An economic miracle in 2026 is unlikely

Bangladesh's economy showed signs of consolidation in 2025. Market liquidity, especially foreign currency liquidity, improved significantly, driven by a rise in wage earners' remittances, a moderate increase in exports, and higher foreign aid disbursement. Inflation, however, continued to remain stubbornly high. The Bangladesh Bank had limited room to act, as the government relied heavily on high-cost borrowing from the banking sector. At the same time, debt defaults continued to weaken banks' ability to extend fresh credit.

High interest rates discouraged even capable entrepreneurs from pursuing new investments. Large banks found a "safe haven" in high-yield government treasury bonds rather than extending new loans to the private sector.

The interim government largely opted to maintain the status quo in public financial management. As a result, no new model emerged for budget allocation, social safety net management, or broader fiscal policy. Long-pending revenue reforms were pushed forward under IMF pressure, but deeper restructuring faltered due to legacy constraints within the civil bureaucracy. Some directional steps were visible from the central bank, yet tangible results will take years. These include identifying the holes created by bad loans and capital flight in large bank balance sheets, recovering siphoned-off funds, recapitalising major banks, and realising the benefits of Islamic banks' merger.

As a result, we can only be cautious about expectations for 2026. Development partners and the investment community have pinned high hopes on the national election scheduled for February, expecting political clarity to restore confidence among entrepreneurs and investors. Many believe this could open the door to higher job creation and stronger growth.

Inflationary pressure is also expected to ease. Analysts point to softer global food and energy prices, along with gradual domestic stabilisation. Still, a full economic turnaround will take time, as any new government will need months to design and implement effective policies. Much will depend on the direction the new leadership chooses and who ultimately drives decision-making. Ironically, even with a new government, limited change may occur unless the country abandons its age-old approach to economic management. Some relief is likely from improvements in the balance of payments and foreign exchange reserves.

The financial sector endured a difficult 2025, weighed down by rising non-performing loans. The merger of five troubled banks, though not yet visible in outcomes, is expected to create a stronger foundation for lending and financial stability in 2026.

Ongoing reforms are still very weak, but combined with the stability of a five-year policy horizon, they could give businesses greater confidence to invest. Higher investment following an inclusive and fair election would support employment, purchasing power, and overall growth.

Given the role of multiple stakeholders in Bangladesh's economic journey, the new government should engage more actively with global investors, trade partners, and development agencies. This requires political stability and peace in production belts. A conducive law and order situation is non-negotiable. Lower energy and food prices, alongside resilient global supply chains, could further support growth, provided no major disruptions emerge.

Several challenges from 2025 are likely to spill into the new year. Investment remains sluggish, and the pressure to create decent jobs for young people continues. In an emerging economy like Bangladesh, inflation must be managed carefully through market oversight and supply-side measures. Rising debt repayments call for stronger domestic revenue mobilisation through tax digitisation, capacity building, a firm stance against corruption, reduced VAT leakages, and expanded income tax collection. Close monitoring of the exchange rate is also essential.

Export growth has slowed in recent months, highlighting the need to lower the cost of doing business, improve turnaround times, and better management of industrial zones.

While diversification of products and markets has long been discussed, progress remains limited. As Bangladesh prepares to graduate from the LDC category this year, these measures will demand sharper focus and decisive action.

The writer is an economic analyst and chairman at Financial Excellence Ltd