Bangladesh Economy Stable Despite Internal Challenges

The latest monthly economic update by the General Economics Division (GED) under the Planning Ministry said inflation declined to 8.29 percent in August, the lowest since July 2022, after months of volatility that saw double-digit inflation from July to December 2024.

Non-food inflation dropped below 9 percent for the first time in 20 months, helping offset a marginal rise in food prices.

Food inflation stabilised at 7.6 percent for three consecutive months, a sharp improvement from the 14 percent peak in July 2024.

Rice remains the single largest driver of food inflation, contributing 48.37 percent in August. Government procurement of 1.7 million tons of Boro rice, imports of half a million tons duty-free and higher distribution under public food schemes are expected to ease prices in the coming months.

Still, GED noted that delays in real-time monitoring and policy response prevented earlier stabilisation.

The report highlighted a robust performance in the external sector. Export earnings consistently crossed the $4 billion mark, hitting $4.77 billion in July 2025.

The exchange rate remained stable at Tk 121–122 per USD, while foreign exchange reserves climbed from $24.86 billion in September 2024 to $31.17 billion in August 2025. This, according to GED, provided a solid cushion against trade shocks and debt obligations.

Despite positive external indicators, the domestic financial sector showed deep stress. Private sector credit growth plunged to 6.49 percent in June 2025 — the lowest on record and far short of Bangladesh Bank’s target.

Businesses remain reluctant to borrow amid high interest rates, political and economic uncertainty, and cautious bank lending.

By contrast, public sector credit rose sharply by 13.09 percent, driven by the government’s heavy reliance on bank borrowing to finance its fiscal deficit.

This trend, GED warned, is effectively “crowding out” the private sector and undermining future investment and job creation.

Revenue collection in August stood at Tk 27,162 crore, falling Tk 3,727 crore short of the target. While collections grew 17.6 percent year-on-year, the shortfall was mainly due to weaker import and income tax receipts.

Only VAT at the local level showed improvement. The report flagged persistent revenue gaps as a key challenge in meeting the ambitious annual target of Tk 4,99,000 crore.

Development spending remains another weak spot. ADP utilization dropped to 2.39 percent of allocation in the July–August period of FY26, down from 2.57 percent in the same period last year.

Although August utilisation improved slightly year-on-year (1.71 percent vs 1.52 percent), GED noted that such low early-year implementation reflects structural bottlenecks, bureaucratic delays, and poor fund release capacity, raising the risk of back-loaded spending and inefficiency.

While the decline in inflation and strengthening of reserves signal macroeconomic stability, GED cautioned that the domestic economy faces significant headwinds. Weak private investment, revenue shortfalls, and under-utilisation of development funds threaten to slow growth momentum, reports UNB. 

“The economy is showing resilience externally but risks remain high domestically. Without urgent measures to stimulate private credit, enhance revenue collection, and accelerate ADP implementation, medium-term growth prospects may weaken,” the report said.