Economy Stabilises Unevenly as Banking Crisis Drags Growth

Bangladesh is closing out 2025 with mixed economic signals, as improved stability in the external sector contrasts sharply with deepening stress at home, where weak investment, rising bad loans and political uncertainty continue to weigh on growth.

Economists say firm policy steps have helped calm foreign exchange markets and rebuild reserves, but the wider economy remains constrained by high inflation, tight credit conditions and a fragile banking system, delaying a broad-based recovery.

The taka has strengthened notably after sliding to Tk132 per US dollar under the previous administration and is now trading near Tk122. At the same time, tighter oversight of money laundering and stronger action against illegal hundi networks have pushed more remittances into formal channels.

Remittance inflows rose by 27 percent in the last fiscal year and remained strong at over 17 percent through November 2025. As a result, net foreign exchange reserves have rebounded from around $17 billion to nearly $28 billion, with gross reserves exceeding $32 billion.

This stronger reserve position has enabled the government to clear a substantial portion of external liabilities, easing balance-of-payments pressure and improving confidence among international lenders and investors.

However, gains on the external front have been offset by mounting problems in the domestic banking sector. Non-performing loans have surged to record levels, jumping from Tk1.82 lakh crore at the end of the previous government’s tenure to Tk6.44 lakh crore within 15 months.

Although deposit inflows have shown slight improvement, liquidity remains tight, forcing banks to adopt a highly cautious lending stance. Even established firms are struggling to secure credit, sharply curbing business activity.

Uncertainty ahead of the national election has further dampened investor sentiment, pushing both local and foreign investors into a wait-and-see mode. Private sector credit growth has fallen to a historic low of 0.67 percent, down from 9.1 percent a year earlier, stalling job creation and expansion.

Economists also point to eroding confidence due to sporadic violence and attacks on institutions, which have unsettled the business community.

To combat inflation, the central bank has maintained a contractionary monetary policy for four consecutive years, driving interest rates up from around 8–9 percent to as high as 12–18 percent. While headline inflation has eased from 11.66 percent to 8.29 percent, most households have yet to feel meaningful relief.

Stagnant wages and persistently high food and energy prices have depleted savings among low-income families, pushing many deeper into debt.

The export outlook remains cautious. Imports of raw materials for export-oriented industries have fallen by 14 percent, raising concerns about weaker shipments ahead. At the same time, increased imports of industrial machinery suggest some investment in future capacity, offering limited optimism.

Economists warn that tax increases under international reform programmes have added pressure on consumers, while revenue collection continues to miss targets.

Looking ahead, policymakers face twin challenges: maintaining political stability during the election period and accelerating long-delayed banking sector reforms. Analysts say the benefits of recent stabilisation efforts will only be realised if the political transition is smooth and investor confidence is decisively restored.