From stability to growth

Bangladesh has completed the first 180 days under the new government with a mixed record. The external sector has improved, with stronger remittances and reserves. Yet recovery remains incomplete. Investment is weak, credit growth is at a historic low, industry faces energy shortages, and household purchasing power remains under pressure. The challenge is turning stability into growth. The latest Purchasing Managers’ Index (PMI) provides encouragement. In July, the overall PMI rose from 52.9 to 57.8, while manufacturing jumped 16.6 points to 65.4. Agriculture and services also expanded. This suggests activity is picking up. But the test is whether momentum translates into investment, production, jobs and higher incomes.

That transition faces a major obstacle in unreliable gas and electricity supplies. Factories in industrial areas continue to operate below capacity. Delays can force exporters to use expensive air freight, while buyers resist higher costs. This weakens competitiveness. Exports reflect this mixed picture. Bangladesh earned $4.72 billion from merchandise exports in July, the highest monthly figure in the past 12 months. Yet this was about 1 percent below July last year, while new apparel orders declined. Bangladesh retains export capacity, but weak external demand continues to pressure exporters.

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Investment indicators are more concerning. Capital machinery imports fell by around 10.68 percent to $1.80 billion, while industrial raw-material imports declined by about 3.33 percent. Private-sector credit growth fell to 4.47 percent in June, the lowest since 1993, compared with 10.13 percent a year earlier. Entrepreneurs are hesitant to expand, while banks, burdened by non-performing loans, are cautious about lending. This makes banking-sector reform central to recovery. Non-performing loans reached nearly Tk 589,000 crore by March, almost one-third of total loans. Professional management, transparency, proper asset valuation and action against irregularities are essential. Investment-led growth cannot be sustained unless depositors trust banks and viable businesses can access credit.

Inflation has improved, with headline inflation falling from 9.16 percent in June to 8.32 percent in July and food inflation declining to 7.16 percent. Yet non-food inflation remained high at 9.28 percent. Lower inflation does not mean lower prices; it means prices are rising more slowly. With wage growth at 8.22 percent, slightly below inflation, households remain under pressure. Lower inflation will matter only when people feel relief in daily expenses.

Remittances reached $35.59 billion in fiscal 2025, registering 17.3 percent growth. Foreign exchange reserves stood at $37.6 billion on August 12, while reserves under the IMF’s BPM6 methodology reached $32.26 billion. This provides room.

But breathing space is not the same as recovery. The trade deficit reached $27.28 billion as imports increased, while much incoming foreign currency is absorbed by import payments and external obligations. The improvement in reserves has therefore bought time. That time must strengthen the productive economy. The next six months should focus on turning stability into investment and employment.

Reliable energy, productive credit, efficient import and LC facilities, a predictable exchange rate, simpler taxation and a stable business environment are essential to restore investor confidence. The reduction of the policy rate from 10 percent to 9.5 percent and the proposed Tk 60,000 crore fund for productive sectors are positive measures, but their impact will depend on a credible investment environment.

The first 180 days have created an opportunity, not recovery. External stability has improved, remittances and reserves have risen, and indicators point to renewed activity. But investment, industrial capacity, credit, employment and household purchasing power have yet to regain momentum. Ultimately, success will be measured not only by reserves or indices, but by whether factories operate, businesses invest, jobs are created, and ordinary people feel more secure.

The writer is an economic analyst