Written by The Banking Post
Bangladesh’s once-vaunted growth story is losing steam just as its South Asian neighbors are accelerating. A new Financial Stability Report from the central bank, released on August 18, paints a sobering picture of an economy grappling with faltering growth, stubbornly high inflation, and a fragile financial system.
Real GDP growth slowed to 4.22 percent in fiscal 2024, down from 5.78 percent the year before, and is projected to weaken further to just under 4 percent this year. Inflation, meanwhile, averaged nearly 10 percent—its highest in over a decade—while the taka lost 9 percent against the dollar. Exports and imports shrank, foreign investment fell by almost 12 percent, and the banking system—once considered a bulwark of stability—is now weighed down by thin capital buffers and a surge in bad loans.
By comparison, India, Sri Lanka and even crisis-hit Pakistan are poised for faster growth and lower inflation. “We are not sweeping anything under the carpet,” insisted acting central bank spokesperson Mohammad Shahriar Siddiqui, who argued that reserves have risen back above $30 billion, interest rates are now more market-driven, and liquidity remains adequate. But the numbers tell a more complicated story.
The slowdown has been fueled by political unrest, structural bottlenecks in the garment industry—the country’s export lifeline—and the erosion of consumer purchasing power. Food prices rose more than 10 percent last year, hitting households hard, while businesses remain wary of investing. Although remittances jumped by over 10 percent, providing much-needed relief to the balance of payments, the taka remains under pressure and external debt now stands at $103 billion.
The most alarming revelations lie in the banking sector. Capital buffers have eroded to just 7.31 percent—below international minimum standards—and non-performing loans have exploded to nearly a quarter of all outstanding credit. Siddiqui maintains the rise reflects greater transparency rather than fresh deterioration, but the report notes that weak oversight and imprudent lending have long plagued the sector. Non-bank financial institutions are even shakier: stress tests suggest that two-thirds would see their capital wiped out under a severe shock.
The central bank prescribes a raft of reforms, from tackling bad loans head-on to strengthening governance and diversifying exports beyond garments. It also urges investment in digital infrastructure and sustainable finance to restore confidence. Officials remain cautiously optimistic, pointing to rising reserves and a move toward market-based policies. But without decisive action, the report warns, Bangladesh risks falling further behind its South Asian peers at a critical moment for the region.
