New Delhi, Dec 7 (IANS) Bangladesh, once considered a poster child of development among emerging economies, now finds itself at critical crossroads. For years, the country defied odds, posting consistent GDP growth, expanding its garment exports, improving key human development indicators, and reducing poverty at a commendable rate. International observers — from the World Bank to regional think tanks — celebrated what many dubbed the “Bangladesh miracle”. However, by mid-2025, this narrative has shifted dramatically.
A confluence of structural inefficiencies, political instability, and adverse global trends has plunged the country into its most severe economic crisis in decades.
This downturn is neither sudden nor rooted in a single factor. Instead, it reflects years of deferred reforms, over-reliance on a few economic drivers, and inadequate responses to shifting global dynamics.
The symptoms are now stark: GDP growth is forecast to fall to a 36-year low, private investment has plummeted, inflation remains stubbornly high, and the national debt is mounting at an unsustainable rate. Meanwhile, declining foreign reserves, weakening currency, and strained regional relations further compound the crisis.
Adding to these economic concerns is the growing sense of political uncertainty following the controversial political changeover in August 2024. The erosion of institutional credibility, disruptions in regional diplomacy — particularly with India — and a visibly cautious private sector reflect a wider crisis of confidence. While temporary reliefs — such as the US tariff reduction on garments — offer some breathing space, they are insufficient to offset the deeper structural challenges facing the country.
The dimensions of Bangladesh’s ongoing economic crisis, viewed through the lenses of macroeconomic data, fiscal indicators, and policy analysis, are crucial. Internal vulnerabilities have been magnified by global headwinds, and without swift, coordinated, and reform-driven actions, Bangladesh risks undoing decades of hard-earned development progress.
GDP growth hits 36-year low
The World Bank’s latest economic outlook offers a grim forecast: Bangladesh’s GDP growth is expected to fall to 3.3 per cent in the 2024-25 financial year, down from the earlier projection of 4.1 per cent (World Bank, 2024). This would mark the country’s lowest growth rate in 36 years. For a nation that enjoyed 6–7 per cent annual growth rates over the past two decades, this drop is alarming.
A shrinking GDP directly affects employment. Economists warn that each percentage point drop in GDP results in the loss of approximately one million jobs. With over 60 per cent of the population under 35, such job losses could fuel a demographic crisis.
Moreover, this economic slowdown could push 3 million more people into extreme poverty, defined by the World Bank as living on less than $2.15 per day. The percentage of the population in extreme poverty is estimated to rise to 9.3 per cent, up from 7.7 per cent the previous year (World Bank, 2024).
Private Sector Paralysis: Credit growth hits decade-low
A key indicator of Bangladesh’s deepening economic crisis is the alarming stagnation in private sector investment. As of January 2025, private sector credit growth dropped to just 7.15 per cent — the lowest in a decade and well below the Bangladesh Bank’s target of 9.80 per cent (The Daily Star, 2025). This dramatic slowdown is a clear reflection of waning business confidence and deteriorating economic fundamentals under the Yunus-led interim government.
The central bank’s tight monetary policy — meant to curb inflation — has instead choked the flow of capital.
With the policy interest rate stuck at 10 per cent, borrowing costs have surged, making it increasingly difficult for businesses to secure affordable financing.
This is exacerbated by political instability and policy uncertainty in the wake of the August 2024 power shift. Entrepreneurs are unwilling to invest in an economy that offers no guarantees, no transparency, and no consistent direction (The Daily Star, 2025).
The consequences are far-reaching. Stagnant private credit is translating into reduced industrial output, fewer job opportunities, and shrinking tax revenues — pushing the country into a self-reinforcing economic decline. Rather than creating a stable investment climate, the Yunus government has paralyzed the private sector through economic mismanagement and a lack of coherent reform.
This downturn is not merely cyclical — it is structural, and deeply political. Without restoring investor confidence, reforming monetary policy, and ensuring political stability, Bangladesh risks falling into a prolonged recession. The current leadership’s failure to inspire economic resilience is not just disappointing — it is dangerous.
Export Sector: Temporary relief amid structural insecurity
The temporary reduction of US tariffs on Bangladeshi garments — from 35 per cent to 20 per cent — was touted by the Yunus-led interim government as a major diplomatic and economic win.
But this surface-level success masks the deep-rooted economic mismanagement and deceptive economic narrative promoted by Dr. Muhammad Yunus and his cronies. While big exporters like Snowtex and DBL Group reported the resumption of halted orders, the reality is far less rosy.
The Yunus administration has failed to address Bangladesh’s systemic trade inefficiencies: chaotic port operations, persistent power outages, and customs bottlenecks continue to eat away at exporters’ competitiveness. The government’s economic policy seems more like window dressing than reform — attempting to whitewash failure with short-term headlines.
Moreover, the 40 per cent value addition clause attached to the tariff cut puts many exporters in jeopardy. The government has shown no foresight in negotiating sustainable terms or supporting the industry in meeting such requirements. Worse, the burden of new tariffs, though officially on importers, is already being unfairly passed onto exporters.
Many buyers are pressuring Bangladeshi suppliers to absorb the cost, pushing factories — especially smaller ones — towards ruin.
As exposed in the University of Delaware’s 2025 Fashion Industry Benchmarking Study, 70 per cent of major US brands report rising costs, shrinking profits, and canceled orders due to these new policies. Yet the Yunus government continues to celebrate its “victory”.
Dr. Yunus’s neo-liberal legacy — rooted in microcredit mythology and donor-friendly optics — has failed the real economy. His team’s reliance on fragile trade deals, without addressing structural weaknesses, amounts to economic cheating.
This is not development; it’s deception. Unless exporters collectively resist unethical buyer pressures and the government enforces a fairer trade environment, the apparel sector — and with it, millions of jobs — will remain on the edge of collapse.
Public Debt Spiral: A looming fiscal time bomb
The public debt situation is another alarming aspect of Bangladesh’s economic crisis. As of FY 2023–24, the debt-to-GDP ratio has surged to 37.62 per cent, up from 27 per cent in 2014–15 (The Financial Express, 2025). The IMF forecasts this will rise to 40.3 per cent by 2025, inching closer to the danger zone for developing economies.
Although this figure remains below the IMF’s 55 per cent threshold, the pace of increase and the composition of the debt are concerning.
A growing share of the borrowing is non-concessional, which carries higher interest rates and shorter maturities. Much of the debt has been used to finance infrastructure mega-projects, many of which are yet to yield tangible returns.
The tax-to-GDP ratio is just 7.4 per cent, one of the lowest globally, highlighting the government’s reliance on debt rather than domestic revenue generation. Without boosting tax collection or export diversification, Bangladesh’s ability to service its growing debt burden is becoming increasingly fragile.
Bangladesh could face a full-blown debt crisis within five years if current trends continue. He cites stagnant forex reserves, low tax revenues, and poor governance as key risk factors (The Financial Express, 2025).
Inflation, Currency Instability, and Cost-of-Living Crisis
While South Asian neighbors have made strides in curbing food inflation, Bangladesh remains trapped in a cost-of-living crisis marked by poor governance and policy failures.
According to the World Bank, Bangladesh has been in the ‘red’ category for food inflation for two consecutive years—indicating persistently high prices that disproportionately affect the poor and middle class.
As of March 2025, food inflation stands at nearly 9 per cent, while overall inflation is at 9.35 per cent (Bangladesh Bureau of Statistics). By contrast, India’s food inflation has fallen below 6 per cent and Pakistan and Afghanistan have entered deflationary territory. Sri Lanka, Nepal, and the Maldives have maintained food inflation below 8 per cent.
Real-life price pressures remain severe.
The prices of essentials — rice, lentils, cooking oil — continue to climb, squeezing household budgets. At the same time, the Bangladeshi Taka has significantly depreciated against the US dollar, driving up the cost of imported goods and worsening consumer distress.
The central bank’s response — a tight monetary policy and high interest rates — has failed to contain inflation but has effectively strangled credit growth and private investment, leading to an economically counterproductive environment.
The World Bank’s food inflation index categorizes Bangladesh with struggling economies like Congo, Angola, and Ethiopia, the delayed policy action and exchange rate indecision under the previous government. The interim Yunus-led administration has acknowledged the issue, but it’s too little, too late.
Corruption, lack of market oversight, and ineffective law enforcement persist.
As millions struggle to afford basic needs, the deepening crisis exposes a glaring failure of leadership and economic mismanagement, demanding urgent, structural reforms. The economic crisis is further worsened by political instability and growing isolation from regional powers.
Since the political changeover in August 2024, relations with India have deteriorated, leading to a loss of trade advantages and regional strategic backing.
Meanwhile, China’s strategic attention has shifted towards India, especially in the wake of the US-China trade war. This has left Bangladesh isolated in regional diplomacy, reducing its leverage for favorable trade or investment deals.
Need for structural reforms and political stability
Bangladesh is at a critical juncture, facing the real risk of prolonged economic stagnation — or even a full-blown crisis — if immediate and comprehensive structural reforms are not undertaken.
To navigate this perilous path, the country must prioritize reviving private sector credit by stabilising monetary policy and reducing political uncertainty.
At the same time, reforming tax administration is essential to improving the tax-to-GDP ratio and lessening reliance on borrowing.
Bangladesh must also enhance its export competitiveness by addressing weaknesses in logistics and energy infrastructure and streamlining cumbersome regulations.
Unproductive public spending needs to be curtailed, with greater emphasis placed on high-return infrastructure investments that can drive long-term growth.
Rebuilding and strengthening international relationships, particularly with regional powers like India and key global markets such as the European Union and the United States, is equally vital.
Underpinning all these reforms is the need for a stable political environment — without which investor confidence cannot be restored, nor sustainable economic recovery achieved.
The challenges for Bangladesh are immense, and only with a decisive leadership and sound governance, it can avoid a deepening downturn and revive its path toward resilient growth.
[Dr. Sreoshi Sinha is Senior Fellow Centre for Joint warfare studies (CENJOWS) while Abu Obaidha Arin is a student at at University of Delhi]
–IANS
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