Bangladesh's current economic situation faces significant challenges, including a large gap between income and expenditure, high inflation, uncertainty in the production sector, and a shortfall in revenue collection.
According to economists, it has been 11 months since the interim government took office, marking the start of a new fiscal year. During the tenure of the previous Awami League government, which held power for over 15 years, most economic indicators showed signs of decline. Critics argue that the former administration failed to implement robust measures to steer the economy out of crisis.
With the assumption of power by the interim government, a process of reform and economic restructuring has begun. As a result, the depletion of foreign exchange reserves has been halted, some recovery has been observed in the fragile banking sector, and the dollar market has regained stability. Despite various uncertainties in the past year, there has been modest but satisfactory progress in export earnings, and remittance inflows through formal channels have remained strong.
However, the ready-made garment (RMG) industry-Bangladesh's largest export sector and a vital pillar of the economy-is now facing a severe crisis. The situation has worsened following the United States' announcement of an additional 35% tariff on Bangladeshi garment imports, effective from August 1. This decision will raise the total tariff rate on Bangladeshi RMG products to over 51%, raising serious concerns among foreign buyers and generating uncertainty in the sector.
Industry insiders report that the impact is already being felt. Several large orders from major global buyers have been suspended or delayed.
According to the economist, Bangladesh's economy is currently navigating a critical juncture, where multiple systemic challenges are converging. To overcome these, the country must- modernize and reform revenue collection; enhance power and infrastructure to revitalize the production sector; stabilize inflation and reduce commodity prices; secure political stability to foster investor confidence; strategically negotiate with international partners, especially the U.S., to protect key export sectors; and only with coordinated and bold economic and policy reforms can Bangladesh restore stability and chart a path toward sustainable growth.
Iqbal Hossain, Managing Director of Patriot Eco Apparel Limited, stated that Walmart has suspended orders for nearly one million pieces of swimming shorts. Mahmud Hasan Khan, President of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), described the U.S. tariff hike as a significant challenge. He expressed hope for a positive outcome from ongoing negotiations but warned that survival would be difficult if the 35% tariff remains.
Meanwhile, the government is grappling with rising debt burdens from state-owned and autonomous institutions.
The Finance Ministry, following an International Monetary Fund (IMF) financial risk model, evaluated 101 such entities and found 42 to be at high risk and 37 at medium risk-together posing serious fiscal threats. Their combined debt in the last fiscal year was equivalent to 12.79% of GDP, or roughly Tk 800,000 crore. Fourteen of the most vulnerable institutions alone account for more than Tk 200,000 crore in net debt.
Notably, 39% of this debt is categorized as current liabilities, 26% as subsidiary debt, and 16% as project-based loans. The government has issued sovereign guarantees for many of these loans, which now total over Tk 119,000 crore. Economists warn that if these institutions default or suffer capital erosion, the government will be forced to absorb substantial losses.
On the consumer side, inflation remains a pressing concern. Although the government claims a reduction in food inflation, market realities paint a different picture. The prices of essential items such as rice, onions, vegetables, and fish continue to rise.
According to data from the Trading Corporation of Bangladesh (TCB), the price of rice has increased by 4% and onions by 9%, placing immense pressure on low- and middle-income households. Service costs are also rising, further straining household budgets.
The stagnation in the production sector, caused by power and fuel shortages, high interest rates, and infrastructure constraints, is another critical issue. These factors have discouraged business expansion and industrial output. Many entrepreneurs report being unable to increase production, especially in the spinning, textile, and fabric sectors-jeopardizing export potential.
Revenue collection is also underperforming. In the 2024-25 fiscal year, the target was set at Tk 4,63,500 crore, but only Tk 3,68,000 crore has been realized-leaving a deficit of Tk 95,500 crore. The country has now failed to meet its revenue targets for 10 consecutive years. Experts emphasize the need for comprehensive reforms in revenue administration, including manpower, technology, and management upgrades.
The stock market remains unstable, deterring investors and further weakening the investment climate. While foreign exchange reserves have risen slightly-currently standing at $24.45 billion-this growth is largely attributed to reduced import costs and increased external borrowing. Many economists question the sustainability of the reserves under such circumstances.
Former FBCCI president and BNP vice-chairman Abdul Awal Mintoo described the 2024-25 budget as "compressed," noting that its size has been reduced for the first time in two decades. "The budget represents only 12-14% of GDP, whereas in developed economies, it typically accounts for 20-22%," he noted.
Selim Raihan, Executive Director of the South Asian Network on Economic Modeling (SANEM), commented that inflation remains uncontrolled, investment is stagnant, and revenue collection fragile. He cautioned that the apparent improvement in reserves should not be misinterpreted, as it is not driven by real economic strength but by circumstantial factors.
