Economic Downturn

Bangladesh has achieved significant economic and social progress since 1971. However, lack of transparency in public policy, political instability, weak democratic institutions, and political economy dynamics have posed uncertainties over time. The recent political turmoil in the country has given rise to uncertainty and has had a profound impact on the country’s economy.

The latest World Bank Development Update on Bangladesh cited that the economic growth slowed due to high inflation, a balance of payments deficit, and persistent financial sector challenges. Average inflation during FY24 was 9.7%, which is expected to remain high in the short term. The World Bank indicated that economic growth has not produced enough jobs, especially for youth, women, and an educated workforce. There are around 2,40,000 new unemployed individuals, while total unemployed individuals are around 2.59 million. Income inequality increased from 0.50 in 2010 to 0.53 in 2022, suggesting deepening inequality, particularly in urban regions. Data from the central bank indicates that the current account deficit stood at $552 million during July of fiscal year 2024-25. The service account deficit increased from $ 2.07 billion to $ 2.64 billion during this period.

Bangladesh’s economic progress in recent decades was largely attributed to its booming garment industry, remittance inflows, and expanding services sector. However, excessive dependence on only these sectors creates an unbalanced economic structure that becomes highly vulnerable to external shocks. Other sectors cannot be developed over time, restricting economic flexibility and resilience.

Revenue collection missed the target of the International Monetary Fund (IMF) during July-December of the current fiscal year. The government collected Tk 162,892 crore in total revenue from the National Board of Revenue (NBR) and non-NBR sources. Hence, the IMF target to collect Tk 215,120 crore could not be achieved, and a revenue gap of Tk 52,228 crore occurred. The IMF mission has called for rationalizing tax exemptions, improving compliance, and separating tax policy from tax administration to create a more efficient revenue collection mechanism.

Moody’s Rating has downgraded the banking system of Bangladesh from ‘stable’ to ‘negative,’ stating rising asset risks and poor economic situations. The report pointed out that deteriorating asset quality, high inflation, and poor economic growth have negatively affected banks’ profitability and financial stability. Banks face a liquidity crisis as past government and affiliated businesses misused banking policies to secure large amounts of loans. Due to the liquidity crunch, banks could not make new investments or remain cautious about providing new funds to businesses. Hence, business growth was affected.