Why is Bangladesh, with its vast economic potential, diligent labour force, advantageous location and entrepreneurial spirit, unable to sustain its economic growth? Why is the population frustrated with the growing cost of living while businesses face rising costs, investors are not forthcoming, and jobs are not created? A number of factors affect the growth performance of Bangladesh’s economy.
Bangladesh is not short of people and opportunities; rather, the country’s structural challenges, financial system, governance problems, and policy shortcomings have diminished the country’s productive potential. Economic stagnation means not only a zero-growth economy but also an economy in which the growth is inappropriate, unproductive, non-generative, and irrelevant to the needs of the people.
According to the World Bank on October 6, 2026, Bangladesh’s growth is projected to slow to 3.4 percent in FY2026 and FY2027 compared to 2023. The report highlighted persistent inflation, banking and energy sector challenges, and insufficient investment and domestic revenue generation as key impediments to growth. The number of people who have slipped into poverty in Bangladesh rose by 2.1 million in FY2026, according to the report. A comprehensive approach to reviving the economy is required.
One cause of Bangladesh’s economic stagnation has been the absence of transparent, strong, and reliable institutions. Productive economic growth and development require not only grand visions, massive budgets, and iconic projects but also effective law enforcement, competent bureaucracy, economic integrity, and public trust. When businesses depend on political connections, productive resources are diverted to unproductive activities, public tenders and contracts become corrupt opportunities, and regulation becomes an unpredictable impediment, the economy fails to perform. The central issue is not the existence of laws but their effective enforcement; without reliable institutions, societies cannot benefit from the law and regulation needed to make markets work.
A reliable banking system acts as the engine that powers the economic growth of Bangladesh. The financial system has faced significant challenges due to non-performing loans, governance issues, and misallocation of credit. A significant proportion of bank lending is unproductive, reducing the amount of funds available for investment in enterprises and individuals. According to the World Bank, non-performing loans (NPLs) reached 33.2 percent as of June 2026, compared to 30.6 percent per NPLs in December 2025. This indicates a serious credit risk environment in Bangladesh. When politically connected borrowers take advantage of preferential lending terms, loans are channelled into unproductive enterprises, and defaults occur; productive entrepreneurs do not have access to credit from banks. The banks’ ability to lend to small businesses, new firms, employment-intensive industries, and innovative technologies is hampered. Restructuring banks by injecting fresh capital, assessing the true value of assets, and recovering defaulted loans through legal channels is the solution.
Private investment is a vital catalyst for economic development, as it accelerates the creation of additional production capacity, employment opportunities, and export potential. For example, investors need a stable policy and regulatory environment, reliable infrastructure, and appropriate financial terms. Increased borrowing costs, approval procedures, taxation, licensing conditions, energy shortages, and access to foreign exchange are major concerns for investors. Small and medium-sized enterprises are vulnerable to many of these factors because they have less negotiating power than large companies. Investors are also concerned about the stability of Bangladesh’s institutions, particularly the rule of law, contract enforcement, and repatriation of profits.
Additionally, reliable infrastructure, including road transport, rail transport, energy, telecommunications, and reliable electricity, is critical to meeting the needs of enterprises, particularly small and medium-sized enterprises. Even though large-scale enterprises may rely on their own infrastructure, such as captive power plants, reliable and competitively priced energy is nevertheless a critical input. A vibrant export sector that meets international standards is vital to economic development, as is diversification into value-added goods and services. Bangladesh must invest in technology to enable its industries to meet the stringent requirements of buyers while also generating high-value products and services. Exporters must also prepare to meet emerging international trade requirements while also adapting to the loss of some preferential access to international markets as Bangladesh transitions out of its status as a least developed country.
Adequate energy is a critical requirement for Bangladesh’s economic development. Energy shortages, high prices, and unreliable supplies reduce the amount of capital invested in enterprises, particularly small and medium-sized enterprises. Bangladesh’s limited revenue also reduces the government’s ability to invest in infrastructure, education, and health care. According to the Bangladesh Development Update, domestic revenue only accounted for 8.3% of GDP in FY2026. An economy cannot grow beyond a certain point on borrowed money; it must also have a thriving tax culture in order to raise revenue to finance its needs.
While the challenges enumerated above are major contributors to Bangladesh’s economic stagnation, some factors that undermine Bangladesh’s potential for economic growth are equally important. For instance, excessive bureaucracy, poor contract enforcement, insufficient technical education and skills, limited research and development, and inadequate competition all weaken the economy. Similarly, the government’s inconsistent policies, lack of political will, and frequent changes in senior leadership hinder economic progress. These challenges form a self-sustaining mechanism that stifles growth. Weak institutions lead to poor banking system performance, which results in inadequate private investment, which leads to sluggish job growth and rising poverty and frustration.
Bangladesh requires a comprehensive set of reforms to address its economic challenges, including institutional, financial, and sector-specific reforms, rather than a set of disconnected initiatives. The reforms should be undertaken in the following phases. Firstly, restore integrity and accountability in public institutions, particularly in public procurement, taxation, licensing, and regulation. Anti-corruption measures should be taken, and corrupt officials should be prosecuted in accordance with the law, regardless of their political affiliation or economic status.
Secondly, undertake bold reforms in the banking and financial system, including asset-quality audits, improved supervision, and stronger corporate governance. Problem loans should be written off or made payable in accordance with the law. The banking system should be allowed to operate independently and make its own lending and investment decisions. However, banking secrecy should be eliminated, and dishonest and corrupt bank officials should be punished. Finally, take decisive action to reverse the rising trend of inflation while also safeguarding the vulnerable. The government should adopt a monetary policy that maintains price stability while also investing in essential goods, expanding domestic markets, and encouraging competition to reduce prices. Social safety nets should be provided to the vulnerable rather than relying on indirect subsidies that benefit the most profitable businesses.
Restoring public confidence in Bangladesh’s institutions should be the responsibility of the government, political parties, and social groups. A consensus on economic reforms should be reached among the government, private sector, labour organisations, professionals, and civil society. Consensus is required not only on the principles of reform but also on their phased implementation. The government’s economic policies should be guided by core principles that remain consistent throughout the transition process, with specific initiatives being reviewed and approved by elected officials.
It is not enough to finance the country’s operations through borrowing; it is also necessary to develop a comprehensive long-term strategy for economic development, including budgetary policies and key reforms, in order to achieve Bangladesh’s development objectives.
The views expressed in this article are solely those of the author
The writer is a columnist and political analyst
