Bangladesh economy struggles but to recover in next fiscal year: ADB
The effect of reciprocal tariffs imposed by the US on Bangladeshi exports and a possible economic slowdown in major export destinations may affect growth prospects, said ADB
In a sharp downgrade, the Asian Development Bank (ADB) now expects Bangladesh's economy to grow by just 3.9% in the current fiscal year, before increasing to 5.1% in FY2025-26.
The ADB also warns that the 12-month average inflation in Bangladesh is expected to rise further to 10.2% in FY25, before easing to 8% in the next fiscal.
The predictions were made by the ADB in their latest report, the Asian Development Outlook (ADO) April 2025, released today (9 April).
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Despite growth in Bangladesh's exports in the garments sector, the slower growth forecast reflects weaker domestic demand amid political transition, risks of natural disasters, industrial unrest, and high inflation. Bangladesh's economic growth was 4.2% in FY2024.
In a press conference held today, ADB Country Director for Bangladesh Hoe Yun Jeong said Bangladesh currently faces macroeconomic challenges such as a slowing economy, persistent high inflation, limited domestic revenue mobilisation, low foreign direct investment, increasing non-performing loans in banks, and insufficient foreign exchange reserves.
"Nevertheless, it is reassuring to note that the Interim Government has made macroeconomic stability a focus, alongside institutional, social, and political reforms," he noted.
"Despite external and domestic headwinds, Bangladesh's economy remains resilient, which can be fortified by implementing crucial structural reforms," he added.
On the supply side, services growth is expected to be slower due to political uncertainty, financial sector vulnerability, and reduced household purchasing power.
Agricultural growth is likely to moderate following repeated floods, while industry growth is expected to improve marginally with a rebound in manufacturing aided by export growth.
Higher election-related spending could raise inflation and the fiscal deficit. Persistently high inflation or prolonged monetary tightening may dampen household consumption and private investment, weakening growth momentum, the report said.
The ADO report also states that the enduring inflation remains a significant hurdle due to market inefficiency brought on by regulatory shortcomings, restrained competition in wholesale markets, insufficient market information, supply chain constraints, and depreciation of Taka.
Economy to rebound in the next fiscal year
Despite the gloomy short-term outlook, the ADB forecasts a modest recovery in FY26, with the country's GDP growth expected to pick up to 5.1% and inflation to ease to 8%.
This rebound is expected to be driven by rising domestic demand, easing inflation, and stronger remittance inflows, which would boost both private consumption and investment.
The report highlighted that, "Imports are expected to increase with the central bank lifting restrictions on letters of credit, and export growth will accelerate on expected recovery in the European Union, a major destination for Bangladesh's exports. Net exports are thus likely to add marginally to growth."
Meanwhile, on the supply side, higher growth in industry and services is expected to contribute to growth recovery.
The report said, "Industrial output is expected to expand as investor confidence is anticipated to improve ahead of elections scheduled between December 2025 and June 2026 and due to the interim government's implementation of the reform program."
"As recommended by a task force on Re-strategising the Economy and Mobilising Resources for Equitable and Sustainable Development, reform will enhance the business environment by increasing transparency in public procurement, streamlining regulations to promote entrepreneurship and foreign investment, and implementing targeted policies to address urgent food and energy security concerns," it added.
Regarding US-tariffs
The growth forecasts were finalised prior to the 2 April announcement of new tariffs by the US administration, so the baseline projections only reflect tariffs that were in place previously. However, ADO April 2025 does feature an analysis of how higher tariffs may affect growth in Asia and the Pacific.
ADB's Country Economist Chandan Sapkota mentioned in his presentation of the keynote paper that full implementation of the US tariffs announced in early April and further US trade policy shifts could worsen the outlook, and large uncertainties remain.
The country director noted that other RMG exporters, such as Cambodia, Vietnam, and China are facing higher tariffs than Bangladesh. Considering this, it is still too early to tell exactly how much the US tariffs will affect Bangladesh's exports to the US market, or more broadly, economic growth, he said.
"Now, regarding possible ways to mitigate the potential downturn Bangladesh needs to proactively engage and negotiate with the US, which, according to media reports, has already begun. However, more importantly, Bangladesh must diversify its products and markets for export from a medium- and long-term perspective. While engaging and negotiating with the US government is important, it is a short-term measure," he said.
