The recent wave of pessimism surrounding Bangladesh’s economy under the interim government has been amplified by local commentary, much of it selectively framed, providing an incomplete and often misleading picture of the country’s actual economic trajectory. Much of this concern is overstated, as key indicators reflect necessary structural corrections rather than economic collapse.
Rising inflation and a depleted banking sector are real and serious challenges, but they are not evidence that the economy is in free fall.
A more careful reading of the previous administration’s destructive legacy and the corrective measures taken after the transition reveals a period of difficult but necessary structural rebalancing.
Claims that the new government is inheriting a dysfunctional economy overlook the fact that the previous government left behind a financial system that is a castle in the sand, underpinned by manipulated data and systematic risk concealment.
Portraying the current economy as stagnant ignores Bangladesh’s long-term resilience in South Asia. Despite the global shocks following COVID-19 and the Russia-Ukraine war, the country achieved stronger growth than most regional peers.
It recorded a growth of 3.5% in 2020, 6.9% in 2021, and 7.1% in 2022. Today’s slowdown in growth reflects deliberate fiscal tightening aimed at restoring macroeconomic balance after years of excesses.
This is not a sign of decline, but a predictable cooling that occurs after the end of artificial stimulation.
The worries about bad loans and private sector credit are not new stresses, but more telling evidence that long-buried weaknesses have finally been exposed.
The alarming increase in non-performing loans, which amounts to more than 20% according to ADB’s assessment and more than 35% under the central bank’s revised classification rules, is due to a longstanding commitment to honest accounting.
The previous administration reportedly spent years concealing defaults, relaxing classification standards and pressuring regulators to extend loan rescheduling indefinitely. As a result, while the banking sector appeared healthy on the surface, it quietly deteriorated.
Therefore, the proliferation of non-performing loans is the price of facing the reality of the system.
The compression in private credit growth, which fell to about 6.29 percent in the second half of 2025, also needs to be understood in context. Previous double-digit credit growth was fueled by huge amounts of politically linked borrowing, with little real economic benefit and ultimately leading to a growing bad debt crisis.
Many of these loans had no intention of being repaid and were allegedly funneled into overseas properties and offshore accounts. By contrast, banks today are more cautious, with credit flowing into sectors with lower risk of default.
Although the amount of loans decreased, the quality improved. No economy can build sustainable growth on mountains of bad debt. The current correction reflects a shift towards stability rather than a collapse in investment appetite.
These adjustments in the financial sector are only part of a broader adjustment. The most decisive counterargument to the stagnation argument is the ongoing transformation in the fiscal and external sectors. In a show of unusual discipline, the government sharply reversed its long-standing habit of borrowing heavily from the banking system.
From July to October of the 2025-26 fiscal year, the company repaid more than Tk5 billion (about $40.9 million) to banks, compared to borrowings of more than Tk150 billion ($1.23 billion) in the same period last year.
Economists say the changes will ease pressure on interest rates and free up liquidity for private borrowers, marking a major break from the past when the state shut out the private sector.
For a country long accustomed to fiscal indiscipline, the move signals a meaningful shift toward stability.
Foreign direct investment (FDI) tells a similarly counterintuitive story. Contrary to assumptions that political turmoil deters investors, Bangladesh saw a nearly 20% increase in FDI in the 2024-2025 financial year.
This is highly unusual for a post-transition economy emerging from mass riots that left more than 1,400 people dead. Countries that emerge from political uprisings typically endure years of sharp declines in foreign investment.
In the case of Bangladesh, global companies not only stayed but reinvested their profits. This reflects deeper confidence in the country’s long-term prospects.
Perhaps the most notable changes are occurring in the external sector. After months of steady decline, foreign exchange reserves stabilized and then strengthened, rising from less than $20 billion in mid-2024 to more than $30 billion a year later.
Remittances soared to a record $30.33 billion in 2024-25, an increase of 26.8% due to renewed confidence in the formal financial system, a crackdown on money laundering and a return to market-based exchange rates.
Expatriates who once relied on the Hundi network now send money legally, with a more transparent and predictable monetary system. This combination of increased foreign exchange reserves, strong remittance inflows, and stable exchange rates has created one of the strongest macroeconomic cushions for Bangladesh in recent years.
Inflation remains the strongest concern, and rightly so. The cost of living is under severe pressure, with prices exceeding 8%, the highest of any country in South Asia.
But here too, the comparison requires nuance. Sri Lanka’s low inflation is the result of complete economic collapse and severe monetary tightening under the IMF program.
Inflation in Bangladesh is structurally different, driven in part by supply chain constraints, lingering market distortions, and the hangover from earlier financial expansion. It’s difficult, but not unstable.
Similarly, the poverty figure of 28 percent often cited by critics comes from private surveys of a limited sample. World Bank projections show that poverty is likely to continue declining slowly this year, even amidst inflation.
The battle ahead is not just to maintain growth rates, but also to dismantle the deep-rooted corruption, extortion networks, and bureaucratic bottlenecks that have long served as an invisible tax on the poor.
The current Bangladeshi economy has not collapsed. After more than a decade of governance that prioritized superficial stability over organizational health, a difficult but necessary rebuild is underway.
High levels of non-performing loans, slowing credit growth, and persistent inflation are signs that structural problems are finally being faced. The conflict was inevitable and premature.
What stands out instead is a set of achievements rarely seen in post-transition economies. A rapid recovery in foreign exchange reserves, a record surge in remittances, nearly 20 percent growth in FDI, and an unprecedented demonstration of fiscal restraint.
These are not signs of stagnation, but the early foundations of a more transparent and durable economic future. Whether Bangladesh completes this transition will depend on the political will to sustain reforms, especially in the banking sector. Today’s economic story is not one of collapse. It’s about corrective surgery. The central question remains whether the country can complete the operation.
The views expressed in this article are the author’s own and do not necessarily reflect Al Jazeera’s editorial policy.
