Bangladesh’s economy is beginning to regain its footing after a prolonged period of stress. Inflation is easing, foreign-exchange reserves are rebuilding and growth is expected to pick up.
But the recovery is running into a problem that better economic data alone cannot fix: factories are struggling to secure enough gas.
Power supplies remain unreliable in parts of the industrial economy. Borrowing costs are high, while weak demand is making companies reluctant to invest.
That leaves policymakers with an awkward divide. The economy is stabilising, but the businesses expected to turn that stability into jobs, investment and higher output remain constrained.
The question is whether Bangladesh can sustain a recovery while factories lack one of the basic inputs needed to operate.
Growth is improving, but from a low base
Bangladesh’s economy grew 3.49 per cent in FY2024-25, one of its weakest performances in years. The International Monetary Fund expects growth of 4.70 per cent in 2026.
That would be an improvement, but still below the pace seen during stronger periods of the previous decade.
A recovery driven by improving macroeconomic indicators can look encouraging from a distance. A stronger recovery requires factories producing more, companies investing and employers hiring.
All depend heavily on reliable energy.
Inflation is falling, but credit remains costly
Inflation has provided the clearest improvement. Point-to-point inflation fell from 9.42 per cent in May to 9.16 per cent in June and 8.32 per cent in July, the lowest in eight months.
That gives households some relief and eases pressure on businesses. But inflation remains high enough to keep policymakers cautious.
Bangladesh Bank’s restrictive monetary policy has helped contain price pressures while raising borrowing costs. For a manufacturer considering a new production line, expensive credit can turn a viable investment into one worth postponing.
Cut rates too quickly and inflation could return. Keep monetary policy tight for too long and investment could remain weak.
Reserves provide breathing room
The external position has also improved.
Bangladesh Bank data showed gross foreign-exchange reserves at about $37.47 billion in August 2026, up from $34.47 billion in May. Reserves under the IMF’s BPM6 methodology stood at roughly $32.62 billion.
Remittances have supported the foreign-exchange position. The IMF’s approval of a $1.3 billion disbursement and S&P’s B+ sovereign rating have also helped improve perceptions of Bangladesh’s external finances.
But the improvement has a vulnerability: Bangladesh imports much of its energy.
A sharp rise in LNG or crude oil prices could increase the import bill and put pressure on reserves again. For now, the stronger reserve position provides a cushion, but it does not remove the country’s exposure to global energy markets.
The pressure is most visible on the factory floor
The gas shortage is becoming one of the biggest constraints on industrial activity.
Gas is used directly by factories and is also important for power generation. When supply falls, production schedules unravel. Factories cut operating hours, orders are delayed and machinery sits idle.
Switching to alternative fuels is possible, but usually more expensive.
Textiles, garments, ceramics, steel, engineering and food processing are among the affected sectors.
Fu-Wang Food Limited recently announced a six-month factory lay-off, citing acute gas shortages and rising raw-material costs.
The damage quickly becomes financial. Fixed costs remain even when production falls, squeezing margins and cash flow and delaying expansion.
Less investment means fewer jobs. Lower production means slower industrial growth. Weaker corporate earnings can eventually affect banks, suppliers and investors.
What begins as a gas shortage can become a broader shortage of economic momentum.
An energy problem years in the making
The current disruption is not simply a temporary supply shock.
Domestic gas exploration has failed to keep pace with demand, increasing Bangladesh’s dependence on imported LNG and exposing the economy to prices it cannot control.
Geopolitical tensions, shipping disruptions and higher global LNG prices can quickly raise the country’s energy bill.
Higher energy costs can also spread through the economy, putting pressure on subsidies, industrial prices and foreign-exchange reserves.
That makes energy security a question not only of industrial policy but also of inflation, fiscal management and external stability.
The two-year window
The government is pursuing longer-term solutions, but they will not provide an immediate fix.
Prime Minister Tarique Rahman’s administration plans to present a 10-year energy master plan to Parliament. Authorities are also pursuing two additional floating storage and regasification units and a land-based LNG terminal.
These projects could expand the country’s ability to import and process LNG.
The constraint is time.
Finance and Planning Minister Amir Khosru Mahmud Chowdhury has said it could take at least two years to resolve the power and gas crisis.
For manufacturers, two years is a long time. A company facing unreliable energy and expensive credit may postpone expansion, hire fewer workers and scale back demand from suppliers. Banks may then see weaker credit growth.
The greater risk is a slow recovery that never reaches the productive economy.
Investors need more than a rising index
The Dhaka stock market has reflected that uncertainty.
On 27 August, the benchmark DSEX index rose 15.59 points to 5,655.68 after losing nearly 141 points in previous sessions. Turnover stood at about Tk467 crore, described in the original analysis as a five-month low.
A market can rise on thin trading, but a durable rally requires broader participation and stronger liquidity.
Lower treasury yields and interest rates can eventually support equities. But that transmission weakens when companies cannot produce at full capacity.
For businesses exposed to gas shortages, a lower policy rate means little if the factory cannot get enough fuel to operate.
The recovery needs a factory behind it
There are reasons to be more optimistic about Bangladesh’s economy than there were several months ago. Inflation is moving lower, reserves have improved, remittances are supporting the external account and the IMF expects growth to strengthen.
But markets and businesses need something more tangible.
They need factories running reliably.
A manufacturer cannot plan a five-year investment around uncertain gas supplies. A factory cannot indefinitely absorb the cost of backup fuel. Investors will hesitate when they cannot predict basic operating costs.
Macroeconomic stabilisation can create the conditions for growth. It cannot generate growth by itself.
The government must preserve the gains from stabilisation without allowing energy shortages and tight financial conditions to choke investment. That means accelerating domestic gas exploration, investing in power generation and transmission, managing LNG procurement carefully and calibrating monetary policy so inflation is contained without keeping productive investment under pressure indefinitely.
For Bangladesh, the recovery will ultimately be visible not in economic indicators alone but in factories, machinery orders, expansion plans, hiring and corporate earnings.
The country may be clearing the macroeconomic hurdle. It still has to get past the factory gate.
The writer is a vice president at the Bangladesh-American Chamber of Commerce USA Inc.
Views expressed are solely those of the author.
