Years of governance failures made growth unsustainable: Planning Commission report

The General Economics Division (GED) of the Planning Commission today (8 December) released its first-ever State of the Economy report, detailing how prolonged authoritarian governance, institutional decay and economic mismanagement pushed Bangladesh's growth model into deep crisis and ultimately triggered widespread socio-economic disruption.

According to the report, after steady progress for decades since the 1990s, serious vulnerabilities gradually emerged across the macroeconomic, financial and external sectors. 

Rising inequality, soaring capital flight, a collapsing financial system and shrinking investor confidence eventually contributed to the student-led mass uprising of July 2024, marking a defining shift in the country's political and economic direction, it notes.

'Interim government inherited an economy in distress'

The report says that when the interim government took office following the uprising, it faced an economy under severe strain – inflation was high, the exchange rate volatile, foreign reserves low and the banking sector weakened by widespread money laundering and chronic governance failures.

To restore stability, the government adopted a tight monetary policy, urgent fiscal consolidation and strict expenditure controls, the "Bangladesh State Of The Economy 2025" report mentions. 

A temporary freeze on non-essential public spending created fiscal space to redirect resources toward health, agriculture and social protection, the report adds.

As part of stabilisation efforts, authorities introduced a pegged exchange rate, market-based interest rates, tight monetary conditions and restrictions on importing luxury goods. 

By mid-2025, inflation had eased and the exchange rate stabilised, the report says. 

However, persistent revenue deficits forced heavy government borrowing from commercial banks, partially crowding out private sector credit and limiting fiscal space for social investments, it adds.

Major structural overhaul in revenue administration

The GED report says that to address decades-old weaknesses in revenue mobilisation, the interim government dismantled the National Board of Revenue (NBR) and established two new divisions: Revenue Management and Revenue Policy. 

Work is underway to automate tax and revenue systems to improve transparency and efficiency, it adds.

Banking sector scrutiny and reforms 

The report highlights years of unchecked non-performing loans, political interference and weak supervision that left the banking system extremely fragile. 

Bangladesh Bank has since been granted greater autonomy, and reforms are underway to strengthen oversight, enhance risk management, and recover defaulted and stolen assets, it mentions. 

Several weak banks are being merged to protect depositors, the report notes.

Long-term transformation

The report says that looking beyond immediate stabilisation, the interim government aims to steer the economy towards more resilient and inclusive growth. 

A high-level task force has prepared a comprehensive document that will guide future structural reforms, while the GED will use these findings to redesign long-term economic strategy, it adds.

Bangladesh remains heavily dependent on ready-made garments and remittances. 

As part of its smooth LDC graduation strategy, the government is prioritising industrial diversification, export expansion and human capital development, the GED report says. 

It also highlights that Bangladesh secured a reduction in reciprocal tariffs with the United States, from 35% to 20%, aligning with global competitors. 

An investment summit held in April showcased new opportunities for foreign investors, it notes.

Real sector 

Bangladesh's real sector experienced mixed outcomes in 2024–25. 

While GDP growth strengthened after the political turbulence of FY24, sectoral performance remained uneven, and inflation, though easing, continued to pose risks.

GDP growth 

GDP growth fell to 2.1% in Q4 FY24 and 2% in Q1 FY25 due to political instability. Agriculture grew only 0.76%, while industry (2.44%) and services (2.41%) saw subdued expansion, according to the report.

It says growth rebounded sharply in Q2 FY25, led by manufacturing. 

Industry grew 7.1%, driven by manufacturing (8.49%), mining (8.01%) and retail trade (6.63%), it adds. 

The momentum carried into Q3, when industry expanded 6.91% and services 5.88%, pushing GDP growth to 4.9%, the report notes.

Inflation eases but rice prices a major threat

In the report, the GED says inflation, heightened since the Russia-Ukraine war and the 2022 fuel price hike, remains a central concern. 

Food inflation stayed above 10% from mid-2023 to early 2025.

Food inflation fell from 14.10% (July 2024) to 8.93% (March 2025). Headline inflation declined to 8.48% in June 2025, the lowest in two years, the report highlights.

But rising rice prices threaten stability, it says. Medium rice contributed 24% to July food inflation, while coarse rice contributed 12-18%. 

All varieties recorded inflation above 15% in June. Flood-related production losses in Aus (–0.85%) and Aman (–6.04%) reduced supply.

The government is considering fast-tracked grain imports, expanded OMS operations and timely agricultural input distribution, the report says.

Industrial production sustains growth

Industrial production grew year-on-year in nine of 10 months, peaking in October (11.39%) and December (10.36%). A brief dip in August (–1.13%) did not disrupt the broader upward trend, according to the report.

Labour market remains weak

Educated unemployment rose to 13.54% in 2024, while informal work accounted for 84% of total employment. 

The report says sectoral mismatches remain stark:

• Agriculture: 11.15% of GDP, 37% of employment
• Industry: 37.37% of GDP, 17% of employment

Manufacturing's share of economic units fell from 11.54% (2013) to 8.77% (2024). 

Meanwhile, women's share in industry plunged from 40% to 17%.

Migration volatile as key markets tighten rules

Over 16.5 million Bangladeshis work abroad, but more than 60% are low-skilled, the report mentions.

Dependence on a few destinations, such as Saudi Arabia, Qatar and Singapore, creates vulnerability, it says. 

Saudi Arabia reduced recruitment by 64% in early 2025 due to stricter visa rules, while several countries imposed restrictions citing governance issues.

Migration partially recovered by May 2025, but high migration costs (often above $3,000) remain a burden, the GED notes.

Private investment, NPLs

Private investment has stagnated at 22–24% of GDP for a decade, the report highlights. 

Private sector credit growth fell to 9.84% by June 2024.

Non-performing loans (NPLs) rose to about 25% of total loans by July 2024, while capital flight reduced domestic investment.

Labour productivity remains among the lowest in South Asia at $8.7 per hour, far behind Vietnam, China, India and Sri Lanka.

Employment, stabilisation measures

Since August 2024, the interim government has emphasised stabilisation and job creation, says the report. 

Funding for labour programs rose to Tk4,171 crore in FY25–26, accounting for nearly 37% of the labour budget.

Skill programs have expanded for both domestic and overseas markets, the report says, adding that Bangladesh Bank has scaled up refinance schemes for agriculture, cottage industries and SMEs.

The government also formed a Labour Reform Commission in April 2025 and restructured the Bangladesh Investment Development Authority (Bida) to improve the business environment.

Macroeconomic stability 

The report says key indicators point to gradual stabilisation:

• Foreign reserves recovered to $30.08 billion (August 2025)
• Inflation fell from 11.66% (July 2024) to 8.55% (July 2025)
• Current account posted a $33 million surplus in H1 FY25
• Banking sector liquidity improved to 13% by April 2025

Outlook

Bangladesh enters FY26 with cautious optimism, says the report. 

A stable exchange rate, easing inflation, stronger reserves, and modest export and remittance growth support a recovery trend, it adds. 

The GED notes that a smooth democratic transition is expected to boost investor confidence.

However, the report warns that high rice prices, skill shortages, low productivity, weak industrial capacity and political uncertainty pose significant risks. 

Sustained reforms, strong safety nets and investment in human capital will be crucial to maintaining momentum, it says.