PRI Report: Stability returns to Bangladesh economy amid inflation, weak investment

Bangladesh’s economy is stabilising, driven by tight monetary policy, fiscal discipline, robust exports and strong remittances, although inflation and weak wage growth continue to weigh on households, according to the June–July 2025 issue of Bangladesh Monthly Macroeconomic Insights (MMI) by the Policy Research Institute of Bangladesh (PRI).

Investment activity, however, remains subdued, with capital machinery imports falling 20–25 per cent and construction sector growth decelerating sharply, highlighting broader challenges for future economic expansion and job creation, the report adds.

The paper, prepared under PRI’s Centre for Macroeconomic Analysis (CMEA) initiative in partnership with the Department of Foreign Affairs and Trade (DFAT) of the Australian Government, was released on Thursday at an event held at PRI’s Dhaka office.

Mohammad Akhtar Hossain, Chief Economist of Bangladesh Bank, attended as chief guest, while experts, economists and private sector representatives spoke at the event, chaired by Dr Khurshid Alam, Executive Director of PRI.

Business leaders said at the event that political uncertainty, rising cost of business and high interest rates have resulted in stagnation in the investment.

They warned that unemployment and poverty have also risen, and unless uncertainty is resolved, investment and economic growth are unlikely to improve.

Mohammad Akhtar Hossain said at the event, the major challenge the country is facing high inflation, currently at around 9 per cent, and efforts are underway to bring it down to 3.0 per cent swiftly.

He added that once this target is achieved, long-term monetary policy measures will be implemented to maintain inflation around 4.0 per cent with some short-term fluctuations.

Achieving this would reduce deposit and lending rates and lower costs for businesses, supporting economic activity and investment, he added.

Dr Ashikur Rahman, Principal Economist, PRI presented keynote at the event and said, Bangladesh is facing a major slowdown in investment, with capital machinery imports falling 20–25 per cent and construction sector growth weakening sharply.

Industrial production rose slightly in June but remained weak, while the ready-made garment and mining sectors underperformed, he added.

He also said that, electricity generation in July fell 1.0 per cent year-on-year, reflecting the sluggish overall growth.

To meet rising energy demand and boost gas-based power generation, the government increased LNG imports by 43 per cent in June, while electricity imports rose 13 per cent over the same period.

“Headline inflation increased marginally to 8.55 per cent in July on the back of food price pressures, though the broader trend suggests moderation; however, the 12-month average remains elevated at 9.77 per cent.

The external sector staged a notable turnaround in the last fiscal, posting a $3.4 billion balance of payments surplus after three years of deficits, supported by record remittances and strong exports, with reserves reaching $25 billion, covering 4.5 months of imports.

Meanwhile, BB is pushing through reforms, merging weak banks and liquidating nine non-bank financial institutions to stabilise the financial system.

Anwar-Ul-Alam Chowdhury (Parvez), President of the Bangladesh Chamber of Industries (BCI), said that accountability in the country is improving; however, the private sector faces significant challenges, including declining credit, falling demand, and losses in major industries such as cement, footwear, and textiles.

“Retail shops are closing, small enterprises in rural areas are shutting down, and major companies are reporting 35–40 per cent lower profits,” he said, noting that these trends have been building over five to six years.

Dr Nasiruddin Ahmed, former Chairman of the National Board of Revenue (NBR) criticized the audit practices of the NBR, calling for a more targeted computerised random audit system.

He emphasised separating policy formulation from implementation and highlighted rising business costs due to higher supplementary duties.

Habibullah N Karim, Senior Vice President of MCCI, warned that extreme poverty and unemployment are alarming indicators of jobless growth, urging policy-driven incentives to boost ICT, agro-processing, and RMG sectors.

Dr Ahmad Ahsan, Director of PRI, cited historical lessons, noting that Bangladesh could have become a global manufacturing hub like Vietnam, but political uncertainty and weak policy implementation have limited growth.

He stressed that stabilising the political environment is crucial to reducing uncertainty and reviving investment, employment, and overall economic growth.

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