Bangladesh’s Economic Crossroads: Growth, challenges, path forward

Bangladesh, a South Asian nation of over 170 million people, has emerged as a remarkable success story in the global economic landscape. Over the past two decades, the country has demonstrated resilience and adaptability, with consistent GDP growth, industrial expansion, and infrastructural advancements. 

However, as of March 2025, the nation finds itself at a crucial juncture, grappling with economic headwinds, political transformations, and social challenges that will determine its trajectory in the years ahead.

Sustained growth and emerging challenges

Bangladesh’s economic growth has been impressive, averaging between 6 and 7 per cent annually over the past decade. However, recent inflationary pressures and global trade disruptions have tempered this momentum. The World Bank estimates GDP growth at 5.2 per cent for the 2024-25 fiscal year, slightly lower than pre-pandemic levels. Several key sectors continue to drive the economy, including agriculture, manufacturing, and services.

Agriculture remains vital, contributing approximately 12 per cent to GDP and employing a large portion of the population. Meanwhile, the ready-made garment (RMG) industry, the backbone of Bangladesh’s economy, accounts for over 80 per cent of exports. The service sector has also seen steady expansion, contributing around 50 per cent to GDP, with banking, telecommunications, and IT services playing significant roles. Small and medium enterprises (SMEs) have emerged as another critical pillar, generating employment and contributing nearly 25 per cent to GDP. Government initiatives such as low-interest loans have further supported this sector, encouraging entrepreneurship and economic diversification.

Yet, challenges persist. Inflation has soared to 9.8 per cent in early 2025, driven by rising food and energy prices. The Bangladeshi Taka has also depreciated against the US dollar, making imports more expensive and exacerbating inflationary pressures. In response, the Bangladesh Bank has implemented monetary policy measures, including higher interest rates and liquidity control. However, external factors such as global oil price volatility and supply chain disruptions continue to pose significant risks.

Political transformation and structural reforms

The political landscape of Bangladesh underwent a seismic shift in August 2024 with the ousting of former Prime Minister Sheikh Hasina following widespread protests. Nobel laureate Muhammad Yunus assumed leadership of the interim government, ushering in a new era of political and economic reform. Yunus’s administration has prioritised restoring democratic institutions, tackling corruption, and implementing structural changes aimed at fostering transparency and investor confidence.

Despite these reform efforts, foreign direct investment (FDI) has remained inconsistent due to policy uncertainties and bureaucratic inefficiencies. In 2024, FDI inflows stood at approximately $2.9 billion, marking a decline from previous years. The government has since introduced incentives such as tax benefits, improved infrastructure, and streamlined business registration processes to attract investors. Nevertheless, sustained efforts will be required to build investor confidence and ensure long-term economic stability.

The country has also made significant strides in infrastructure development, with projects such as the Padma Bridge, Dhaka Metro Rail, and deep-sea ports improving connectivity and reducing transportation costs. These initiatives are expected to enhance trade and boost industrial growth. Simultaneously, Bangladesh’s digital transformation is gathering pace, with the ICT sector expanding at an annual rate of 8-10 per cent. The “Digital Bangladesh” initiative has facilitated financial inclusion, e-commerce, and digital services, contributing to economic modernisation. The government’s ambitious “Smart Bangladesh 2041” programme aims to further integrate artificial intelligence, blockchain technology, and automation into the national economy.

Social and Environmental Challenges

Despite economic progress, social challenges persist, particularly in youth unemployment and income inequality. The youth unemployment rate stands at around 10.2 per cent, reflecting a mismatch between skills and job market demands. Rural-urban disparities also remain stark, with rural populations facing limited access to healthcare, education, and financial services. To address these issues, the government has prioritised inclusive policies, expanding vocational training programmes and promoting entrepreneurship among the youth.

Bangladesh is also on the frontline of climate change, experiencing rising sea levels, floods, and cyclones that threaten livelihoods and economic stability. The government has ramped up its climate resilience efforts, investing in renewable energy, disaster management, and sustainable agriculture. Solar and wind power initiatives are expanding rapidly, with a target to generate at least 30 per cent of the country’s electricity from renewable sources by 2030. These efforts aim to reduce reliance on fossil fuels and mitigate environmental risks.

Another pressing issue is the Rohingya refugee crisis, which continues to strain Bangladesh’s economy and resources. The country hosts a substantial refugee population, and recent funding shortfalls have led to concerns over food shortages and humanitarian aid. UN Secretary-General António Guterres has urged increased international support to prevent a worsening crisis.

Looking ahead, Bangladesh’s economic future hinges on its ability to navigate these complex challenges while sustaining growth. Key policy recommendations include diversifying exports beyond RMG, enhancing FDI inflows through regulatory reforms, investing in human capital, expanding sustainable infrastructure, and strengthening governance. If managed effectively, these measures will position Bangladesh as a resilient and dynamic economy, paving the way for its transition to an upper-middle-income country in the coming years.