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06-12-2025
DHAKA: The recent wave of pessimism surrounding Bangladesh’s economy under its interim administration, much of it amplified by selectively framed local commentary, offers an incomplete and often misleading portrait of the country’s actual economic trajectory. Much of this concern is overstated, as the headline indicators reflect a necessary structural correction rather than an economic collapse.
While elevated inflation and a battered banking sector are real and serious challenges, they do not amount to evidence of an economy in free fall.
A more careful reading, one that accounts for the disruptive legacy of the previous administration and the corrective measures undertaken after the political transition, reveals a difficult but necessary period of structural rebalancing.
The claim that the new government is inheriting a crippled economy overlooks the fact that the previous administration left behind a financial system that resembled a house of cards, propped up by manipulated data and systematic concealment of risk.
To portray the current economy as stagnant is to ignore Bangladesh’s longer arc of resilience in South Asia. Despite the global shocks that followed COVID-19 and the Russia-Ukraine war, the country delivered stronger growth than most of its regional peers.
It registered 3.5 percent growth in 2020, followed by 6.9 percent in 2021 and 7.1 percent in 2022. Today’s slower growth reflects deliberate fiscal tightening aimed at restoring macroeconomic balance after years of excess.
Rather than a sign of decay, this is the predictable cooling that follows the end of artificial stimulus.
The anxiety around nonperforming loans and private sector credit tells an even more revealing story, not of new stress but of long-buried weaknesses finally exposed.
The alarming rise in nonperforming loans, with figures ranging from over 20 percent in ADB assessments to more than 35 percent under the central bank’s revised classification rules, stems from a long-overdue commitment to honest accounting.
For years, the previous regime reportedly pressured regulators to gloss over defaults, relax classification standards, and extend loan rescheduling indefinitely. The result was a banking sector that looked superficially healthy while quietly deteriorating.
The surge in nonperforming loans is therefore the price of confronting the system’s real condition.
The compression in private credit growth, which dipped to about 6.29 percent in late 2025, must also be understood in context. Previous double-digit credit growth was inflated by massive, politically connected borrowing that produced little real economic return and ultimately fed into the ballooning nonperforming loan crisis.
Many of these loans were never intended to be repaid and were allegedly funnelled into overseas real estate or offshore accounts. In contrast, banks today are more cautious, with credit flowing into sectors less vulnerable to default.
The volume of lending has decreased, but the quality has improved. An economy cannot build sustainable growth on a mountain of bad debt. The current adjustment reflects a shift towards stability rather than a collapse in investment appetite.
These corrections in the financial sector are only one part of the broader adjustment. The most decisive rebuttal to claims of stagnation is the transformation under way in the fiscal and external sectors. In an unusual show of discipline, the government has sharply reversed the longstanding 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, in stark contrast to the more than 150 billion taka ($1.23bn) borrowed during the same period a year earlier. (Int’l Monitoring Desk)
