The recent wave of pessimism under Bangladesh’s interim administration, much of it fueled by selectively crafted local commentary, paints an incomplete and often misleading picture of the country’s real economic trajectory. Much of this concern is overblown, as headline indicators point to much-needed structural reform rather than economic contraction.
While high inflation and the banking sector are real and serious challenges, they are not proof of an economy in free fall.
A more careful reading, which includes the disruptive legacy of the previous administration and the corrective measures taken after the political transition, reveals a difficult but necessary period of structural rebalancing.
The claim that the new government is inheriting a crippled economy ignores the fact that the previous administration left a financial system like a house of cards, in which manipulated data and risks were systematically hidden.
To portray the current economy as stagnant is to ignore Bangladesh’s resilience in South Asia. Despite global shocks following COVID-19 and the Russia-Ukraine war, the country delivered stronger growth than most of its regional peers.
It is expected to grow by 3.5 percent in 2020, followed by 6.9 percent in 2021 and 7.1 percent in 2022. Today’s slow growth reflects deliberate fiscal tightening aimed at restoring macroeconomic balance after years of excess.
Rather than a sign of decay, this approximates cooling after the end of artificial stimulation.
Concerns about non-performing loans and private sector debt speak not of new tensions but of the eventual exposure of long-buried weaknesses.
The alarming rise in non-performing loans, with figures ranging from more than 20 percent to more than 35 percent in the ADB assessment under the central bank’s revised classification rules, stems from a long-overdue commitment to honest accounting.
For years, the previous regime had pressured regulators to crack down on defaults, relax rating standards and extend debt rescheduling indefinitely. The result was that the banking sector appeared ostensibly healthy while quietly collapsing.
So the increase in non-performing loans is the price of facing the real state of the system.
The contraction in private credit growth, which fell to around 6.29 per cent in late 2025, should also be understood in context. Previous double-digit credit growth was inflated by massive, politically connected debt that produced little real economic return and ultimately fed into a non-inflationary debt crisis.
Many of these loans were not intended to be repaid and were allegedly paid into foreign real estate or offshore accounts. In contrast, banks are more cautious today, in areas where credit flows are slowing.
Loan volume has decreased, but quality has improved. An economy cannot sustain sustainable growth on a mountain of bad debt. The current adjustment reflects a shift towards stability rather than a slowdown in investment appetite.
These reforms in the financial sector are part of a wider adjustment. The most decisive rebuttal to claims of stagnation is the transformation taking place in the financial and external sectors. In an unusual display of discipline, the government has swiftly reversed a long-standing habit of borrowing heavily from the banking system.
Between July and October of the 2025-26 financial year, it repaid more than 5 billion taka (about $40.9m) to banks, a stark contrast to the 150 billion taka ($1.23bn) taken in the same period a year earlier.
Economists note that the shift eases pressure on interest rates and frees up liquidity for private borrowers, marking a significant break from the past when the state crowded out the private sector.
For a country long accustomed to fiscal discipline, the move signals a meaningful shift toward stability.
Foreign direct investment (FDI) tells a similar story. Against the hypothesis that political upheaval discourages investors, Bangladesh experienced a nearly 20 percent increase in FDI in the 2024-25 fiscal year.
For a post-transition economy emerging from a major uprising that left more than 1,400 dead, this is extremely rare. Countries that have emerged from political upheavals typically suffer steep declines in foreign investment over the years.
In the case of Bangladesh, global companies not only stayed but also reinvested their earnings. This reflects deep confidence in the country’s long-term prospects.
Perhaps the most striking change has come in the exterior. After months of steady decline, foreign exchange reserves stabilized and then strengthened, falling below $20bn in mid-2024 and above $30bn a year later.
Remittances rose to a record $30.33bn in the 2024-25 financial year, up 26.8 per cent on the back of renewed confidence in the formal financial system, a crackdown on money laundering and a return to a market-based exchange rate.
Travelers who once relied on the hundi network are now sending money legally in response to a more transparent and predictable currency system. This combination of rising reserves, strong remittance inflows and exchange rate stabilization forms Bangladesh’s strongest fiscal buffer in years.
Inflation remains the dominant concern, and rightly so. With rates of over 8 percent, the highest of any country in South Asia, the cost of living is severe.
But here again, the comparison requires nuance. Sri Lanka has low inflation following a full economic recession and severe fiscal austerity under the IMF program.
Bangladesh’s inflation is structurally different, driven in part by supply chain bottlenecks, market distortions and the effects of previous economic expansions. It is hard, but not unstable.
Similarly, the 28 percent poverty figure cited by critics stems from a limited-sample private study. According to the World Bank’s estimates, poverty is likely to continue to decline during this financial year even during inflation.
The battle ahead is not only about sustaining growth rates, but also about removing corruption, extortion webs and bureaucratic hurdles that have served as an invisible tax on the poor for years.
Bangladesh’s economy is not collapsing today; After more than a decade of governance that prioritized cosmetic stability over institutional health, it is undergoing a difficult but necessary restructuring.
High non-performing loans, slow credit growth and persistent inflation are all signs of finally facing structural problems. That conflict was inevitable and overdue.
What is a set of achievements rarely seen in a post-transition economy: rapid growth in reserves, record growth in remittances, nearly 20 per cent growth in FDI and an unprecedented display of fiscal restraint.
These are not markers of stability, but the initial foundation for a more transparent, sustainable economic future. Whether Bangladesh completes this transition will depend on the political will to sustain reforms, particularly in the banking sector. The story of today’s economy is not one of collapse; This is the story of corrective surgery. The main question is whether the country can complete the operation.
The views expressed in this article are the author’s own and do not reflect Al Jazeera’s editorial policy.