Cautious optimism for Bangladesh in 2026 amid economic challenges

Bangladesh enters 2026 with cautious optimism. Early signs of macroeconomic stability, strong remittance inflows, and a slowly recovering global economy provide hope for a more dynamic year ahead. Business leaders and economists are particularly looking to the national parliamentary elections in February, expecting a new government to potentially break the investment stagnation that persisted through 2025.

Despite this optimism, the economy faces a dual reality. Long-standing structural weaknesses including stagnant private investment, a stressed banking sector, and constraints in energy and infrastructure could still trap Bangladesh in a "stagnation trap" if these issues are not addressed alongside political changes.

The economy remains largely private-sector driven, yet recent quarterly data show no clear recovery in manufacturing, services, or agriculture. Over the past four years, the private investment-to-GDP ratio has hovered at 22–23%, insufficient to drive high growth or generate adequate jobs. 

Export growth has also remained sluggish. With both investment and exports—the two engines of economic growth—weak, structural vulnerabilities are increasingly apparent.

Dr Mashrur Riaz, Chairman of Policy Exchange Bangladesh, told TBS, "Assuming that a democratically elected government will automatically boost investment is a misconception. Political stability alone cannot attract investment if structural gaps in production and trade remain."

The labour market also raises concerns. Overall employment has remained around 68–70 million, but the quality of jobs is shifting in the wrong direction. Jobs in industry and services are declining, pushing labour back into low-productivity agriculture. This trend signals stagnant wages, limited income growth, and lower overall productivity.

Weak business and investment conditions are at the heart of this stagnation. High taxes, complex licensing procedures, slow regulatory decisions, weak contract enforcement, and ineffective dispute resolution undermine investor confidence. Industrial land shortages, unreliable energy supply, and high logistics costs further raise production expenses. Consequently, even with political stability, investment is unlikely to surge immediately.

However, a credible and democratically elected government can create a foundation for recovery. Policy predictability, consistent decision-making, and institutional trust encourage long-term planning and investment. The pace of investment revival in 2026 will depend on how quickly and decisively the new government implements structural reforms.

The banking sector remains a critical risk. Non-performing loans are near 35%, liquidity is tight, and governance weak. Forced bank mergers may offer temporary relief, but without transparency and accountability, depositor confidence will not return and its impacts maybe felt in 2026. Public finances are also under strain, with a tax-to-GDP ratio of only 7%, while servicing foreign debt remains a challenge. Careful evaluation of new projects' foreign currency earning potential and "cleaning up" nearly $40 billion in pipeline projects will be crucial.

There are positive signs amid the challenges. Remittances exceeded $30 billion in 2024–25 and could remain stable if banking discipline is maintained. Tasneem Siddiqul, founding chair of the Refugee and Migratory Movement Research Unit, told TBS, "Remittance sustainability depends on a transparent and credible banking system. If trust falters, informal channels like hundi will rise, posing serious economic risks."

Energy sector improvements also offer hope. Nuclear power projects and new solar and renewable energy tenders could reduce production costs over time. Dr Zahid Hossain, former lead economist at the World Bank in Dhaka, emphasized that short-term import-based energy solutions and expanded regasification capacity are essential, alongside bold policy decisions on household gas usage.

Overall, Bangladesh's economy in 2026 is expected to be at a stage of "cautious optimism." Strong banking reforms, investor-friendly policies, energy security, simplified taxation and trade, and institutional governance could break the stagnation. Without these, even political stability may not prevent the economy from remaining in slow-growth mode.

DCCI President Taskeen Ahmed said, "From 2026 onwards, sustained improvement will require policy consistency, predictable regulation, and stable governance. Banking reforms, automated taxation, better logistics, and improved administration can reduce business costs and enhance competitiveness. If reforms accelerate, Bangladesh can enter 2026 with a more resilient economy, stronger investor confidence, and a more attractive business ecosystem."