Although declines in various economic indicators have been prevented, and risk levels have been reduced during the past year under the interim government, the economy and business sectors are not yet entirely free from pressure, and there remains discomfort in several areas.
Business and investment continue to face a degree of uncertainty, particularly due to national politics and upcoming elections. Adding to the challenges, the US has recently imposed counter-tariffs on Bangladeshi exports.
On the positive side, the dollar crisis has eased thanks to steady growth in remittance inflows and export earnings, leading to improvements in the foreign exchange reserve situation.
Import restrictions have helped to rein in inflation, which in turn has stabilised the reserves. Reforms in the banking and financial sectors have also been initiated. The central bank is actively working to revive banks that collapsed due to irregularities and corruption during the previous administration. However, several banks are still in poor condition.
On the negative side, the situation regarding investment and employment has seen little improvement. Although inflation has decreased slightly, it remains above 8 per cent, continuing to burden the poor and low-income population. Meanwhile, revenue collection has shown no significant progress. The government’s foreign debt repayment crossed $4 billion in the last fiscal year, creating new pressure on the economy.
Over the past year, the interim government has formed a white paper drafting committee to assess the state of the economy, along with several task forces and committees on revenue and statistics. However, the government has shown limited enthusiasm in fully implementing the recommendations made by these committees.
Speaking to Prothom Alo, Zahid Hussain, former lead economist at the World Bank’s Dhaka office, said: "A year ago, the economy was at the edge of a cliff. Now, we’ve moved slightly away from that edge. While some reform efforts have been launched across sectors, many of them remain unimplemented due to various complexities."
Zahid Hussain categorised the economic evaluation of the past year into three parts: Macroeconomic instability has been brought under control, inflation has eased somewhat, but not enough to bring relief and the banking sector remains in distress, though the "bleeding" has stopped—there is no longer a sense of panic.
He added that stagnation in investment and employment continues, with no significant improvement in those areas.
What it was like a year ago
In the final years of the Awami League government, the country's economy faced a series of crises. Particularly in its last two years, the economy was in decline. A severe dollar crisis, banking sector looting under the guise of loans, and capital flight significantly deepened the economic wounds. During that time, double-digit inflation caused considerable hardship for ordinary people.
A handful of businesses and associates of those in power benefited from nepotism and interest-driven policies. The Awami League government left office with outstanding loans totaling nearly Tk 18 trillion. Except for remittance and export earnings, almost all other economic indicators were on a downward trend. The interim government inherited an economy that was largely dysfunctional and in disarray.
What has happened in one year
One of the biggest challenges for the new government was controlling inflation. The government increased interest rates and imposed import restrictions to curb inflation—measures that had some success. Over the year, overall inflation dropped from 12 per cent to single digits, and food inflation fell from 14 per cent. However, overall inflation still remains above 8 per cent.
Despite efforts, market monitoring remains weak, and extortion on roads has not been stopped—only the players have changed. Middlemen continue to dominate, and law and order issues remain unresolved, particularly affecting business and the industrial sector, including the ready-made garments industry. The investment and employment situation has shown little improvement. The new government held a high-profile investment summit, but it hasn’t led to meaningful change.
According to data from the Bangladesh Bureau of Statistics (BBS), public investment as a share of GDP declined in the 2024–25 fiscal year, compared to the previous year. The private investment situation has deteriorated even further. As of December, BBS reports over 2.73 million unemployed people, with the highest unemployment rates among the youth population. In addition, around 10 million people are considered underemployed or pseudo-unemployed, meaning they haven’t found jobs matching their qualifications.
A new source of pressure on the economy is foreign debt repayment. Major projects like the Metro Rail, Karnaphuli Tunnel, Third Terminal of Hazrat Shahjalal International Airport, and Padma Bridge rail link have entered the repayment phase. As a result, in the last fiscal year, foreign loan repayments exceeded USD 4 billion for the first time, which was almost half of the total foreign loan disbursement. Most disbursements came from the ADB, World Bank, and Japan, while India, China, and Russia did not make any new loan commitments.
The revenue sector has further worsened. Last fiscal year, the government reported a record deficit of Tk 920 billion, the highest ever. Efforts to reform the revenue sector triggered major protests within the National Board of Revenue (NBR), bringing operations to a halt for around six weeks. These protests, along with mass uprisings in July–August and political uncertainty, caused a significant slowdown in business activity.
As a result, revenue collection fell far short, and the government failed to meet IMF’s conditions on tax and tariff collection. Long-standing problems such as weak revenue capacity and a narrow tax base still persist.
In the last fiscal year, Annual Development Programme (ADP) implementation was the lowest in the past 20 years—only 68 per cent of the ADP was executed in 2024–25. Low ADP implementation negatively impacts employment generation.
Reform in banking sector
The banking sector was the worst victim of looting during the rule of the ousted Awami League government. Chattogram based S Alam Group took control of several banks indirectly backed by the then government. The group siphoned off Tk 2 trillion from these banks and allegedly laundered most of those abroad.
With these loans defaulting, the total defaulted loans have reached over Tk 5.25 trillion, which is also a new record.
After Ahsan H Mansur took charge as the governor of Bangladesh Bank, the boards of 14 banks controlled by Awami League-backed businessmen were dissolved. Although irregularities in these banks stopped, no effective measures were seen to recover the money embezzled in the name of loans. However, initiatives to prevent money laundering and make the dollar rate market-based have increased remittance inflows through legal channels.
Besides, initiatives have been taken to amend several laws to prevent irregularities in the banking sector. However, none of those have been implemented. Apart from that, a new initiative is underway to merge five weak banks. The assets of these banks have been assessed by foreign firms, something that has never happened before. However, it is still unclear when the banks will be merged.
Positive trend in remittance and exports, reserve grows
There has been a notable decline in money laundering since the fall of the Awami League government. Subsequently, the remittance inflow increased by USD 500 million every month on average. Although many factories have been shut down, exports are still on the rise.
In the outgoing 2024–25 fiscal, expatriates sent a record USD 30.33 billion from abroad. This was about USD 6.5 billion or 27 per cent more in remittances than the previous fiscal.
According to the figures of the Export Promotion Bureau, products worth USD 48.28 billion were exported in the 2024-25 fiscal, 8.58 per cent more than the previous fiscal. However, there are also concerns among the exporters, including RMG owners, centering newly imposed tariffs by the US government.
When the supply of dollars increases and dollar expenditure (import costs and foreign debt repayment) decreases, reserves grow. In the last fiscal, the settlement of letters of credit (LC) for importing capital machinery dropped by 25 per cent. Imports of intermediate and finished products also declined. This means the dollar expenditure for import bill payments has decreased.
According to the Bangladesh Bank, the country’s forex reserve increased to 31.77 billion at the end of June, the highest in the last 285 months. At the end of June, reserves stood at USD 26.74 billion according to IMF’s BPM6 standards. The reserve amount was USD 20.48 billion on 31 July 2024.
Additionally, after four years, the overall balance of payments recorded a surplus of USD 3.29 billion in the last fiscal. On a current account basis, the deficit of USD 6.51 billion from the previous fiscal turned into a surplus of USD 980 million last fiscal. This also led to a reduction in the trade deficit.
Investors lack confidence in the interim government
“The interim government’s tenure is short, so domestic and foreign investors have less confidence in investing in them,” said Abul Kasem Khan, former president of Dhaka Chamber and director of A K Khan Group.
Speaking to Prothom Alo, he said, “If there is a political government, entrepreneurs can stay assured for at least five years. The current government has set a timeline for elections. Therefore, investors will now start reconsidering their decisions.”
“The instability in the dollar, reserves, and banking sector has been stabilised. This has eased the fears of businesspeople. However, this government is focusing on reforms. But strong initiatives for reform in the economy and trade have not been seen. For the reform of these sectors, regular dialogues with businesspeople and other stakeholders should take place,” he added.