Saturday, 22 February, 2025
As Bangladesh grapples with an increasingly volatile political landscape ahead of the next general election, its economy stands at a critical juncture. Mounting external sector concerns, fiscal constraints, and policy uncertainties are fuelling anxiety among investors and businesses.
Bangladesh's gross domestic product (GDP) grew by 4.22% in the challenging 2023-24 fiscal year, marking the slowest expansion in four years. The final growth figure is 1.6 percentage points lower than the provisional estimate of 5.82% released by the Bangladesh Bureau of Statistics (BBS). The government had initially set a GDP growth target of 7.50% in its budget, later revising it down to 6.5%. However, the actual growth rate fell well below expectations, highlighting the country's economic struggles.
The student protests that erupted on July 1 have shaken the country, forcing Prime Minister Sheikh Hasina to flee to New Delhi by helicopter under the cover of night. The unrest has severely disrupted the domestic economy, with estimated losses in the billions, according to Zaved Akhtar, president of the Foreign Investors Chamber of Commerce and Industry (FICCI).
Bangladesh, with a population of 170 million, boasts a predominantly young workforce—67% are aged 15-64 and over a quarter fall between 15 and 29, according to the International Labour Organization. While the country has averaged 6.25% economic growth annually over the past two decades, deep-rooted inequality and poverty persist. Last year, approximately 40% of Bangladeshis aged 15-24 were neither employed, studying, nor in vocational training, highlighting serious structural issues in the labour market.
Despite macroeconomic headwinds, the external sector offered some relief in the first half of FY25. Export growth surged by 12.8%, while remittance inflows jumped by 22.7%, stabilizing the Bangladeshi Taka (BDT) and halting the decline in foreign exchange reserves, albeit with some volatility. Improved trade and current account balance, along with a more favourable balance of payments, also enabled a partial easing of import restrictions.
However, these gains remain fragile. The state of the external sector and balance of payments (BoP) by June 2025 will depend on how effectively policymakers navigate emerging challenges while leveraging key growth drivers.
Bangladesh's gross domestic product (GDP) grew by 4.22% in the challenging 2023-24 fiscal year, marking the slowest expansion in four years. The final growth figure is 1.6 percentage points lower than the provisional estimate of 5.82% released by the Bangladesh Bureau of Statistics (BBS).
Political Unrest & Economic Risks
Compounding economic challenges is an intensifying political standoff. Leading political parties are pushing for immediate elections, while the interim government, led by Dr Muhammad Yunus, insists on completing key reforms before heading to the polls.
The release of the reform commissions' full report on Sunday, however, is expected to outline immediate, mid-term, and post-election strategies. Law, Justice, and Parliamentary Affairs Adviser Dr Asif Nazrul confirmed that these recommendations will be shared with all political parties and forces supporting the July mass uprising.
This report offers a glimmer of hope, but economic uncertainties persist. The Centre for Policy Dialogue (CPD) has raised alarms over fiscal challenges, pointing to a mere 3.7% increase in revenue collection during the initial months of FY25 and an overreliance on high-cost domestic borrowing to finance the budget deficit. The think tank CPD warns that achieving the necessary 45.1% revenue growth in the latter half of the fiscal year will be difficult under current economic strategies. Rising non-annual Development Programme (ADP) expenditures, primarily due to soaring domestic interest payments, further threaten fiscal stability.
The political unrest in Bangladesh has significantly impacted the country’s economy, creating a volatile environment that threatens its growth prospects. Ongoing protests, hartals, and instability have disrupted daily life and business operations, leading to considerable economic losses. For example, a single day of hartal has been estimated to cost Bangladesh approximately $1.5 billion, as industries, businesses, and markets grind to a halt, causing severe disruptions to trade and manufacturing activities. This has undermined both domestic and foreign investment, driving uncertainty among business owners, investors, and consumers.
The state of the external sector and balance of payments (BoP) by June 2025 will depend on how effectively policymakers navigate emerging challenges while leveraging key growth drivers.
Political gridlock has fostered a sense of stagnation, further stifling economic confidence and hampering any progress toward reform. The political volatility is especially concerning given that Bangladesh’s economy is already grappling with persistent issues like high unemployment, rising inequality, and poverty, despite impressive growth in recent years. Approximately 40% of Bangladeshis aged 15-24 were neither working, studying nor training last year, a statistic that highlights the country’s deep structural weaknesses. The political instability exacerbates these challenges by eroding investor confidence, potentially leading to capital flight and a decline in foreign direct investment (FDI).
With political parties pushing for a credible election amidst the ongoing crisis, Bangladesh’s economy risks further contraction unless there is a clear resolution to the political impasse. With its young and dynamic population, Bangladesh stands now at a critical juncture, where immediate reforms and political stability are essential to secure long-term economic growth. The longer the unrest persists, the harder it will become to achieve sustainable development and ensure the country’s integration into the global economy.
With its young and dynamic population, Bangladesh stands now at a critical juncture, where immediate reforms and political stability are essential to secure long-term economic growth. The longer the unrest persists, the harder it will become to achieve sustainable development and ensure the country’s integration into the global economy.
The External Pressures
With Bangladesh set to exit the Least Developed Country (LDC) category in 2026, it faces the challenge of shifting from a preference-driven economy to one anchored in skills and productivity-led competitiveness. Encouragingly, improvements in the BoP have been driven by a narrowing trade and current account deficit rather than debt-creating financial inflows. However, persistently weak foreign direct investment (FDI) and portfolio inflows remain critical concerns.
Another challenge lies in Bangladesh’s global positioning post-LDC graduation. Remaining in the LDC category alongside war-torn Afghanistan would raise strategic and economic concerns. Additionally, efforts to recover laundered funds must be prioritized, requiring robust legal action, international cooperation, and strategic prosecution of financial crimes.
The Bangladesh economy could face significant disruption under Trump’s "America First" agenda, which may introduce tariffs detrimental to export-driven economies like Bangladesh and India. A 5% tariff hike on Bangladeshi exports—valued at $9.74 billion in 2022—could lead to an estimated annual loss of $487 million. Additionally, stricter immigration policies could curtail remittance inflows, a vital economic lifeline for South Asia. In 2023, Bangladesh received $2.6 billion in remittances from the U.S., accounting for 15% of its total inflows.
Trump, who has branded himself a "tariff man," places trade levies at the core of his economic strategy. A second Trump administration would likely pursue economic nationalism, prioritizing U.S. interests through potential tax cuts for individuals and corporations—potentially making parts of the 2017 Tax Cuts and Jobs Act permanent. Additionally, he aims to roll back regulations in energy, finance, and healthcare to lower compliance costs and stimulate economic activity.
However, most economists believe that Bangladesh will face both challenges and opportunities under a second Trump administration. The ready-made garment (RMG) sector, which accounted for 84.7% of total merchandise exports in FY23 (ERD, 2024), remains heavily reliant on low-value-added production. To climb the global value chain, Bangladesh must prioritise producing higher-value goods while strengthening both backward and forward linkages.
Although some progress has been made in product diversification, critical areas such as design, branding, sales, and after-sales services remain underdeveloped. Enhancing backward linkages is essential for increasing domestic value addition and reducing dependence on imported inputs. Furthermore, diversifying the export base is crucial to mitigating risks from potential tariff hikes. High-potential sectors such as ICT, pharmaceuticals, and agro-processing—which demonstrated strong growth in 2023—present viable opportunities for reducing economic vulnerabilities and fostering sustainable growth.
To effectively navigate the challenges posed by Trump's policy agenda, Bangladesh must adopt proactive and strategic measures. Diversifying exports, attracting foreign investment, and improving infrastructure should be top priorities. Additionally, innovative approaches are needed to promote a fair migration framework that ensures equitable benefits for both origin and destination countries, employers, and all workers—both national and migrant.
Expanding partnerships with new labour markets and strengthening domestic education and skills development programs are crucial for reducing risks and capitalizing on emerging opportunities. By fostering resilience and adaptability, Bangladesh can position itself for sustainable growth in an increasingly uncertain global landscape.
Shifting Remittance Trends and the Informal Economy
Remittances play a crucial role in Bangladesh’s economy, but their composition is shifting. While over half of Bangladeshi migrant workers moved to Saudi Arabia, remittances from the kingdom declined, whereas inflows from the UAE increased. This suggests a growing reliance on informal transfer channels, raising concerns about the transparency of remittance flows. The findings of the 2024 White Paper Committee, established by the Interim Government, could provide deeper insights into this issue.
Between 2021 and 2024, approximately 4 million Bangladeshis migrated abroad, primarily to the Middle East. Yet, this labour outflow was not proportionately reflected in remittance inflows. Despite nearly 3 million workers leaving during this period, remittance figures remained relatively stagnant—$22.0 billion in 2021, $21.3 billion in 2022, and $21.9 billion in 2023.
Looking Ahead
Bangladesh's economic future hinges on how policymakers navigate both internal and external risks. Key concerns include potential shifts in U.S. trade policy under a Trump administration, rising forex demand amid increasing imports and investments, growing pressure from Public and Publicly Guaranteed (PPG) debt servicing, and the successful implementation of a smooth and sustainable LDC transition strategy.
While reform efforts may offer a path forward, political uncertainty remains a significant wildcard. The coming months will determine whether Bangladesh can stabilize its economy and political landscape or face prolonged turbulence at a time when global headwinds and domestic challenges converge.
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As Bangladesh grapples with an increasingly volatile political landscape ahead of the next general election, its economy stands at a critical juncture. Mounting external sector concerns, fiscal constraints, and policy uncertainties are fuelling anxiety among investors and businesses.
Bangladesh's gross domestic product (GDP) grew by 4.22% in the challenging 2023-24 fiscal year, marking the slowest expansion in four years. The final growth figure is 1.6 percentage points lower than the provisional estimate of 5.82% released by the Bangladesh Bureau of Statistics (BBS). The government had initially set a GDP growth target of 7.50% in its budget, later revising it down to 6.5%. However, the actual growth rate fell well below expectations, highlighting the country's economic struggles.
The student protests that erupted on July 1 have shaken the country, forcing Prime Minister Sheikh Hasina to flee to New Delhi by helicopter under the cover of night. The unrest has severely disrupted the domestic economy, with estimated losses in the billions, according to Zaved Akhtar, president of the Foreign Investors Chamber of Commerce and Industry (FICCI).
Bangladesh, with a population of 170 million, boasts a predominantly young workforce—67% are aged 15-64 and over a quarter fall between 15 and 29, according to the International Labour Organization. While the country has averaged 6.25% economic growth annually over the past two decades, deep-rooted inequality and poverty persist. Last year, approximately 40% of Bangladeshis aged 15-24 were neither employed, studying, nor in vocational training, highlighting serious structural issues in the labour market.
Despite macroeconomic headwinds, the external sector offered some relief in the first half of FY25. Export growth surged by 12.8%, while remittance inflows jumped by 22.7%, stabilizing the Bangladeshi Taka (BDT) and halting the decline in foreign exchange reserves, albeit with some volatility. Improved trade and current account balance, along with a more favourable balance of payments, also enabled a partial easing of import restrictions.
However, these gains remain fragile. The state of the external sector and balance of payments (BoP) by June 2025 will depend on how effectively policymakers navigate emerging challenges while leveraging key growth drivers.
Bangladesh's gross domestic product (GDP) grew by 4.22% in the challenging 2023-24 fiscal year, marking the slowest expansion in four years. The final growth figure is 1.6 percentage points lower than the provisional estimate of 5.82% released by the Bangladesh Bureau of Statistics (BBS).
Political Unrest & Economic Risks
Compounding economic challenges is an intensifying political standoff. Leading political parties are pushing for immediate elections, while the interim government, led by Dr Muhammad Yunus, insists on completing key reforms before heading to the polls.
The release of the reform commissions' full report on Sunday, however, is expected to outline immediate, mid-term, and post-election strategies. Law, Justice, and Parliamentary Affairs Adviser Dr Asif Nazrul confirmed that these recommendations will be shared with all political parties and forces supporting the July mass uprising.
This report offers a glimmer of hope, but economic uncertainties persist. The Centre for Policy Dialogue (CPD) has raised alarms over fiscal challenges, pointing to a mere 3.7% increase in revenue collection during the initial months of FY25 and an overreliance on high-cost domestic borrowing to finance the budget deficit. The think tank CPD warns that achieving the necessary 45.1% revenue growth in the latter half of the fiscal year will be difficult under current economic strategies. Rising non-annual Development Programme (ADP) expenditures, primarily due to soaring domestic interest payments, further threaten fiscal stability.
The political unrest in Bangladesh has significantly impacted the country’s economy, creating a volatile environment that threatens its growth prospects. Ongoing protests, hartals, and instability have disrupted daily life and business operations, leading to considerable economic losses. For example, a single day of hartal has been estimated to cost Bangladesh approximately $1.5 billion, as industries, businesses, and markets grind to a halt, causing severe disruptions to trade and manufacturing activities. This has undermined both domestic and foreign investment, driving uncertainty among business owners, investors, and consumers.
The state of the external sector and balance of payments (BoP) by June 2025 will depend on how effectively policymakers navigate emerging challenges while leveraging key growth drivers.
Political gridlock has fostered a sense of stagnation, further stifling economic confidence and hampering any progress toward reform. The political volatility is especially concerning given that Bangladesh’s economy is already grappling with persistent issues like high unemployment, rising inequality, and poverty, despite impressive growth in recent years. Approximately 40% of Bangladeshis aged 15-24 were neither working, studying nor training last year, a statistic that highlights the country’s deep structural weaknesses. The political instability exacerbates these challenges by eroding investor confidence, potentially leading to capital flight and a decline in foreign direct investment (FDI).
With political parties pushing for a credible election amidst the ongoing crisis, Bangladesh’s economy risks further contraction unless there is a clear resolution to the political impasse. With its young and dynamic population, Bangladesh stands now at a critical juncture, where immediate reforms and political stability are essential to secure long-term economic growth. The longer the unrest persists, the harder it will become to achieve sustainable development and ensure the country’s integration into the global economy.
With its young and dynamic population, Bangladesh stands now at a critical juncture, where immediate reforms and political stability are essential to secure long-term economic growth. The longer the unrest persists, the harder it will become to achieve sustainable development and ensure the country’s integration into the global economy.
The External Pressures
With Bangladesh set to exit the Least Developed Country (LDC) category in 2026, it faces the challenge of shifting from a preference-driven economy to one anchored in skills and productivity-led competitiveness. Encouragingly, improvements in the BoP have been driven by a narrowing trade and current account deficit rather than debt-creating financial inflows. However, persistently weak foreign direct investment (FDI) and portfolio inflows remain critical concerns.
Another challenge lies in Bangladesh’s global positioning post-LDC graduation. Remaining in the LDC category alongside war-torn Afghanistan would raise strategic and economic concerns. Additionally, efforts to recover laundered funds must be prioritized, requiring robust legal action, international cooperation, and strategic prosecution of financial crimes.
The Bangladesh economy could face significant disruption under Trump’s "America First" agenda, which may introduce tariffs detrimental to export-driven economies like Bangladesh and India. A 5% tariff hike on Bangladeshi exports—valued at $9.74 billion in 2022—could lead to an estimated annual loss of $487 million. Additionally, stricter immigration policies could curtail remittance inflows, a vital economic lifeline for South Asia. In 2023, Bangladesh received $2.6 billion in remittances from the U.S., accounting for 15% of its total inflows.
Trump, who has branded himself a "tariff man," places trade levies at the core of his economic strategy. A second Trump administration would likely pursue economic nationalism, prioritizing U.S. interests through potential tax cuts for individuals and corporations—potentially making parts of the 2017 Tax Cuts and Jobs Act permanent. Additionally, he aims to roll back regulations in energy, finance, and healthcare to lower compliance costs and stimulate economic activity.
However, most economists believe that Bangladesh will face both challenges and opportunities under a second Trump administration. The ready-made garment (RMG) sector, which accounted for 84.7% of total merchandise exports in FY23 (ERD, 2024), remains heavily reliant on low-value-added production. To climb the global value chain, Bangladesh must prioritise producing higher-value goods while strengthening both backward and forward linkages.
Although some progress has been made in product diversification, critical areas such as design, branding, sales, and after-sales services remain underdeveloped. Enhancing backward linkages is essential for increasing domestic value addition and reducing dependence on imported inputs. Furthermore, diversifying the export base is crucial to mitigating risks from potential tariff hikes. High-potential sectors such as ICT, pharmaceuticals, and agro-processing—which demonstrated strong growth in 2023—present viable opportunities for reducing economic vulnerabilities and fostering sustainable growth.
To effectively navigate the challenges posed by Trump's policy agenda, Bangladesh must adopt proactive and strategic measures. Diversifying exports, attracting foreign investment, and improving infrastructure should be top priorities. Additionally, innovative approaches are needed to promote a fair migration framework that ensures equitable benefits for both origin and destination countries, employers, and all workers—both national and migrant.
Expanding partnerships with new labour markets and strengthening domestic education and skills development programs are crucial for reducing risks and capitalizing on emerging opportunities. By fostering resilience and adaptability, Bangladesh can position itself for sustainable growth in an increasingly uncertain global landscape.
Shifting Remittance Trends and the Informal Economy
Remittances play a crucial role in Bangladesh’s economy, but their composition is shifting. While over half of Bangladeshi migrant workers moved to Saudi Arabia, remittances from the kingdom declined, whereas inflows from the UAE increased. This suggests a growing reliance on informal transfer channels, raising concerns about the transparency of remittance flows. The findings of the 2024 White Paper Committee, established by the Interim Government, could provide deeper insights into this issue.
Between 2021 and 2024, approximately 4 million Bangladeshis migrated abroad, primarily to the Middle East. Yet, this labour outflow was not proportionately reflected in remittance inflows. Despite nearly 3 million workers leaving during this period, remittance figures remained relatively stagnant—$22.0 billion in 2021, $21.3 billion in 2022, and $21.9 billion in 2023.
Looking Ahead
Bangladesh's economic future hinges on how policymakers navigate both internal and external risks. Key concerns include potential shifts in U.S. trade policy under a Trump administration, rising forex demand amid increasing imports and investments, growing pressure from Public and Publicly Guaranteed (PPG) debt servicing, and the successful implementation of a smooth and sustainable LDC transition strategy.
While reform efforts may offer a path forward, political uncertainty remains a significant wildcard. The coming months will determine whether Bangladesh can stabilize its economy and political landscape or face prolonged turbulence at a time when global headwinds and domestic challenges converge.
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