Bangladesh’s Economy: A Necessary Reset, Not a Collapse

The prevailing narrative of Bangladesh’s economic decline under its interim administration is a misreading of the data and the moment. Rather than spiraling toward collapse, the economy is undergoing a difficult but essential structural reset—one that confronts the accumulated distortions of the past and lays a foundation for sustainable growth. The current challenges—elevated inflation, banking sector stress, and moderated growth—are symptoms of this corrective process, not signs of systemic failure.

The Unavoidable Legacy of Concealed Risk

To understand the present, one must acknowledge the past. The previous administration bequeathed an economy that appeared stable on the surface but was underpinned by systemic concealment. Key institutions, particularly the financial sector, were managed for political expediency rather than economic resilience. Official data was routinely massaged, and regulators were pressured to overlook mounting risks. The result was a financial “house of cards”—characterized by artificially low nonperforming loan (NPL) ratios, unrestrained credit expansion to favored entities, and the systematic underreporting of external vulnerabilities.

This governance model delivered high growth figures but at the cost of deep-seated fragility. The current administration is not inheriting a healthy economy that it is mismanaging; it is inheriting the long-delayed bill for a decade of concealed imbalances.

Decoding the Headlines: Correction vs. Crisis

1. The Banking Sector: Honest Accounting Over Superficial Health

The alarming rise in NPLs—from over 20% in ADB assessments to more than 35% under stricter central bank rules—is not a new crisis. It is the “price of transparency.” For years, evergreening of loans, relaxed classification, and indefinite rescheduling for connected borrowers masked the true scale of distress. The current push for accurate reporting, while painful, is the first non-negotiable step toward rehabilitation. Similarly, the sharp decline in private sector credit growth to around 6.29% represents a shift from “volume to quality.” The previous era of double-digit credit growth was fueled by politically directed lending that often funded capital flight or unproductive assets, directly feeding the NPL crisis. Today’s more cautious lending signals a banking sector that is finally pricing risk, which is a prerequisite for long-term stability.

2. Growth and Inflation: Rebalancing After Artificial Stimulus

The moderation in GDP growth is a deliberate outcome of fiscal and monetary tightening designed to curb inflation and restore macroeconomic balance. It represents a “predictable cooling” after years of excess. Bangladesh’s growth resilience remains notable; even during global shocks, it outperformed most regional peers. The current slowdown is a corrective phase, not a collapse.

Inflation, while painfully high and a legitimate burden on households, requires nuanced comparison. Unlike Sri Lanka’s post-collapse low inflation enforced by an IMF program, Bangladesh’s inflation is partly structural, stemming from supply-side constraints, residual market distortions, and the lagged effects of past monetary expansion. It is a formidable challenge, but it exists within an economy that is actively building buffers, not disintegrating.

3. The Foundations of Recovery: Fiscal and External Turnarounds

The most compelling evidence of a reset lies in areas where the new administration has demonstrated tangible policy discipline:

• Fiscal Restraint: In a historic break from past practice, the government has become a net repayer to the banking system—returning over 5 billion taka (July-Oct FY2025-26) versus borrowing 150 billion taka a year earlier. This unprecedented fiscal discipline eases pressure on interest rates, unlocks liquidity for the private sector, and signals a profound shift in macroeconomic management.

• Resilient Foreign Direct Investment (FDI): Defying the typical post-transition investment cliff, FDI grew by nearly 20% in FY2024-25. This vote of confidence from multinational companies, which chose not only to stay but to reinvest earnings, underscores a belief in Bangladesh’s long-term fundamentals and reform trajectory.

• External Sector Fortification: From a low of under $20 billion, foreign exchange reserves have rebounded to over $30 billion. This recovery is fortified by record remittances of $30.33 billion (FY2024-25), driven by a crackdown on hundi networks and a realistic, market-based exchange rate. This combination provides a critical buffer against external shocks that was deliberately eroded in previous years.

The Path Ahead: From Corrective Surgery to Sustained Health

Bangladesh’s economy is in a phase of “corrective surgery.” The anesthesia has worn off, revealing the true extent of the ailment, and the procedure is underway. The immediate symptoms—pain and slower activity—are unavoidable. The alternative, however, was a far more catastrophic systemic failure.

The achievements of this reset phase are rare in any post-transition context: rapid reserve recovery, record remittances, robust FDI inflows, and demonstrated fiscal prudence. These are the early foundations of a more transparent and durable economy.

The central question is no longer about collapse, but about political will. Can the administration deepen these reforms, especially the painful but necessary cleanup of the banking sector? Can it dismantle the entrenched networks of corruption and bureaucratic rent-seeking that act as an invisible tax on growth and equity? The battle ahead is not merely technical; it is institutional and political.

The narrative of collapse is not just inaccurate; it is counterproductive. It overlooks the necessary pain of correction and the tangible progress toward stability. Bangladesh’s economy is on a path of difficult reconstruction. The task now is to see it through.

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