8 per cent and significantly below the 4.5 per cent projection in October. This would mark the country’s weakest growth since the pandemic-hit FY 2019–20.

The Asian Development Bank echoed this cautious outlook. In its Asian Development Outlook (ADO) April 2025, released yesterday, the ADB slashed its GDP growth forecast to 3.9 per cent – down from 5.1 per cent in September 2024 and a sharp fall from 6.6 per cent in April last year.

Despite the gloom, local economists say the underlying fundamentals show that a gradual recovery is underway, provided the government implements essential reforms.

Multi-pronged Strategy

“The downgraded forecasts reflect deep-seated problems in tax collection, rising inflation, and the ongoing crisis in the banking sector,” said Dr. Selim Raihan, Professor of Economics at Dhaka University and Executive Director of the South Asian Network on Economic Modelling (SANEM). “The economy is currently in a fragile state with low private sector investment, weakened job creation, and growing external vulnerabilities.”

Dr. Raihan noted that one of the most pressing issues is the banking sector, where nearly 35 per cent of loans are in default. “This not only undermines credit flow to businesses but also shakes investor confidence,” he said. “On top of that, the government’s decision to scale back funding for mega infrastructure projects is having a ripple effect across multiple sectors.”

To remedy the situation, Dr. Raihan advocates a multi-pronged strategy: broadening the tax base, cutting non-essential subsidies, and improving public financial management. “The independence of the central bank must be strengthened, inflation needs to be tamed, and regulatory reforms should aim to incentivise private investment,” he added.

Diversifying exports beyond the ready-made garment (RMG) sector, improving infrastructure, and investing in human capital, particularly in health and education, are also critical to enhancing economic resilience, he said.

Contractionary Monetary Policies

The IMF’s head of mission to Bangladesh, Chris Papageorgiou, highlighted similar concerns during a recent visit. “The economy faces multiple challenges amid elevated global uncertainty,” he said, pointing to a slowdown in year-on-year GDP growth to 3.3 per cent in the first half of FY25, compared to 5.1 per cent during the same period the previous year.

This slump is largely attributed to domestic unrest, contractionary monetary and fiscal policies, and a broader climate of uncertainty that has discouraged both foreign and domestic investment.

According to the ADB, Bangladesh’s sluggish domestic demand, exacerbated by political transition, potential natural disasters, and labour unrest, has added to the drag on growth. The bank’s forecast projects a modest rebound to 5.1 per cent growth in FY 2026, conditional on policy improvements and external stability.

Meanwhile, inflation remains a critical pain point. The IMF expects it to hover around 10 per cent this fiscal year, easing only to 5.18 per cent in FY 2026. The ADB’s projection is slightly higher: inflation is expected to peak at 10.2 per cent in FY 2025, before cooling to 8 per cent the following year. Factors fuelling inflation include supply chain disruptions, market inefficiencies, lack of competition, and a depreciating taka.

Leading Regional Economy

Despite the economic headwinds, some indicators are pointing in a more hopeful direction.

Dr. M Masrur Reaz, Chairman of Policy Exchange Bangladesh, told UNB that export earnings and rising remittance inflows have helped stabilise foreign exchange reserves and injected fresh energy into rural economies. “These two factors are helping to stabilise the macroeconomic environment,” he said.

He acknowledged that years of regulatory lapses and high-profile loan scams had undermined public confidence in financial institutions, slowing the economy’s rebound. “Reforms to improve transparency and accountability in the financial sector will be key to sustaining recovery,” Dr. Reaz said. “That said, the IMF’s projections shouldn’t be taken as a sign that the economy is collapsing – it’s undergoing a tough but necessary correction.”

Both the ADB and IMF still classify Bangladesh as a leading regional economy. The ADB’s 2025 Basic Statistics report ranks Bangladesh as South Asia’s second-largest economy after India, and the ninth-largest in Asia, with a total GDP of $450.5 billion as of 2024.

The country’s external accounts also show signs of stabilisation. The ADB expects the current account deficit to narrow from 1.4 per cent of GDP in FY 2024 to 0.9 per cent in FY 2025, thanks to a shrinking trade deficit and a rise in remittances.

However, ADB Country Director for Bangladesh Hoe Yun Jeong cautioned that structural reforms are necessary to sustain progress. “Bangladesh must diversify its economy beyond garments by promoting private sector development,” he said. “Investing in resilient infrastructure, energy security, and financial sector governance is essential for attracting foreign investment and creating jobs.”

Serious Policy Interventions

The World Bank, too, has issued a more conservative projection, expecting GDP growth to slow to 4.1 per cent in FY 2024–25. This adds to the growing consensus that while Bangladesh is not in immediate economic peril, serious policy interventions are needed to restore the country’s growth momentum.

As fiscal, monetary, and structural challenges persist, experts say the current downturn may serve as a pivotal moment for Bangladesh’s economic policymaking. The next few quarters will be crucial in determining whether the country can move beyond crisis management and return to a sustainable path of inclusive growth.