Economy at 'critical juncture' despite regaining macroeconomic stability, warns Planning Commission report

Highlights: 

• Bangladesh's economy remains at 'critical juncture' despite signs of regained stability
• GED's first State of the Economy report shows FY25 activity recovering, but challenges persist
• Report says growth projections remain lower due to political and economic uncertainties
• Adds that stronger growth depends on controlling inflation, restoring confidence and stabilising financial sector

Despite regaining macroeconomic stability, Bangladesh's economy remains at a critical juncture, according to the "Bangladesh State of the Economy 2025" report by the General Economics Division (GED) of the Planning Commission.

The first-ever GED State of the Economy report, published today (8 December), says the last six months of FY25 indicate promises for rebounding economic activity, despite ongoing challenges. 

Various projections suggested a period of slower growth, with ongoing economic and political challenges, it notes in its concluding remarks. 

Key factors influencing this outlook include political uncertainty, subdued investment and industrial activity, high inflation and external global headwinds in the context of reciprocal tariff imposition by the US, the report observes. 

Projections for FY 2025 are generally lower than previous years, with the World Bank forecasting 3.3% to 4.1% and the Asian Development Bank (ADB) projecting 3.9%, it adds.

A rebound to around 5.1% to 5.3% is anticipated in FY 2026, the GED report says.

It warns that foreign direct investment remains critically low and is expected to remain at this level in the coming months.

Years of governance failures made growth unsustainable: Planning Commission report

Subdued investment and industrial activity are cited as major contributors to slower growth. 

"We identify remittance flows, export performance and growth in the manufacturing sector as key drivers of Bangladesh's GDP growth in FY2025, and these factors are expected to contribute in FY2026."

The report highlights that the external sector demonstrated notable stability with remittance inflows. 

Import stabilisation signalled a recovery in domestic demand, while capital machinery imports showed promising rebounds, indicating renewed investment confidence, it says. 

Export performance remained solid, led by the RMG sector, which maintained global competitiveness through compliance upgrades and market diversification, it adds.

The GED notes that foreign exchange reserves stabilised at a level above three months of import coverage. 

These developments, it stresses, reflected prudent macroeconomic management and structural strengthening of the economy's external front.

Bangladesh's economy faces challenges, including limited reserves, strained investor confidence, shifting buyer preferences, and potential impacts from global trade tensions and geopolitical instability, the report cautions.

It also mentions that limited fiscal space due to a low level of revenue mobilisation hinders expected public investments. 

A provisional estimate from the National Board of Revenue (NBR) suggests a shortfall of the revenue target by a wider margin. In June, revenue collection was severely hampered by the shutdown activities of NBR officials against a decision to separate NBR into two separate divisions. 

However, good sense prevailed, and all sorts of subversive activities were withdrawn, and revenue collection resumed, the report recalls.

It says inflation remains stubbornly high, around 8-9% in FY25,  driven by food price shocks, import cost pressures (especially from a weakening taka), energy costs and supply chain disruptions.

This reduces real incomes, mainly affecting low-income and rural households, it notes. 

If Bangladesh can keep inflation under control, rebuild investor confidence and stabilise the financial sector, there is potential for stronger growth in FY2025-26, the report suggests. 

However, how much growth leads to job creation, poverty reduction and better living standards will largely depend on policy choices, including targeting inflation with accommodative monetary policy, reforming financial intermediation, implementing a more effective regulatory framework, improving governance and promoting greater inclusiveness, the GED report concludes.