The path ahead: Bangladesh’s roadmap to overcoming debt and boosting growth

Bangladesh, once hailed as a South Asian success story for its resilience and growing economy, is now on the brink of uncertainty.

The World Bank disclosed in 2023 that over the past decade, the nation embarked on an ambitious path of infrastructural expansion, fuelled largely by overseas borrowing, most of it from bilateral partners, international lenders, and multilateral agencies such as the World Bank and the International Monetary Fund.

During Sheikh Hasina's autocratic regime, these loans had previously promised prosperity, but in fact, they began to loom dangerously over the country's financial future.

Rahman and Sultana described in 2023 that this mounting debt burden is beginning to suffocate the economy, especially under increasingly authoritarian governments where financial transparency has declined. The weakness of the currency, combined with rising inflation and shrinking foreign reserves, has made debt repayment an increasingly difficult challenge. 

In 2023, Bangladesh Bank also indicated how the decline in export earnings, especially from the garment sector, which usually generates more than 80% of the country's foreign earnings, has made the economic situation more difficult.

While Bangladesh's overall debt level remains below some of its regional peers, economists like Ahmed have warned against the threat of a short-term external debt accumulation in 2023. 

The IMF also revealed that the country's foreign exchange reserves, once a national pride, have fallen from more than $45 billion in 2021 to below $20 billion in early 2024. Islam and Hossain discussed in detail how the government has had to negotiate emergency loans, including a significant bailout package from the IMF, to sustain business in 2023.

Its impact has reached deep into everyday life. The depreciation of the taka against the US dollar has increased the cost of debt repayment, which has put pressure on the national budget. In 2023, Hassan said the import-dependent energy sector had been severely damaged - leading to recurring power outages and the destruction of industrial productivity. 

Meanwhile, the World Bank's 2023 monitoring showed that inflation is continuing to rise, leading to rising prices of essential goods and placing a debilitating burden on ordinary citizens, especially low- and middle-income families.

Despite the damage-control measures—austerity and inflation-control policies—the outlook remains uncertain. In 2024, Chowdhury, an expert in the field, discussed that without structural reforms, increased fiscal discipline, and a diversified export policy, Bangladesh would risk falling into a similar crisis to Sri Lanka's financial collapse in 2022. 

What is needed most now is not just improved governance in debt management but a revitalised national will for economic sustainability - one that puts long-term health above short-term conditions.

Fortunately, Bangladesh fell into the hands of the world's greatest economist and Nobel laureate, Dr Yunus. As a result, the debt crisis is changing radically and dramatically. 

Dr Muhammad Yunus said, "Good economic theory should allow people to use their talents to build their own lives. We must move away from the traditional path, where the rich do business and the poor rely on private or government charities.''

In 2024, Chowdhury and the IMF argued that to keep Bangladesh out of the growing debt crisis and ensure its economic stability, several important steps must be taken. In 2023, Ahmed said that, first, the government should focus on strengthening fiscal discipline by ensuring improved budget control and reducing wasteful spending. 

In 2023, the World Bank emphasised that diversifying the export base is crucial, as reliance on the predominantly garment sector makes the economy vulnerable to changes in global markets; Building a more diversified economy will reduce risk and reduce dependence on a single industry.

The World Bank emphasised another important step back then, which is to develop local industries, especially technology and the agricultural sector, to accelerate growth in both domestic and international markets. In 2023, Hassan and Islam and Hossain also said that energy costs are increasing due to the depreciation of the taka, so it is crucial to invest in renewable energy and sustainable practices to reduce the burden of energy imports. 

In 2023, the IMF emphasised that proper governance reforms are essential, as strengthening institutional frameworks can improve debt management and transparency, building international trust. The government needs to explore new and alternative sources of financing, such as green bonds, to reduce pressure on traditional external debt.

In 2023, Ahmed argued that increasing domestic savings and improving tax revenue collection systems would provide the government with greater fiscal flexibility. In 2023, Islam and Hossain suggested that strengthening the resilience of the financial sector, especially against foreign exchange fluctuations, is another priority that could prevent further economic instability. Educating people about financial literacy and the importance of long-term savings will further increase personal financial resilience. 

In 2023, Bangladesh Bank emphasised that attention should also be paid to infrastructure development to support small and medium-sized businesses, so that they can make a more significant contribution to the economy.

Furthermore, in 2024, maintaining an open and constructive dialogue with international lenders and institutions, such as the IMF, will help ensure more favorable terms for future loans. In 2023, Rahman and Sultana said that a comprehensive plan to control inflation is crucial, as the erosion of purchasing power has far-reaching effects on daily life. 

In 2023, the World Bank said that public-private partnerships could be a way to create more sustainable investments, thereby reducing pressure on government finances. 

Finally, political stability is important; without a united effort in the political arena, meaningful reforms are likely to remain elusive. Therefore, we would like to say in the same tone: ''every challenge is an opportunity for growth, and Bangladesh's resilience will shape its prosperous future.''

Dr Tarnima Warda Andalib is working as an Assistant Professor in BRAC University, Dhaka as well as a Global Consultant Director at Oxford Impact group, UK

Dauwood Ibrahim Hassan is a member of the Marketing Department at IDLC Finance PLC, a recent graduate of Marketing and CIM,  BRAC University

Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the opinions and views of The Business Standard.