Rebalancing an economy under strain

Bangladesh's economy is overwhelmingly driven by the private sector, which makes the current slowdown particularly worrying. Recent quarterly GDP data show persistent weakness across manufacturing, services and agriculture, with no clear sign of a turnaround. This is not a short-term dip; it reflects deeper structural stress.

Investment has effectively stalled. The private investment-to-GDP ratio has remained stuck at 22–23% for four years, while exports have also failed to gain momentum. When both investment and exports—the economy's core growth engines—lose steam at the same time, it signals a loss of economic dynamism rather than a temporary slowdown.

The labour market tells the same story. Employment stood at around 68–70 million at the end of 2024, fluctuating within a narrow range for years. More troubling is the reversal in employment patterns. Although agriculture's share of output is shrinking, employment in agriculture is rising—an outcome that runs counter to the normal path of development.

Industrial employment is declining, and services have yet to recover meaningfully. Lacking opportunities in urban and industrial centres, workers are drifting back into agriculture, a classic sign of residual employment and low productivity. Falling real wages, weak value addition and shortages of skilled professionals further underscore the absence of a broad-based recovery. Taken together, the economy appears stuck in a stagnation trap.

Escaping this will require clear policy priorities. First, recent stabilisation measures—particularly in foreign exchange management and exchange-rate policy—must not be reversed. Second, the banking sector's deep structural weaknesses must be addressed decisively, including resolving chronically weak banks through mergers or alternative resolution mechanisms if necessary. Third, gas shortages that are disrupting production demand urgent action, through short-term imports, expanded regasification capacity and better allocation towards high-return sectors.

Debt pressures add to the challenge. External debt servicing will intensify next year, leaving little room for error. Bilateral loan rescheduling can offer temporary relief, but a hard review of the $40 billion external loan pipeline is unavoidable. Projects that strain foreign exchange without generating returns must be dropped.

Without disciplined choices and structural rebalancing, growth risks remain elusive.

Dr Zahid Hussain is the former lead economist of World Bank Dhaka Office.