Bangladesh’s economy is sending mixed signals as wages are climbing while inflation is cooling, yet banks are sitting on a swelling mountain of idle cash as private investment has declined.
This picture, drawn from the Bangladesh Bank’s report on major economic indicators for August, underscores a recovery that is uneven at best.
According to the report, the wage rate index rose 8.15 percent in August from a year earlier, only slightly below July’s 8.19 percent, signaling continued resilience in household incomes. Services posted the fastest wage growth at 8.37 percent, followed by agriculture at 8.28 percent and industry at 7.93 percent.
Regional differences persisted, with Rangpur recording an 8.53 percent increase, the strongest in the country, while Barishal trailed at 7.74 percent.
Economist MS Siddique described the labour market as “a bright spot,” arguing that household incomes are still expanding at a pace that sustains domestic demand despite weaknesses elsewhere.
The report shows that inflation offered some respite in August, easing to 8.29 percent from 8.55 percent in July as energy costs declined. The twelve-month average inflation rate slipped to 9.58 percent from 9.77 percent, narrowing the gap with the central bank’s comfort zone. However, food prices remained sticky, leaving pressure on household budgets. The moderation nonetheless provides scope for monetary policymakers to hold interest rates steady after a series of hikes earlier in the year.
Banks awash in idle funds
While consumers contend with high prices, banks are facing a different problem: excess money with nowhere to go. At the end of June, scheduled banks held Tk 586,306 crore in liquid assets against the required Tk 302,666 crore, leaving a surplus of Tk 283,639 crore.
According to the report, that surplus was nearly Tk 91,000 crore higher than a year earlier, with private banks accounting for the largest jump and state-owned lenders adding another Tk 39,000 crore.
By contrast, shariah-based banks saw their idle balances shrink by more than Tk 6,000 crore, while foreign banks and specialised institutions showed more modest changes.
Bankers attribute the glut to weak credit demand, ongoing political uncertainty, and the central bank’s dollar purchases that injected additional liquidity into the system. Instead of channelling funds into private investment, banks are increasingly parking them in government securities.
Trade recovers, aid collapses
The external sector reveals another layer of fragility. Exports expanded 10.3 percent in July and August, a rebound from the modest 4.3 percent growth recorded a year earlier. However, imports surged 19.5 percent in July, reflecting both rising domestic consumption and higher demand for inputs, and creating renewed pressure on the trade account.
Besides, foreign aid flows worsened dramatically. The central bank report shows that gross aid receipts in July fell 43.4 percent from a year earlier while net aid turned negative as repayments exceeded fresh disbursements by a wide margin.
Only 0.15 percent of foreign aid arrived as grants, with nearly all inflows taking the form of loans, increasing the country’s repayment burden. By the end of July, the government had recorded a net foreign repayment of Tk 1,942 crore, which forced greater reliance on domestic borrowing to finance the budget.
Credit growth slows, fiscal pressures rise
Private-sector credit growth slowed sharply to 6.5 percent in July, compared with double-digit growth the year before, while government borrowing expanded by 12.8 percent. Net domestic financing more than doubled to Tk 18,633 crore as the government leaned heavily on local sources in the face of negative net foreign aid flows.
Industrial production remained mixed, with large-scale manufacturing up 5.3 percent in fiscal year 2024-25 after contracting the previous year. Export-oriented industries such as textiles and machinery are still struggling, though construction-related sectors are showing resilience.
The report paints a dual reality: rising wages and easing inflation are supporting household demand, but excess liquidity in banks, weakening foreign aid flows, and fragile trade balances underscore the risks ahead.
“Where the economy points to next in the coming months will hinge on whether inflation eases further and if global demand recovers enough to lift exports,” said MS Siddique, an economist.
