Bangladesh's economy under strain time to break the cycle

Bangladesh's economy is facing a convergence of pressures that are intensifying rather than easing. The new government has assumed responsibility at a time when inflation is entrenched, revenue mobilisation is weak, development spending is sluggish, and private investment remains subdued. Together, these factors have created a stress loop that is increasingly difficult to escape.

Inflation, particularly food inflation is the most immediate concern. Prices of essentials such as rice, pulses, vegetables, fish, and meat have surged in recent weeks. Food inflation rose sharply to 9.30% in February from 8.29% in January, signaling a renewed spike in cost-of-living pressures. Overall inflation also climbed to 9.13%, up from 8.58% a month earlier. While slightly below last year's 9.32%, the decline offers little real relief. The upward trend in food prices remains persistent, indicating that inflation is not merely temporary but deeply embedded.

The impact on households is severe. Wage growth is consistently lagging behind inflation-8.08% versus 8.58% in January leading to declining real incomes and shrinking purchasing power. This gap has persisted for months, placing low- and middle-income groups under sustained financial strain. Rising prices of vegetables, fish, and fruits driven by transport costs, weak supply chains, and high intermediary margins-have further intensified the burden.

Non-food inflation, which rose to 9.01% in February, reflects broader price pressures across sectors. At the same time, structural weaknesses are becoming more visible. Economic growth has slowed to around 3.5%, loan defaults in the banking sector remain high, and private investment continues to stagnate. External uncertainties, including global demand fluctuations and energy price volatility, add to the challenges.

Fiscal constraints are also tightening. Revenue collection has significantly underperformed, reaching only about 70.5% of the January target of Tk 52,545 crore. This shortfall limits the government's ability to respond effectively through public spending, even as development execution remains slow.

External indicators present a mixed picture. Exports declined by 1.93% during July-January, reflecting weak global demand and a slowdown in the readymade garment sector. Imports, however, increased by 3.91%, suggesting some underlying economic activity. Remittances have been a bright spot, rising 21.76% year-on-year to $19.43 billion, helping stabilize foreign exchange reserves and cover about five and a half months of imports. However, reliance on remittances risks masking deeper structural vulnerabilities.

The challenges are multidimensional: controlling inflation, restoring investor confidence, boosting revenue, and accelerating development. Addressing them requires a coordinated and credible policy response across monetary, fiscal, and exchange rate fronts.

Bangladesh's economy is not collapsing, but it is under significant strain. Without decisive and timely action, the current stress loop will only deepen, making recovery more difficult and more costly.