Yet, beneath the rising optimism lies a paradox of performance vs perception. Critics of the interim administration have made much of a ‘lacklustre economic track record’, often overlooking how fragile the macroeconomic framework was when it took the reins.
Prior to the upheaval, Bangladesh’s economy showcased strong headline growth rates—averaging around 6-7% annually over the last decade. But this masked structural vulnerabilities that include weak revenue mobilisation and large current account deficits. There were lots of regulatory bottlenecks as well which sapped investor confidence.
The Muhammad Yunus-led interim government has been honest about these weaknesses, rather than conceal them behind glossy growth figures. That frankness has begun to resonate with international capital.
In FY24-25, net FDI into Bangladesh rose by nearly 20% y-o-y to about $1.7 bn, according to central bank stats, a meaningful uptick after several years of stagnation in foreign capital flows. Digging deeper into the numbers reveals a nuanced story, though. Reinvested earnings grew by about 23.3% in FY25, and intra-company loans surged by more than 180%, together forming the bulk of the increase, while the equity capital component—often seen as the clearest signal of new investor commitment—fell by about 17% and accounted for just one-third of total FDI, down from 45% the year before.
This suggests that while confidence is creeping back, fresh capital formation still has a long way to go before it reaches levels needed to meaningfully accelerate structural transformation. Analysts caution that headline figures can obscure deeper imbalances in quality and sustainability of investment. For the first time in recent records, net FDI flows from the US turned negative, largely due to divestments in the energy sector following political uncertainty, with US investment dropping sharply from multi-billion stock levels to a modest $59.5 mn net inflow as of FY25.
This reflects a broader pattern of global investors carefully parsing regulatory and political risk before committing fresh capital. The overall stock of foreign investment also remains heavily concentrated in a few sectors, suggesting that Bangladesh’s broader industrial appeal is still in nascent stages.The macroeconomic picture is equally mixed. After slowing sharply in the wake of political upheaval in 2024-25, Bangladesh dodged a full economic contraction but settled into lower growth territory. IMF projected about 4.9% GDP growth for the current fiscal year—a downgrade from earlier forecasts.
Inflation, once entrenched in double digits, is forecast to ease, but will remain elevated relative to pre-crisis norms. External support from multilateral lenders, including a World Bank budget support signal of about $500 mn, underlines the international community’s cautious backing of Bangladesh’s stabilisation efforts.
The interim government’s fiscal space, however, is strained by weak tax revenues that lag regional peers, and by high debt-servicing costs. Tax-to-GDP ratios have eroded over the years, squeezing the state’s ability to invest in infrastructure and social services just when such spending is most crucial. The head of National Board of Revenue has warned of a potential ‘debt trap’ as servicing obligations rise, a stark reminder that growth momentum alone cannot offset underlying financial fragilities.
Persistent inflation, particularly in staple food prices, continues to erode household purchasing power, undermining domestic demand and further complicating the recovery narrative. Private sector investment, long seen as the true engine of sustained growth, has also slowed sharply. Imports of capital machinery—a key indicator of business expansion—fell by roughly 25% in FY24-25 fiscal year, compared with the previous year, with letters of credit for such machinery declining by similar margins. During the same period, private credit growth slid to around 6.49% in mid-2025, down from nearly 10% a year earlier and marking historic lows, signalling banks’ reluctance to lend, and weak demand for loans.
In contrast, remittance flows have remained robust. Expat Bangladeshis sent an all-time high of around $30 bn in remittances in FY24-25, about 27% y-o-y increase, which helped shore up foreign exchange reserves and support balance of payments.
Remittance receipts accounted for more than 6% of GDP, and covered nearly 50% import payments during the period.
Bangladesh’s investment challenges, however, are structural as much as cyclical. Dhaka has recognised the urgency of structural reform. Simplifying tax policy, broadening the base, improving compliance, and enhancing investment climate are widely seen as prerequisites for unlocking Bangladesh’s potential. Reforms in these areas won’t only boost revenue mobilisation, but also send stronger signals to global capital about the seriousness of the country’s economic turnaround.
The writer is minister (press), Bangladesh High Commission, New Delhi