The recent wave of pessimism surrounding Bangladesh’s economy under its interim administration, much of it amplified by selectively framed local commentary, offers an incomplete and often misleading portrait of the country’s actual economic trajectory. Much of this concern is overstated, as the headline indicators reflect a necessary structural correction rather than an economic collapse.
While elevated inflation and a battered banking sector are real and serious challenges, they do not amount to evidence of an economy in free fall.
A more careful reading, one that accounts for the disruptive legacy of the previous administration and the corrective measures undertaken after the political transition, reveals a difficult but necessary period of structural rebalancing.
The claim that the new government is inheriting a crippled economy overlooks the fact that the previous administration left behind a financial system that resembled a house of cards, propped up by manipulated data and systematic concealment of risk.
To portray the current economy as stagnant is to ignore Bangladesh’s longer arc of resilience in South Asia. Despite the global shocks that followed COVID-19 and the Russia-Ukraine war, the country delivered stronger growth than most of its regional peers.
It registered 3.5 percent growth in 2020, followed by 6.9 percent in 2021 and 7.1 percent in 2022. Today’s slower growth reflects deliberate fiscal tightening aimed at restoring macroeconomic balance after years of excess.
Rather than a sign of decay, this is the predictable cooling that follows the end of artificial stimulus.
The anxiety around nonperforming loans and private sector credit tells an even more revealing story, not of new stress but of long-buried weaknesses finally exposed.
The alarming rise in nonperforming loans, with figures ranging from over 20 percent in ADB assessments to more than 35 percent under the central bank’s revised classification rules, stems from a long-overdue commitment to honest accounting.
For years, the previous regime reportedly pressured regulators to gloss over defaults, relax classification standards, and extend loan rescheduling indefinitely. The result was a banking sector that looked superficially healthy while quietly deteriorating.
The surge in nonperforming loans is therefore the price of confronting the system’s real condition.
The compression in private credit growth, which dipped to about 6.29 percent in late 2025, must also be understood in context. Previous double-digit credit growth was inflated by massive, politically connected borrowing that produced little real economic return and ultimately fed into the ballooning nonperforming loan crisis.
Many of these loans were never intended to be repaid and were allegedly funnelled into overseas real estate or offshore accounts. In contrast, banks today are more cautious, with credit flowing into sectors less vulnerable to default.
The volume of lending has decreased, but the quality has improved. An economy cannot build sustainable growth on a mountain of bad debt. The current adjustment reflects a shift towards stability rather than a collapse in investment appetite.
These corrections in the financial sector are only one part of the broader adjustment. The most decisive rebuttal to claims of stagnation is the transformation under way in the fiscal and external sectors. In an unusual show of discipline, the government has sharply reversed the longstanding habit of borrowing heavily from the banking system.
Between July and October of the 2025-26 financial year, it repaid more than 5 billion taka (about $40.9m) to banks, in stark contrast to the more than 150 billion taka ($1.23bn) borrowed during the same period a year earlier.
Economists note that this shift eases pressure on interest rates and frees up liquidity for private borrowers, marking a significant break with a past where the state crowded out the private sector.
For a country long accustomed to fiscal indiscipline, this move signals a meaningful shift towards stability.
Foreign direct investment (FDI) tells a similarly counterintuitive story. Against the assumption that political upheaval deters investors, Bangladesh experienced nearly 20 percent growth in FDI in the 2024-25 financial year.
For a post-transition economy emerging from a massive uprising that resulted in more than 1,400 deaths, this is extremely rare. Countries emerging from political uprisings typically endure sharp drops in foreign investment for years.
In Bangladesh’s case, global firms not only remained but also reinvested their earnings. This reflects a deeper confidence in the country’s long-term prospects.
Perhaps the most striking shift has occurred in the external sector. After months of steady erosion, foreign currency reserves have stabilised and then strengthened, climbing from less than $20bn in mid-2024 to more than $30bn a year later.
Remittances surged to a record $30.33bn in the 2024-25 financial year, a 26.8 percent increase attributed to renewed confidence in the formal financial system, the crackdown on money laundering, and the return to a market-based exchange rate.
Expatriates who once relied on hundi networks are now sending money legally, responding to a more transparent and predictable currency regime. This combination of rising reserves, strong remittance inflows, and exchange-rate stabilisation forms one of Bangladesh’s strongest macroeconomic buffers in years.
Inflation remains the most potent concern, and rightly so. With rates above 8 percent, higher than any country in South Asia, the cost-of-living pressure is severe.
But here again, comparisons require nuance. Sri Lanka’s low inflation follows a complete economic meltdown and draconian monetary tightening under an IMF programme.
Bangladesh’s inflation is structurally different, driven partly by supply chain constraints, lingering market distortions, and the aftereffects of earlier monetary expansion. It is difficult, but not destabilising.
Similarly, the poverty figure of 28 percent often cited by critics originates from a limited-sample private study. World Bank projections indicate that poverty is likely to continue falling modestly this financial year, even amid inflation.
The battle ahead is not simply about preserving growth rates, but about dismantling entrenched corruption, extortion networks, and bureaucratic bottlenecks that have acted as invisible taxes on the poor for years.
Bangladesh’s economy today is not collapsing; it is undergoing a difficult but necessary reconstruction after more than a decade of governance that preferred cosmetic stability over institutional health.
High nonperforming loans, slower credit growth, and persistent inflation are symptoms of structural problems finally being confronted. That confrontation was inevitable and overdue.
What stands out instead is a set of achievements rarely seen in a post-transition economy: a rapid rebound in reserves, a record surge in remittances, nearly 20 percent growth in FDI, and an unprecedented demonstration of fiscal restraint.
These are not the markers of stagnation, but the early foundations of a more transparent, durable economic future. Whether Bangladesh completes this transition will depend on the political will to sustain reform, especially in the banking sector. The story of the economy today is not one of collapse; it is the story of corrective surgery. Whether the country can finish the operation remains the central question.
The views expressed in this article are the author’s own and do not necessarily reflect Al Jazeera’s editorial policy.
