As the interim government marks its first year in office, Bangladesh's economic picture remains mixed – with visible gains in certain areas but persistent vulnerabilities in others.

Inflation appears to be under control, and the banking sector is gradually stabilising. The external sector has also improved, with increased dollar inflows and a halt in the decline of foreign exchange reserves.

However, key concerns such as weak investment, a stagnant private sector, and rising unemployment remain unresolved. Business leaders and economists point to a lack of transparency and inclusivity in reform efforts, which has significantly limited their effectiveness.

Despite initiatives to restore macroeconomic stability and ease external debt pressure, the broader goals of job creation and restoring business confidence remain elusive. As the country approaches national elections, pressure is mounting for a more inclusive and far-reaching approach to address the economy’s structural weaknesses.

Reform ambitions unmet

Mostafa K Mujeri, executive director of the Institute for Inclusive Finance and Development (InM) and former Chief Economist at Bangladesh Bank, told the Daily Sun that the government has made only limited progress in managing the economy over its first year. As a non-political administration, there were high expectations that it would usher in meaningful reforms.

However, Mujeri observed that no substantial reforms have been implemented. The few attempts made were poorly conceived and, in many cases, exacerbated existing problems. As a result, reform efforts across key institutions have largely failed, and the government’s overall record in economic governance remains weak.

Dr Zahid Hussain, former lead economist at the World Bank’s Dhaka office, told the Daily Sun, “The three main priorities were restoring macroeconomic stability, overcoming stagnation in employment and growth, and reforming economic policies. The interim government tried to pull the economy out of the abyss, but it has yet to bring it fully back to solid ground.”

According to him, there has been no notable improvement in employment or economic growth, primarily due to investment stagnation – in fact, investment has declined relative to previous years. Significant reforms have taken place in the banking sector, but while legal frameworks have been introduced for National Board of Revenue (NBR) reforms, implementation is still lacking. He noted that though some minor steps have been taken in the power and energy sectors, the broader renegotiation efforts required remain daunting.

Banking stabilised, but deeper issues persist

Towfiqul Islam Khan, senior research fellow at the Centre for Policy Dialogue (CPD), told the Daily Sun that some stabilisation had been achieved:

“The bleeding in the banking sector has been stopped. A degree of stability has returned to both reserves and the dollar market. Inflation is also declining – slowly but surely.”

However, he criticised the lack of improvement in domestic resource mobilisation and public expenditure management. “Project spending and scrutiny of overpricing remain below expectations,” he added.

Voices from the business community

Rizwan Rahman, former president of the Dhaka Chamber of Commerce & Industry, remarked, “After mass uprisings in various countries, inflation skyrocketed. So, it’s a positive sign that they’ve managed to keep it in check here. However, the business environment and law and order haven’t improved much – in fact, the law and order situation has worsened, despite the government’s claims of progress over the past 10 months.”

He also questioned the veracity of foreign direct investment (FDI) figures, saying: “They say FDI has increased year-on-year, but haven’t clearly shown where that investment went. Even though some governance has been restored in banking, a real sense of relief is still absent.”

Anwar-Ul Alam Chowdhury Parvez, president of the Bangladesh Chamber of Industries (BCI), painted an even grimmer picture, saying, “The situation for businesspeople is far from good. Small entrepreneurs have been virtually wiped out. Retail businesses have collapsed. No one in manufacturing is making a profit – most are operating at a loss. Everyone is drowning in debt. Many are just trying to keep their businesses alive to protect their reputation.”          

Economic indicators during the interim period

The economy under the interim government has experienced a turbulent phase. The country’s industrial base has suffered considerable setbacks, with numerous factories closing due to weak demand, high production costs, and frequent utility shortages. This has led to widespread job losses and minimal new employment opportunities.

Bank lending rates, currently hovering around 16–17%, have deterred private sector borrowing. Consequently, imports of capital machinery have nosedived, with LC (letter of credit) openings and settlements dropping by 25.41% and 25.42% respectively in FY25. Private sector credit growth also slumped to just 6.40% in June 2025 – the lowest since at least 2003.

While official figures indicate a 114% year-on-year rise in FDI in Q1 2025 – totalling $865 million compared to $403 million in Q1 2024 – much of this was due to intra-company loans and reinvestments by existing firms, raising concerns about the lack of fresh investment inflows.

Inflation control and rising poverty

The central bank, under Governor Ahsan H Mansur, raised interest rates three times to rein in inflation. These measures had some effect, with inflation dropping to 8.48% in June 2025 – the lowest since March 2023.

Despite these efforts, poverty has worsened. According to the World Bank, over 2.7 million people have fallen into poverty during the interim period – 1.8 million of them women.

Towfiqul Islam Khan of CPD reiterated, “The biggest challenge remains investment and employment. Due to political uncertainty, private sector investment is not happening. In the remainder of this government’s tenure, it is crucial to make reforms more transparent and participatory – that’s where the weakness lies.”

Growth outlook deteriorates

The Bangladesh Bureau of Statistics (BBS) estimates GDP growth for FY 2024–25 at just 3.9%. Global institutions have revised their forecasts downward – the World Bank to 3.3%, the IMF to 3.8%, and the ADB to 3.9% – all significantly lower than in previous years, although they predict improvement in 2026.

Banking sector still under strain

The banking sector remains under considerable stress, with non-performing loans surpassing Tk 5 trillion. Weak governance, poor regulatory enforcement, and inadequate reform implementation have contributed to the crisis. Merger efforts and restructuring of failing institutions have been sluggish and often politicised, further eroding public trust.

Mostafa K Mujeri remarked, “The banking sector is still as vulnerable as before. There has been little progress in strengthening weak banks.”

He also noted that the recent stabilisation in exports and remittances cannot be credited to government policy, as the decline in informal remittance channels (hundi) was mainly driven by better exchange rate alignment with the market.

“Other than some gains in remittance, there has been no significant economic advancement,” he concluded.

Anti-corruption drive stalls

Meanwhile, the interim government’s flagship anti-corruption initiative – aimed at recovering $240 billion allegedly laundered abroad during the previous regime – has largely stalled. Despite the freezing of thousands of accounts, the absence of concrete outcomes has cast serious doubt over the government's sincerity and coordination in the drive.