Bangladesh’s economy trapped in three vicious cycles

Bangladesh’s economy is caught in three structural traps, according to a report by the Power and Participation Research Centre (PPRC), a private research organisation. The first is growing financial distress among households, forcing some to borrow money or deplete their savings to meet daily expenses.

The second is stagnant investment, which has slowed gross domestic product (GDP) growth. The third is a trap arising from weaknesses in the political and administrative governance system. These interconnected problems have pushed the economy into a deep crisis, the report says.

PPRC says the economy is stuck in a cycle of “high poverty, low investment and low growth”. As a result, poverty is rising, employment is becoming more uncertain, inflation remains high, debt burdens are growing and people face institutional harassment.

General citizens are bearing the brunt. Breaking these structural traps is therefore a major challenge to achieving a sustainable economic recovery, the organisation says.

These findings are presented in a research report titled The Real State of Bangladesh’s Economy: The Return of Poverty and the Dynamics of Resilience.

The report was published as a book on Saturday, ahead of the United Nations’ International Day for the Eradication of Poverty on 17 October. A book-launch event was held at the CIRDAP auditorium in Dhaka on Saturday morning.

The report is based on a survey of 8,067 rural and urban households across all eight divisions of the country, conducted in May last year. PPRC executive chairman Hossain Zillur Rahman and senior research associate Namira Shameem presented the report’s key findings at the event.

The designated discussants included Centre for Policy Dialogue (CPD) distinguished fellow Mustafizur Rahman, Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) administrator Md Fazlul Haque, ActionAid country director Farah Kabir, and Jean Pesme, the World Bank’s division director for Bangladesh and Bhutan. Syed M Hashemi, a member of PPRC’s board of trustees, delivered the welcome address.

At the event, Hossain Zillur Rahman urged the government to acknowledge the structural traps created by stagnant investment and institutions that have not undergone reform. He said household debt burdens were increasing while investment remained sluggish. The main problem, he argued, was not a shortage of money but a lack of confidence.

He identified wasteful spending as another major economic problem. “We are a poor country, yet buildings are being constructed but not used. Educational institutions are being built, but no teaching is taking place,” he said. As a result, factories have to bring in workers from abroad to operate, he added. The country must now prioritise quality education.

Explaining the first trap, PPRC said many people were unable to earn enough to cover their basic needs despite being employed. The gap between household income and expenditure has become so narrow that many families have no savings to fall back on when faced with even a minor financial shock.

According to the report, 17.97 per cent of households belong to the “fragile middle class”. Although they remain above the poverty line, their spending capacity is limited. The group comprises 31 million people, and more than half of these households have debts exceeding their savings.

The report also found that 27.93 per cent of the population lived below the upper poverty line in 2025, compared with 18.7 per cent recorded in the Household Income and Expenditure Survey in 2022. Over the same period, the extreme poverty rate rose from 5.6 per cent to 9.35 per cent.

According to PPRC’s survey, a middle-class household earns an average of Tk 32,685 a month and spends Tk 32,615, leaving just Tk 70 at the end of the month.

The poorest 10 per cent of households have an average monthly income of Tk 8,477 against expenditure of Tk 12,294. To cover the shortfall, these families have to borrow money or draw on their savings.

Meanwhile, the monthly income of the lowest-earning 40 per cent of households is less than Tk 15,000. Of their expenditure, 54.9 per cent goes towards food, leaving little for education, transport or healthcare. In the survey, 67.4 per cent of households said medical expenses were one of the main causes of their financial hardship.

PPRC described the investment outlook as worrying. Citing recent growth forecasts by the World Bank and the International Monetary Fund (IMF), the report said the economy was experiencing both slower growth and weak investment.

Both public and private investment declined in the last fiscal year. Net foreign direct investment fell by 15 per cent, with new equity investment recording the sharpest drop, at 70.3 per cent.

If the investment stagnation persists, opportunities to establish new industries, expand production and create quality jobs could become increasingly limited. Restoring investor confidence and directing more capital towards productive sectors, alongside efforts to boost growth, are therefore major economic challenges, the report says.

PPRC also noted that although small and cottage industries are widespread in Bangladesh, opportunities to develop them into larger, more productive and stable businesses remain limited. New businesses are not generating enough jobs or income. The mismatch between the skills of educated young people and the requirements of employers is making matters worse.

This creates a trap in which people may be employed but still lack the income and security needed to improve their living standards, the report says.

PPRC identified structural weaknesses in the political and governance systems as a major obstacle to achieving a lasting escape from poverty.

Between 2014 and 2024, a system characterised by weak revenue collection, debt-dependent growth, politically influenced financing and inefficient public spending became institutionalised, the report says. Much of that system remains in place even after the mass uprising.

With the tax-to-GDP ratio falling below 7 per cent, the government has less capacity to spend on development, education, healthcare and social protection. A development strategy reliant on borrowing has also increased debt-servicing costs, placing additional pressure on the budget.

The report further says that arbitrary and short-term decision-making creates opportunities for tax evasion, harassment of businesses and the extraction of undue benefits. Although institutional reform is essential to address these weaknesses, there is little appetite for such initiatives at the political and administrative levels.

Politically influenced lending and weak enforcement of regulations have contributed to rising loan defaults. The banking sector’s defaulted loan ratio reached 33.2 per cent in June 2026, according to the report.

PPRC outlined five priorities for breaking these economic traps.

First, it called for economic democratisation and fair competition for all. This would reduce dependence on preferential treatment and discretionary decisions when securing business opportunities, loans, licences, land and government contracts.

Second, it recommended developing new drivers of economic growth. Potential sectors include agro-processing, pharmaceuticals, light engineering, renewable energy supply chains, information technology, transport and logistics, and care services.

Third, the organisation called for quality education to be prioritised. It said the focus must go beyond school enrolment to include foundational learning, technical skills, digital literacy and stronger links between education and employers.

Fourth, it recommended creating pathways for small enterprises to grow into larger, export-oriented businesses.

Fifth, it called for a more efficient and accountable administration, with public services that are transparent, time-bound and integrated with digital systems.

CPD distinguished fellow Mustafizur Rahman said income inequality in the country had more than doubled and economic growth was no longer lifting people out of poverty as quickly as before. He added that harassment in various forms had driven some exporters to abandon exporting altogether.

Former National Board of Revenue chairman Mohammad Abdul Majid said the July uprising had been driven by a desire to eliminate inequality, but that goal was not translating into meaningful action by policymakers.

FBCCI administrator Md Fazlul Hoque said, “For 20 years, no sector other than the garment industry has managed to establish itself. A degree no longer guarantees a job either.”

Jean Pesme, the World Bank’s division director for Bangladesh and Bhutan, said structural changes were needed to improve trade, public finance and energy efficiency in order to address the economy’s major challenges.

ActionAid country director Farah Kabir expressed doubts about whether meaningful change was possible while corruption and harassment continued to be treated as normal.