Macroeconomic stability returns, recovery yet to gain pace

Highlights:

• Bangladesh inherited deep economic problems from the previous government
• BNP government stabilised reserves, remittances and the foreign exchange market
• Inflation, weak exports and rising import costs remain major concerns
• Banks still face liquidity, governance and non-performing loan problems
• Energy shortages, high costs and insecurity are hurting businesses
• Stabilisation has begun, but sustained growth remains the bigger challenge

Six months ago, the BNP government began its tightrope journey amid high public expectations but on a fragile economic foundation that had been exposed long before it took office.

Bangladesh's economy was already in deep distress when the Sheikh Hasina regime was toppled in a mass uprising on 5 August 2024. Banks were struggling with depleted liquidity, non-performing loans had piled up, exposing deep weaknesses in the financial sector, inflation was soaring, the foreign exchange market was volatile and foreign exchange reserves had fallen to uncomfortable levels.

The interim government that took over promised to restore macroeconomic stability, recover money siphoned abroad and undertake long-awaited reforms in banking, revenue, trade and other key areas to revive the economy and encourage investment. It formed several commissions, taskforces and committees, producing a substantial body of recommendations and reports. But implementation remained limited during its one-and-a-half-year tenure.

Meanwhile, a climate of uncertainty persisted. Mob violence and attacks on factories and businesses associated with the ousted political regime damaged investor confidence and added to concerns over law and order. The private sector largely held back, hoping an elected government would bring greater political stability and a more predictable business environment.

That election eventually came, and the BNP, led by Tarique Rahman, returned to power after nearly 20 years. The new government took office on 17 February, beginning its journey against an increasingly difficult external backdrop. Global oil markets were roiled by the US-Israel war on Iran, while Bangladesh's own energy crisis was deepening. As the conflict dragged on, uncertainty over energy supplies and higher import costs added to fiscal pressures and pushed up the cost of doing business.

With 180 days of the BNP government now elapsed, what does Bangladesh's macroeconomic picture look like?

There are some clear signs of improvement. Remittances have remained strong, the foreign exchange market has become more stable and foreign exchange reserves have regained a safer position. These developments have eased some of the immediate pressure on the balance of payments and external sector.

But the broader picture remains fragile. Export growth has weakened, rising import costs have widened the trade deficit, inflation remains elevated, banks continue to face liquidity and governance problems, revenue collection is growing slowly, foreign assistance is losing momentum and debt-servicing obligations are rising. In other words, some of the economy's most visible external vulnerabilities have eased, but the underlying engines of growth remain weak.

Economists caution that six months is too short a period to judge the economic performance of a new government, particularly one that inherited years of accumulated structural problems. Yet for businesses, the distinction between inherited problems and new challenges offers little relief. Their immediate concerns are mounting: a deepening energy crisis, high borrowing and operating costs, slower export orders and weak law and order are all weighing on investment decisions.

Business leaders have conveyed these concerns to Prime Minister Tarique Rahman on several occasions. The prime minister has heard them and promised to address the problems one by one. Some regulatory easing and policy initiatives have signalled an intention to make doing business easier.

But the more fundamental problems remain unresolved.

The government has therefore achieved something important in its first six months: the economy is no longer under the same degree of immediate external stress it faced after the political upheaval of 2024. Yet stabilisation is not the same as recovery. For businesses and investors, the real test will be whether the government can turn greater macroeconomic stability into lower inflation, reliable energy, easier access to finance, stronger exports and, ultimately, a revival of private investment to create much-needed jobs.

Six months into the new administration, Bangladesh appears to have moved from crisis management towards stabilisation. The harder task – putting the economy firmly back on a path of sustained growth – has yet to begin.