Bangladesh faces fiscal, inflation pressures despite stability: govt report

Bangladesh's economy faces challenges, including limited reserves, strained investor confidence, shifting buyer preferences, and potential impacts from global trade tensions and geopolitical instability, said a government report released today.

"Limited fiscal space due to a low level of revenue mobilisation hinders expected public investments. A provisional estimate from the NBR suggests a shortfall in the revenue target by a wider margin," said the report, 'Bangladesh State of the Economy 2025' published by the General Economics Division under the Planning Commission.

The report said the last six months of the fiscal year FY25 indicate promises for rebounding economic activity, despite ongoing challenges.

"Various projections suggest a period of slower growth, with ongoing economic and political challenges," it said, citing subdued investment and industrial activity, high inflation, and external global headwinds in the context of reciprocal tariff imposition by the US.

The report said international agencies such as the World Bank forecast 3.3-4.1 percent growth. A rebound to around 5.1-5.3 percent is anticipated in FY2026.

"Foreign direct investment remains critically low and is expected to remain at this level in the coming months. Subdued investment and industrial activity are cited as major contributors to slower growth."

The GED said it has identified remittance flows, export performance, and growth in the manufacturing sector as key drivers of Bangladesh's economic growth in FY2025, and these factors are expected to contribute to FY2026.

"The external sector demonstrated notable stability with remittance inflows. Import stabilisation signalled a recovery in domestic demand, while capital machinery imports showed promising rebounds, indicating renewed investment confidence," it said.

Foreign exchange reserves stabilised at a level above three months of import coverage, it said, attributing this to prudent macroeconomic management and structural strengthening of the economy's external front.

The report, however, said stubbornly high inflation reduces real incomes, mainly affecting low-income and rural households.

"If Bangladesh can keep inflation under control, rebuild investor confidence, and stabilise the financial sector, there is potential for stronger growth in FY2025-26."

Many forecasts expect such a rebound. However, how much growth will lead to job creation, poverty reduction, and better living standards will largely depend on policy choices, including targeting inflation with accommodative monetary policy, reforming financial intermediation, implementing a more effective regulatory framework, improving governance, and promoting greater inclusiveness.