The interim government has pulled the economy back from the brink, but investment remains in the doldrums
When Finance Adviser Salehuddin Ahmed answered his phone last week, he sounded like a man who had finally been allowed to exhale. The tenor of his voice marked a sharp contrast with the start of 2025. Back then, he was visibly strained, besieged by competing demands and an economy teetering on the edge. He was navigating a minefield of populist pressures, with professional bodies clamouring for pay hikes just as the treasury’s coffers came under mounting stress.
As 2025 draws to a close, a balance-sheet assessment suggests that the change in mood is justified. Bangladesh has survived a year of economic triage.
For all latest news, follow The Daily Star’s Google News channel. The interim government, tasked with steering the country through a volatile political transition, has managed to stabilise the economy. But as economists say, the ledger remains heavy with liabilities. Stability has come at the cost of growth, investment, and the welfare of the poor.
To understand the sense of relief in the finance ministry, one must recall how the year began. The balance of payments was deeply in deficit, foreign exchange reserves were eroding, inflation was entrenched in double digits, and the banking sector was burdened with bad loans. Any administration would have struggled under such conditions, let alone an interim one.
The government’s foremost priority was to keep the International Monetary Fund on board. Without the IMF’s seal of approval, vital budget support from the World Bank and the Asian Development Bank would have remained out of reach. This required a reset in priorities: rebuilding reserves and plugging revenue shortfalls.
Negotiations in Dhaka and Washington grew tense, at times threatening to collapse. The IMF pushed for market-based exchange rates and strict revenue targets. The demands triggered backlash at home. Officials at the National Board of Revenue went on strike, while business leaders protested value-added tax hikes on essential goods.
It was a familiar standoff between political feasibility and economic necessity. In the end, the deal held.
Talks concluded in May, unlocking nearly $3 billion in budget support from the IMF and other multilateral lenders in June. That infusion of liquidity proved decisive.
The impact is now visible in the data. The exchange rate, once a source of daily anxiety, has stabilised, hovering between Tk 120 and Tk 122 to the dollar. Gross foreign exchange reserves are gradually rebuilding, reaching $32.5 billion.
The external balance has flipped as well. In the first four months of the current fiscal year, Bangladesh recorded a surplus of more than $1 billion, a sharp turnaround from the $2.2 billion deficit posted during the same period a year earlier.
Speaking to The Daily Star, Salehuddin offered a firm defence of the administration’s record. “I am satisfied because what we have done, we have done transparently,” he said. He insisted that
the economy’s underlying fundamentals remain sound, even if they are not immediately apparent. “At the micro-level, people from the outside don’t realise it — things are very strong.”
Not everyone shares his optimism. Zahid Hussain, a former lead economist at the World Bank’s Dhaka office, described 2025 as a year of “mixed progress.”
While he acknowledged significant improvements in stability indicators — reserves, the balance of payments, and exchange rates — he argued that activity indicators paint a less encouraging picture.
“In terms of activity, it is slow, or you could say stagnant. There is a drought in investment,” he said.
STICKY PRICE OF LIVING
Inflation proved particularly stubborn. While global price pressures eased — especially across South Asia after the initial shock of the Russia-Ukraine war — Bangladesh remained an outlier.
Consumer prices began rising sharply in March 2022, breaching the 10 percent mark in October 2024. On a moving-average basis, inflation stayed above that threshold for nine consecutive months. The fever finally broke in July 2025, following a prolonged spell of fiscal and monetary tightening.
By November, inflation had eased to 8.96 percent. Food inflation, which had crossed 14 percent at its peak, has also begun to decline. Still, the cost of living remains a potent political challenge. Salehuddin conceded that non-food inflation has proven especially rigid. As he put it dryly, “Landlords do not want to lower rents.”
To keep prices in check, the central bank has maintained a tight monetary stance. Borrowing costs remain high, a policy Salehuddin admits is a double-edged sword. “We wanted to lower the policy rate,” he said, but the central bank governor urged caution, advising them to “wait a little longer.”
This monetary restraint, combined with a vigorous anti-corruption drive, has dampened private sector sentiment. The government has moved aggressively to clean up the banking system and pursue tax evasion, but the crackdown has unsettled businesses.
“When we catch this person or that person, even the good ones get a little scared,” Salehuddin explained. Legitimate firms are proceeding cautiously, worried that minor deviations could invite major scrutiny. “They ask themselves, ‘What if there is a deviation again?’ So they move very carefully.”
Zahid believes this climate of fear, compounded by political uncertainty, lies at the heart of the investment drought. “Investment has dried up,” he said bluntly. Investors are sitting on the sidelines, concerned that a future elected government could reverse current decisions.
“They think, ‘What if the next government declares this null and void?'” Salehuddin said, though he dismissed the likelihood of such reversals.
The slowdown is evident in the growth numbers. Provisional data from the Bangladesh Bureau of Statistics show GDP growth fell to 3.97 percent last fiscal year — the first time it has dipped below 4 percent since the Covid-19 shock in 2020.
The finance ministry has tempered its expectations, revising the current fiscal year’s growth target to 5 percent from 5.5 percent. While officials are banking on resilience in agriculture and industry, Bangladesh’s multilateral partners remain cautious. Both the World Bank and the ADB project growth in the 4-5 percent range.
Exports, traditionally the economy’s main engine, are also losing steam. Salehuddin maintained that the garment sector is “at least not too bad,” but the data tell a weaker story.
After a strong start to the year, exports have “slumped quite a bit” over the past four months, Zahid said. He attributed part of the slowdown to external shocks beyond the government’s control, including shifts in global trade policy triggered by renewed Trump-era tariffs.
“Here, as a driver, the government has nothing to do,” Zahid said, while praising recent improvements in trade facilitation.
FISCAL SURGERY AND THE MISSING SAFETY NET
Fiscal discipline has been the government’s watchword, largely out of necessity. Debt servicing costs have surged, with interest payments rising 17.31 percent last fiscal year. Subsidies ballooned by 49 percent as the government cleared years of accumulated arrears, pushing the total subsidy bill to Tk 108,672 crore.
Despite these pressures, the budget deficit was contained at 3.6 percent of GDP. This was achieved mainly by slashing development spending. Implementation of the Annual Development Programme was weak, with only 66 percent of the revised allocation utilised last year. Performance has worsened further this fiscal year, with just 4.6 percent of the development budget spent in the first three months.
The most ambitious reform has come in revenue administration. After revenue growth languished at just 1.9 percent last year, equivalent to 6.6 percent of GDP, the government initiated a structural overhaul. The NBR is being dismantled and replaced by two separate bodies: a Revenue Policy Department and a Revenue Management Department.
Early signs are encouraging. Revenue collection jumped 20.3 percent in the first quarter.
Still, the human cost of stabilisation has been high. “From the perspective of the common man’s welfare, the situation has not improved,” Zahid said. Poverty and inequality have risen — not created overnight, but accumulated since 2022 and now fully realised. “The number of poor people has increased.”
He pointed, however, to a crucial non-economic offset: liberty. “One of the indicators of welfare is freedom of speech,” Zahid argued. “If you are poor and cannot speak or vote, that is unbearable.” In that sense, 2025 delivered a “freedom of speech dividend” compared to the stifling atmosphere of 2024.
THE ROAD TO 2026
As the year ends, the outlook is clearing. The announcement of an election schedule, accepted by all major political parties without dissent, may finally unlock pent-up investment. “No one said ‘if’ or ‘but,'” Zahid observed, suggesting that political stability is now within sight.
Salehuddin believes the real economic dividend will come after the transition. “The economy will be even better after the election,” he predicted, as certainty returns for both domestic and foreign investors. For now, he takes comfort in the validation of international partners. “They are pleased,” he said, even as they caution that challenges remain.
Bangladesh enters 2026 with a cleaner ledger but a stalled engine. The interim government has acted as a stabiliser, launching reforms that Zahid describes as only a beginning.
“The overall management is much better” than the chaos inherited a year earlier, Salehuddin argued, correctly. The task for the next elected government will be to convert these mixed results — greater stability but weaker activity — into broad-based growth.
Until then, the finance adviser may sleep a little easier, but the economy remains only half-awake.