An incomplete and frequently misleading picture of Bangladesh’s actual economic trajectory is provided by the recent wave of pessimism that has been roiling the country’s economy under its interim administration, which is largely amplified by carefully framed local commentary. The headline indicators, which show a need for structural correction as opposed to an economic collapse, overstate much of this concern.
Although a battered banking sector and higher inflation are real, serious challenges, they do not constitute free fall evidence.
A more in-depth analysis, which takes into account both the disruptive legacy of the previous administration and the remedial steps taken in response to the political transition, reveals a challenging but necessary period of structural rebalancing.
The claim that the new government is inherited a sluggish economy ignores the fact that the previous administration left behind a financial system supported by fabricated data and systematic risk concealment.
Ignoring Bangladesh’s longer arc of resilience in South Asia would be misleading to describe the current economy as stagnant. Russia-Ukraine war and COVID-19, both of which caused global shocks, saw stronger growth than most of its regional neighbors.
It registered 3.5 percent growth in 2020, followed by 6.9 percent in 2021 and 7.1 percent in 2022. The deliberate fiscal tightening that has helped to restore macroeconomic balance after years of decline reflects today’s slower growth.
This is the predetermined cooling that occurs after the artificial stimulus ends rather than a sign of decay.
An even more revealing story emerges from the concern for non-performing loans and credit in the private sector, not a result of new stress but rather of long-buried flaws that have been finally exposed.
A long-overdue commitment to honest accounting is responsible for the alarming rise in nonperforming loans, which range from over 20% in ADB assessments to more than 35% under the central bank’s revised classification rules.
The previous regime reportedly put years of pressure on regulators to relax classification standards, ease defaults, and permanently extend loan rescheduling. A banking industry that appeared to be healthy but seemed to be deteriorating all at once.
Faceing the real world of the system is therefore the price of the rise in nonperforming loans.
It is also important to understand the contraction in private credit growth, which fell to 6.29 percent in the late 2025 period. Massive, politically motivated borrowing that did little to increase the previous double-digit credit growth fueled the ballooning nonperforming loan crisis.
Many of these loans, according to reports, were funneled into offshore real estate or offshore accounts without ever being paid back. Banks today are more cautious, with credit flowing into less vulnerable areas of the economy.
Although lending has decreased, the quality has increased. On top of a mountain of bad debt, an economy cannot support sustained growth. Instead of a decline in investment appetite, the current adjustment reflects a shift toward stability.
The financial sector’s overall adjustment is only one-third of what is being corrected. The transformation that is taking place in the fiscal and external sectors is the most important refutation of stagnation claims. The government has sharply reverted the long-standing practice of taking large amounts of money from the banking system in an unusual display of discipline.
In contrast to the more than 150 billion taka ($1.23 billion) borrowed during the same time a year earlier, it repaid more than 5 billion taka (roughly $40.9 million) to banks between July and October of the 2025-26 financial year.
Economists note that this change eases the pressure on interest rates and frees up more liquidity for private borrowers, breaking a significant trend that the state has historically followed.
This action represents a significant shift toward stability for a nation that has long been accustomed to fiscal indolence.
A similar story is told in opposition to what foreign direct investment (FDI) suggests. Bangladesh’s FDI increased by nearly 20% in the fiscal year 2024-25, in contrast to the assumption that political upheaval dissuades investors.
This is unusual for a post-transition economy that has experienced a significant uprising that resulted in more than 1,400 deaths. Foreign investment levels in countries that have experienced political uprisings typically decline sharply for years.
Global businesses continued to exist in Bangladesh while also reinvested their profits. This indicates a greater sense of confidence in the nation’s long-term prospects.
The external sector has probably experienced the most significant change. Foreign currency reserves have stabilized and strengthened after months of steady erosion, rising from less than $20 billion in mid-2019 to more than $30 billion in 2024.
Remittances increased to a record $ 30.33 billion in the 2024-2005 fiscal year, an increase of 26.8% based on renewed confidence in the formal financial system, money laundering prevention, and return to a market-based exchange rate.
Expatriates who previously relied on hundi networks are now able to send money legally in response to a more rigourous and predictable currency system. One of Bangladesh’s strongest macroeconomic buffers in years is the combination of rising reserves, significant remittance inflows, and exchange-rate stability.
Rightfully so, inflation continues to be the most important issue. The pressure on cost-of-living is severe because rates are above 8%, which is higher than any other South Asian nation.
Comparisons again call for nuance, though. Following a complete economic meltdown and draconian monetary tightening under the auspices of the IMF, Sri Lanka’s inflation rate is low.
Bangladesh’s inflation is structurally different, largely due to supply chain constraints, persistent market distortions, and subsequent effects of earlier monetary expansion. It’s challenging, but not unstable.
Similar to a limited-sample private study, which yields the poverty rate of 28 percent frequently cited by critics. Even with inflation, according to projections from the World Bank, poverty is likely to continue to decline modestly this year.
The battle is not just about preserving growth rates; it also involves eradicating bureaucratic bottlenecks, extortion networks, and bureaucratic squabbling that have been a source of invisibility for the poor for years.
After more than a decade of rule that preferred cosmetic stability to institutional stability, Bangladesh’s economy is not collapsing; instead, it is going through a challenging but necessary reconstruction.
The presence of high structural issues is a sign that the economy is finally confronting structural issues. Slower credit growth, higher interest rates, and persistent inflation are just a few examples. That conflict was overdue and inevitable.
Instead, a number of accomplishments are unheard of in a post-transition economy: a sharp rebound in reserves, a record rise in remittances, nearly 20 percent FDI growth, and an unheard-of example of fiscal restraint.
These serve as the foundation for a more objective, long-lasting economic future, not stagnation markers. The political will that Bangladesh has to implement reform, particularly in the banking sector, will determine whether it succeeds. Today’s economy has a story of corrective surgery rather than collapse. The main question is whether the nation will be able to complete the operation.
Source: Aljazeera
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