PRI flags global shocks, slowing growth and fiscal stress at macroeconomic dialogue
PRI also noted that although remittances remain strong, nearly half originate from Gulf countries, exposing inflows to risks linked to Middle East geopolitical tensions.
The Policy Research Institute of Bangladesh (PRI) today (23 April) warned that Bangladesh's macroeconomic outlook is facing mounting pressure from global shocks, slowing growth, elevated inflation and narrowing fiscal space, calling for coordinated policy reforms to stabilise the economy.
The observations came at a dialogue titled "Macroeconomic Insights: Evolving Global Landscape for Trade and Growth" organised by the Centre for Macroeconomic Analysis (CMEA) of PRI with support from the Department of Foreign Affairs and Trade (DFAT) of the Australian government at the PRI conference room.
Presenting the latest Bangladesh Monthly Macroeconomic Insights, PRI economists identified three simultaneous external shocks: Middle East crisis, impending graduation from least developed country (LDC) status and uncertainty surrounding US tariff policies as key factors shaping Bangladesh's economic outlook.
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These shocks are transmitting through energy prices, supply chains, trade flows and remittance channels, creating broad-based risks for growth and stability, they said.
According to the report, economic growth slowed to around 3% in the second quarter of fiscal year 2025-26, marking the weakest second-quarter performance since the COVID period. Development partners have downgraded Bangladesh's growth projections to around 3.8-4% for FY26 amid weak exports, energy shortages and rising production costs.
The Purchasing Managers' Index declined to 53.5 in March from 55.7 in February, signalling slower expansion. Manufacturing and construction contracted due to weaker external demand and global uncertainties, while services remained the main growth driver.
Exports contracted for eight consecutive months, falling 4.85% year-on-year during July-March FY26, reflecting subdued global demand and trade reordering amid tariff uncertainties, according to the report.
At the same time, rising global energy prices are expected to increase fuel import costs, contributing to a projected current account deficit of about 0.8-1% of GDP in FY26-FY27.
PRI also noted that although remittances remain strong, nearly half originate from Gulf countries, exposing inflows to risks linked to Middle East geopolitical tensions. Rising debt servicing obligations and import pressures are adding further strain to the balance of payments.
The financial sector remains structurally weak, with non-performing loans exceeding 30%, while credit growth remains subdued amid high interest rates and risk aversion. Increased government borrowing from banks risks crowding out private sector credit and investment, the report warned.
Fiscal pressures are also intensifying, with the tax-to-GDP ratio remaining below 7% and revenue growth constrained. The report estimates that revenue shortfall in FY26 could range between Tk 1 trillion and Tk 1.3 trillion, while rising energy subsidy requirements may increase expenditure significantly.
Energy subsidies alone could rise by more than 65% compared to the FY26 allocation due to higher global fuel prices, which may widen the fiscal deficit and crowd out development spending.
The report further warns that Bangladesh's graduation from LDC status may expose exports, particularly ready-made garments, to tariffs of 8-12% in key markets, especially the European Union, which accounts for the majority of shipments. Reduced access to concessional financing after graduation may also raise borrowing costs and debt servicing obligations.
Uncertainty surrounding US trade policy also poses risks for Bangladesh's second-largest export market, potentially suppressing garment exports and investment, according to PRI economists.
Bangladesh's high dependence on Middle Eastern energy imports for about 31% of its total need adds further vulnerability. Under severe price spikes, the energy import bill could rise from around $12 billion to $17 billion, intensifying fiscal and external sector pressures.
According to the report, inflation remained elevated at around 8.7% in March, while wage growth lagged behind inflation for more than four consecutive years, eroding real incomes. Private sector credit growth also fell to around 6%, reflecting weak investment and business confidence.
Foreign exchange reserves stood at around $29 billion, providing roughly 4.9 months of import coverage, while exports declined and import growth remained modest, indicating subdued domestic demand.
PRI economists emphasised that rising interest payments, increasing domestic borrowing and higher subsidy needs are tightening fiscal space, limiting the government's ability to respond to external shocks.
The dialogue concluded with a call for coordinated macroeconomic stabilisation policies, including strengthening revenue mobilisation, rationalising subsidies, improving financial sector governance, maintaining prudent monetary policy and accelerating structural reforms to sustain growth.
Participants at the event included policymakers, economists, diplomats, development partners and private sector representatives who discussed policy options to mitigate risks and enhance Bangladesh's resilience amid a rapidly changing global economic environment.
President of the International Chamber of Commerce (ICC) Mahbubur Rahman attended the event as the chief guest with PRI Chairman Dr Zaidi Sattar in the chair. Ashikur Rahman, Principal Economist of PRI, delivered the keynote presentation highlighting major global and domestic macroeconomic risks.
