Inflation eases, reserve rises but growth stalls: CPD

The country’s economy made some progress in lowering inflation, rebuilding foreign exchange reserves and improving exports, but the recovery remains fragile and uneven, the Centre for Policy Dialogue (CPD) said on Monday. Weak investment, poor revenue collection, industrial stagnation, job problems, energy insecurity and weaknesses in the banking sector continue to hold back a broad-based recovery.

Instead of a quick turnaround, Bangladesh may be heading towards a prolonged economic recovery, according to CPD’s assessment at a media dialogue in Dhaka titled “The New Government’s First Six Months: An Economic Review”. The think tank reviewed 31 major economic indicators and found that 12 improved while 19 deteriorated during the first six months of the new government.

CPD distinguished fellow Dr Debapriya Bhattacharya, who presented the keynote assessment, said the government had inherited “fragile banks, weak revenue mobilisation, fiscal constraints and subdued investment”, along with the pressure of a weak global economy and external shocks.


For ordinary families, this means the pressure on household budgets has not disappeared just because the inflation rate has come down. The bigger question is whether lower inflation will lead to higher investment, production and employment. So far, that link remains weak.

“The change required is structural, not about people only,” Debapriya said, stressing that simply changing office-holders would not repair the economy. He called for stronger institutions, better coordination among government agencies and action against vested interests.

CPD also raised concern over the absence of a clearly documented baseline of the economy inherited by the new government. A promised second White Paper did not materialise, while the state of the economy was discussed only “perfunctorily” in the finance minister’s April parliamentary statement. Without a clear baseline, it becomes harder to measure progress and identify urgent priorities.

Investment is among the biggest concerns. Private-sector credit growth remains weak, showing that businesses are still reluctant to invest. 

Industrial production has also remained subdued. Prof Mustafizur Rahman, distinguished fellow of CPD, said weak bank credit and weak private investment are closely linked. “If new investment does not increase, bank credit will not expand either,” he said.

But businesses need more than loans. They need confidence, predictable policies, easier access to finance and a supportive business environment. CPD also stressed the need to improve conditions for small and medium enterprises, which are important for jobs and supply chains. The quality of employment matters as much as the number of jobs, making industrial recovery especially important.

The government’s fiscal position is another major weakness. Poor revenue collection limits its ability to spend on development, social protection, infrastructure and other areas needed for recovery. CPD proposed a realistic core budget for October 2026 to June 2027 based on credible, real-time data.

It also urged the finance minister to use the September parliamentary statement to present reform plans for the pay scale, banking sector and power sector.

The external sector offers a mixed picture. Exports and foreign exchange reserves have improved, giving the economy some breathing space. But the trade deficit has widened to $10.4 billion, the current account has moved into deficit and foreign direct investment remains weak.

Energy insecurity is also directly affecting the wider economy. CPD called for less dependence on imported LNG, more domestic gas exploration, greater use of renewable energy and a coordinated short- and medium-term energy strategy. High and uncertain energy costs raise production expenses, hurt industrial competitiveness and discourage investment.

The banking sector remains a major test. CPD said structural reform is needed to address bad loans, weak governance, poor supervision and declining confidence. A weak banking system cannot effectively finance the private investment needed for recovery.

CPD said it reviewed 362 concrete government actions across nine areas, including governance, public financial management, industry and trade, banking, energy and transport, agriculture, education, health and social protection. The review focused on actions actually taken, rather than announcements or promises.

The overall message is clear: Bangladesh has gained some breathing space, but the economy is not yet on firm ground. Lower inflation and stronger reserves are welcome, but without investment, jobs, revenue, energy security, banking reform and stronger institutions, the recovery will remain fragile.

POSTIVE INDICATORS:
CPD said inflation eased from 9.1 per cent to 8.3  per cent , export growth turned positive from -3.2 per cent to 3.5 per cent, and gross forex reserves rose from $30.1 billion to $32.3 billion; capital machinery imports also improved.

It also identified higher remittance-supported reserves and some improvement in investment-related capital machinery imports as positive signs, although CPD cautioned that these gains need to be viewed in context.