As 2025 dawns, Bangladesh’s economy finds itself ensnared in a challenging vicious cycle, where inflation, investment, and political stability are interdependent. The new year presents daunting challenges, including controlling inflation, boosting investment, creating employment, maintaining foreign exchange reserves, and ensuring political stability. Economists warn that failure in one area could trigger a cascade of negative effects, further destabilizing the economy.
Vicious cycle
Inflation remains a pressing concern. To bring prices under control, economic activity and investments must increase. However, fostering investment requires a stable political climate, something Bangladesh has struggled to achieve following the fall of Sheikh Hasina’s government in August 2024. If inflation remains unchecked, public dissatisfaction could deepen political instability, perpetuating the cycle.
Dr. AB Mirza Azizul Islam, a prominent economist, noted, “Political stability is crucial for increasing investment and creating employment. Without stability, the negative impact on exports and overall economic growth will persist.”
The World Bank’s South Asia Development Update, published in October 2024, projected Bangladesh’s growth for the current fiscal year (2024-25) at four percent, with scenarios ranging from 3.2 percent to 5.2 percent. The report identified four key challenges include political uncertainty, inflation, weaknesses in financial sector, external sector pressures, driven by low foreign reserves.
Sonali Bank Chairman Mohammad Muslim Chowdhury added that while there are challenges in governance and law and order, positive signs include improved remittance inflows, stable export growth, and easing dollar shortages.
Key issues and solutions
Economists emphasize the need for joint efforts by government ministries and financial institutions to tackle these challenges. Key areas include: Import growth and production: Increasing imports is essential for boosting production, but this risks further depleting reserves and weakening the currency.Banking sector reforms: Initiatives to address rising defaulted loans and ensure good governance are showing early signs of success.
Investment and employment: Restoring investor confidence requires immediate political stabilization to unlock economic growth.
Inflation, business confidence key to revival
Abu Ahmed, Chairman of the Investment Corporation of Bangladesh (ICB) and former professor of economics at Dhaka University, has outlined critical economic priorities for 2025. Speaking to the media, he identified reducing inflation and restoring confidence among businessmen and foreign investors as the foremost challenges.”The main challenge for the economy next year will be to reduce inflation,” Professor Ahmed emphasized. He argued that fostering business confidence is crucial for economic recovery. One way to achieve this is by lowering interest rates, which he believes would stimulate investment.
Professor Ahmed expressed optimism about creating a level playing field for businesses, signaling a shift away from the preferential treatment previously enjoyed by influential players.”Big businessmen will no longer get the kind of facilities they had in the past. There will be equal policies for everyone. Doing big business by maintaining government ties will no longer be an option,” he remarked.He also noted significant progress in addressing systemic issues:
Stopping looting: Banks have been looted in the past; now that has stopped.Ending money laundering: Efforts to curb capital flight are gaining traction.Export growth: Rising export earnings are helping to stabilize the economy.
Path to economic resilience
Professor Ahmed expressed confidence in the country’s ability to overcome its economic challenges. “Our foreign exchange reserves will increase in the future. The value of money will stabilize. I believe the economy will move forward and gradually rise. Inflation will also decrease,” he stated.Dr. Zahid Hossain, a key member of the White Paper Preparation Committee and former Chief Economist at the World Bank’s Dhaka office, has identified political stability as the main challenge for Bangladesh’s economy in 2025. Speaking about the year ahead, Dr. Hossain emphasized that economic growth and stability are intricately linked to resolving political uncertainty, particularly with the upcoming national elections.
In his analysis, Dr. Hossain pointed out that although there are significant expectations for 2025, including the upcoming elections and political reforms, the country’s economic future hinges on achieving political stability. “If no one can see a clear path ahead, investors, foreign buyers, and exporters will not have the confidence to engage with the economy,” he said, highlighting the critical role of political clarity in maintaining economic momentum.
Inflation remains a significant concern, with food inflation nearing 14%, creating a livelihood crisis for the country’s poor. Dr. Hossain stated that controlling inflation is essential, but added that if inflation continues unchecked, it will exacerbate political instability. “If the economy does not function well, it becomes a vicious cycle. If inflation does not come down, political instability will rise, and if political instability increases, the economy will suffer,” he warned.
Dr. Hossain suggested that while the government has relied on market control measures, such as policing the retail sector, these strategies have not proven effective. “The real problems in market management lie at the wholesale level, where large players manipulate prices,” he said, urging for more market transparency and effective competition policies to ensure fair pricing.
Investment and employment
The economist also stressed the need for new investments to address unemployment, particularly among the youth. “Investment is needed to create jobs. However, during the previous government, there was investment but not enough employment creation,” he noted. He emphasized that political stability is crucial to attracting new investment and fostering an environment conducive to job creation.
Need for stronger enforcement
To ensure sustained improvements, Dr. Hossain called for stricter enforcement against money laundering and smuggling. He urged active involvement from agencies like the Bangladesh Financial Intelligence Unit, NBR’s Central Intelligence Cell, and the Anti-Corruption Commission to close off illegal financial channels.
Political uncertainty impacts exports
Dr. Hossain also expressed concerns about the potential negative impact of political instability on Bangladesh’s exports. “Export buyers lack confidence in the ability to deliver on time due to concerns about the political situation and possible disruptions to infrastructure,” he explained. He reiterated that resolving political uncertainty is crucial for restoring trust and securing the future of the country’s trade relationships.
Spreading hope despite having challenges
Despite ongoing struggles, some progress is evident. Changes in banking policies and restructuring of weak bank boards are starting to yield results. The dollar rate is stabilizing, international payments are smoother, and remittance and export earnings are showing resilience.
Dr. Hossain concluded that simplifying investment processes and ensuring a stable political environment are key to unlocking Bangladesh’s economic potential in 2025. “If political stability is achieved, investment will come, and the economy can begin to thrive again,” he said.
