Let's learn strengths, weaknesses, and concerns of the economy through numbers

Bangladesh's economy stands at a turbulent crossroads. Growth has fallen to its lowest point in a decade, poverty has doubled, and non-performing loans have reached a historic high. On the other hand, there are some hopeful signs in remittance inflows and export earnings. Although inflation has eased, real purchasing power has not returned, and despite revenue growth, a sustainable foundation has yet to be established. The numbers reveal that while the challenges facing the economy are deep, the potential is also clear. So, let’s take a closer look—through the numbers—at the strengths, weaknesses, and various concerns surrounding the economy.

• Investment has stalled, and imports of capital machinery have dropped by 20–25 per cent.

• Growth in the construction sector has declined sharply. Political uncertainty has deteriorated the business environment.

• Job creation is stagnant.

• Poverty reduction has come to a halt.

• Investor confidence is weakening.

• Even if stability returns, without major reforms, it will be difficult to bring growth back to 6–7 per cent.

• For the current 2025–26 fiscal year, the growth target is set at 5.5 per cent, but even achieving that target is uncertain.

• Inflation is eroding people’s incomes.

• Real wages have declined.

• Employment crises and political instability have had significant impacts.

• 55 per cent of household income is spent on food.

• Poor households are relying on debt to survive.

• If social protection programmes are not expanded, the number of people living in poverty could continue to rise.

In August, the inflation rate in Bangladesh stood at 8.29 per cent, the lowest in the past 37 months. The last time inflation dropped below 8 per cent was in July 2022, when it was 7.48 per cent. Since then, inflation has consistently remained above 8 per cent.

According to Bangladesh Bureau of Statistics (BBS) data, in August: Food inflation was 7.60pc and Non-food inflation was 8.60pc. Food inflation slightly increased compared to the previous month, while non-food inflation saw a decline.

However, the 12-month average inflation remains high at 9.77 per cent, close to the 10 per cent mark. In July 2025, inflation was 8.55 per ent, slightly higher than in June. Of this: Food inflation was 7.56 per cent and Non-food inflation was 9.38 per cent.

In August, the National Wage Rate Index rose to 129.70 (base year 2021–22 = 100). The overall wage growth rate was 8.15 per cent. By sector: Agriculture: 8.28pc, industry: 7.93pc and services: 8.37pc

• Food prices have stabilized, and rural food inflation has declined.

• Prices increased the most in restaurants, hotels, clothing, and footwear (by 9–17pc).

• Health (3–4pc) and transportation (6–7pc) saw relatively lower price increases.

• Global fuel and raw material costs, along with high import dependency, continue to impact inflation.

• The 12-month average inflation still hovers around 10 per cent.

• Although wages increased by 8.15 per cent, inflation is still higher, reducing purchasing power.

• Despite wage growth in agriculture, industry, and services, living standards have not improved.

• Urban areas face higher food prices, while rural areas are seeing more pressure in non-food items.

• Consumers are spending significantly more on restaurants, clothing, and hotels.

• If non-food prices continue to rise, overall inflation may not decline quickly.

• Even with rising wages, keeping pace with inflation will be difficult.

• Inflation might decrease slightly in the coming months, but purchasing power will take time to recover.

• Bangladesh Bank’s target is to bring inflation down to 6.5 per cent, but achieving that will be challenging.

As of the end of June 2025, default loans in Bangladesh have reached Tk 5.3 trillion (or Tk530,428 crore), which is 27.09 per cent of all loans disbursed by the banking sector. In other words, more than one-fourth of all loans distributed by banks have already defaulted. In March 2025, the amount was Tk 420,334 crore (24.13pc).

Within one year (June 2024 to June 2025), default loans increased by Tk 319,037 crore. By the end of 2024, when combining default and distressed loans, the total reached Tk 7.56 trillion (or Tk 756,000 crore), which was 44 per cent of all loans—almost equal to the entire national budget.

Key reasons behind this surge include irregular loan disbursements, weak oversight, slow recovery, loan renewals without actual repayment, and stricter global standards for classifying defaults.Many loans taken with political backing during the Awami League government's tenure are now being formally marked as defaults.

Following the recent political transition, the true state of banks controlled by the S Alam Group has become more apparent.

Default loans have risen in Islami Bank, as well as in First Security Islami, Global Islami, Union, Social Islami, and EXIM Bank. Bangladesh Bank is now moving to merge these five banks as part of a stabilisation effort.

• Unusually large loans given to politically influential groups

• Weak oversight by Bangladesh Bank and slow loan recovery

• Stricter international standards for loan classification

• The real financial condition of S Alam Group-controlled banks has come to light

• Eroding the stability of the banking sector and diminishing depositor confidence

• Negatively affecting new loan disbursement and private investment

• Creating risks for economic growth and employment generation

• Default loans may continue to rise

• Partial stability may be achieved through the merger of the five banks

• Without swift reforms, the financial sector may face a major crisis

In the recently concluded month of August, Bangladesh received $2.422 billion in remittances. In comparison, remittance inflows in August last year stood at $2.2241 billion, indicating a year-on-year growth of nearly 9 per cent.

However, in July of this year, remittance inflows were $2.4778 billion, meaning the August figure represents a slight month-on-month decline.
The rise in remittance is attributed to a decline in money laundering and hundi (informal money transfers), as well as stable exchange rates in the banking channel. In addition, government incentives have played a role in encouraging the use of formal channels.

As a result of this remittance inflow, the foreign exchange reserve has surpassed $31 billion. At the end of the day on 4 September, the total reserves stood at $31.18 billion.

However, under the IMF’s BPM6 accounting method, the reserve was $26.19 billion.

In July and August, Bangladesh also settled import bills through the Asian Clearing Union (ACU). Following these payments, the reserve has now declined to $30.30 billion.

• Reduction in money sent through hundi and other illegal channels

• Government incentives and promotion of remittance through legal means

• Stable exchange rate for the dollar in the banking channel

• Improvement in foreign debt servicing and balance of payments

• Following political changes, import-dependent spending decreased, and confidence among foreign banks is beginning to return

• Foreign exchange reserves have once again exceeded $31 billion

• Pressure on the dollar market has eased, bringing back stability

• Use of reserves for import payments has become more manageable

• The overall economy is receiving positive signals, boosting foreign confidence

• If hundi is kept in check and incentives continue, remittance may increase further

• However, monthly fluctuations will likely continue (large inflows like in March may not occur frequently)

• A stable reserve would bring more comfort to the currency market

• For sustainable long-term growth, it's crucial to diversify labour markets and reduce remittance costs

• Once Bangladesh graduates from LDC status, the loss of tariff privileges may increase pressure on reserves

In the 2024–25 fiscal year, for the first time in three years, Bangladesh recorded a surplus in the overall Balance of Payments (BoP), amounting to $3.4 billion.

This was made possible by strong remittance flows and a robust export performance. During the same period, the trade deficit shrank by 9.1 per cent.

All components of the balance—current account, financial account, and overall BoP—showed positive outcomes.

• Increase in remittance inflows

• Growth in export earnings

• Imports remained comparatively low

• What impact is it having?

• The foreign exchange market is stabilising

• External debt repayment is becoming easier

• If this positive trend doesn't continue, there's a risk of falling back into a deficit situation

According to data from the Bangladesh Bank, private sector credit growth in July 2025 stood at 6.52 per cent. In the previous month, June, the growth rate was slightly lower at 6.49 per cent.

This relatively low growth indicates weak investment demand, as businesses remain cautious about new investments, resulting in a sluggish pace of loan disbursement.

In contrast, net credit growth in the public sector was significantly higher at 14.51 per cent. To manage budget deficits, subsidy expenses, and project spending, the government has increased its borrowing from the banking system—leading to growing dependence on banks.

Meanwhile, credit growth for state-owned corporations and autonomous institutions was negative at -2.39 per cent, indicating that these entities are either repaying previous loans or reducing new borrowing.

• High interest rates, political uncertainty, and unpredictable demand have led to reduced private investment

• Revenue collection hasn’t improved, pushing the government to rely more on bank borrowing to cover deficits

• Due to restructuring and cost-cutting, new government borrowing has been somewhat limited

• Limited investment is restricting employment generation and production

• Rising government borrowing may further squeeze credit availability for the private sector

• Growing government reliance on bank financing is putting pressure on financial stability

• If revenue doesn’t increase, government borrowing from banks will rise further

• This could limit credit flow to the private sector, negatively affecting investment and job creation

• Without interest rate control and better revenue mobilisation, imbalances in credit flow may worsen

• Reforms in budget and taxation could help boost credit flow to the private sector

In August 2025, exports fell by 2.93 per cent compared to the same month last year.

Within this, ready-made garment (RMG) exports totaled $3.17 billion, a 4.75 per cent decline from August last year.

Notably, in July, the first month of the 2025–26 fiscal year, RMG exports had risen by 24.5 per cent year-on-year. However, that growth did not sustain, as exports fell again in August.

Overall, in the first two months (July–August) of FY2025–26, total exports stood at $8.69 billion, which is 10.61 per cent higher than the same period last year.

Of this, RMG exports amounted to $7.13 billion, with a growth rate of 9.63 per cent.

Among other products, exports of leather and leather goods, processed agricultural products, non-leather footwear, and furniture decreased in August.

However, exports of home textiles, jute and jute goods, frozen foods, plastics, and engineering products showed growth.

Exporters reported that uncertainty over retaliatory tariffs in the US caused months of pricing negotiations and delays in new orders, which led to lower exports in August. Now that tariff rates have been finalised, buyers have started renewing negotiations for new orders.

Uncertainty regarding US retaliatory tariffs delayed purchase orders
RMG exports generally dip between July and September due to seasonal trends

After a dip in June and a rebound in July, August faced a fresh order shortage

Temporary slumps affected sectors like leather and agriculture

• Overall export growth turned negative in August

• The economy’s dependence on the RMG sector has once again become evident

• Positive growth in home textiles, jute, and engineering goods helped bring some balance

• Exporters are reducing production plans due to uncertainty in orders

• With US tariff rates now finalised, buyers are likely to place new orders, potentially boosting export growth in September

• Beyond RMG, there is potential in leather, agricultural products, and home textiles

• To sustain export growth, political stability, buyer confidence, and market diversification are essential

• Once Bangladesh graduates from LDC status, the loss of duty-free privileges could put export growth at risk

In the 2024–25 fiscal year, Bangladesh’s total import expenditure stood at $68.4 billion, which is only 2.4 per cent higher than the previous year.

Imports of capital machinery and intermediate goods have declined, indicating a stagnation in investment. Imports of consumer goods have remained mostly stable. However, imports of petroleum and industrial raw materials have increased.

• Imports of petroleum products have increased

• But imports of capital machinery and intermediate goods have decreased

• Investment in industry is declining

• Productivity is becoming limited

• If imports don't increase, long-term economic growth will come under pressure

In July, the first month of the 2025–26 fiscal year, revenue collection increased by 24 per cent compared to the same month last year.

However, there is still a shortfall of Tk 28.5 billion (Tk 2,850 crore) compared to the monthly target.

Direct taxes currently account for only 23 per cent of total revenue, while the rest comes mainly from VAT and duties, meaning the tax structure remains highly indirect.

This makes it difficult to ensure sustainable revenue growth.

• A "low base effect" due to delayed bill payments from the previous period

• High reliance on VAT and customs duties

• Monthly revenue targets are still falling short

• Low direct tax share indicates a weak tax structure

• Without tax reform, this revenue growth is not sustainable

  Source: Bangladesh Monthly Macroeconomic Update (June–July 2025): PRI; Bangladesh Bank; Bangladesh Bureau of Statistics