The latest World Bank report, “World Economic Prospects (January 2025 Edition),” paints a concerning picture for Bangladesh’s economy. The report highlights slower economic growth, persistent inflation, and a challenging outlook for the current fiscal year (2024-25). Factors such as political instability, declining investment, and industrial slowdown are identified as key contributors to this economic deceleration.
Decline in GDP Growth
The World Bank forecasts Bangladesh’s GDP growth to decelerate to 4.1% in the fiscal year 2024-25. This marks a steep decline from the 5.82% growth recorded in 2023-24, and is 1.6 percentage points lower than earlier predictions. Historically, Bangladesh has experienced robust growth, with GDP increases exceeding 6% annually. However, recent years have shown a troubling trend:
- 2021-22: 7.10% growth.
- 2022-23: 5.78% growth.
- 2023-24: 5.82% growth (provisional estimate).
The slowdown indicates a significant loss in economic momentum, which could have serious ramifications for employment and household income. According to the Bangladesh Bureau of Statistics (BBS), while nominal incomes increased by approximately 8% in December 2024, real income remains under pressure due to inflation hovering near 11%, effectively eroding purchasing power.
What is GDP Growth?
GDP growth represents the annual increase in a country’s production of goods and services. A decline signals a sluggish economy, reduced job creation, and diminished business activity. The ongoing economic stagnation in Bangladesh could further exacerbate unemployment rates and limit opportunities for income growth.
Inflation Challenges
Bangladesh’s inflation rate remains stubbornly high, with December 2024 inflation recorded at 10.89%, according to the BBS. This figure starkly contrasts with neighboring countries that have successfully curbed inflation through proactive measures:
- India: Inflation reduced to 5.22% by December 2024.
- Sri Lanka: Recorded deflation of -1.7% in the same period.
- Pakistan: Achieved single-digit inflation of 4.1%.
Economic experts attribute Bangladesh’s persistent inflation to a lack of coordinated policy efforts. Notable issues include:
- Inconsistent monetary policies, such as increasing interest rates to curb inflation, conflicting with higher taxes that drive up consumer prices.
- Disjointed administrative measures, like allowing egg imports while other government bodies impose barriers to market entry.
- Rising fuel and energy costs, further inflating production and transportation expenses.
Key Factors Behind the Economic Slowdown
- Political Uncertainty
Ongoing political instability has dampened investor confidence, causing a decline in both domestic and foreign investment. Businesses remain wary of potential disruptions, and industries are scaling back on production, citing challenges in planning long-term projects.
- Energy and Supply Chain Issues
Fuel shortages, import restrictions, and logistical inefficiencies have disrupted industrial production. Limited access to raw materials and energy is stalling growth in key manufacturing sectors, such as textiles, which contribute significantly to exports.
- Structural Inefficiencies
Bangladesh’s reliance on traditional economic models and outdated infrastructure has hindered competitiveness. In contrast, regional peers like Vietnam and India are leveraging digital transformation and policy reforms to attract investors and boost productivity.
Global and Regional Comparisons
While Bangladesh faces mounting challenges, other South Asian economies are showing signs of recovery:
- India: Projected GDP growth of 6.5% for 2024-25, driven by strong domestic demand and digital infrastructure investments.
- Pakistan: Expected to grow by 2.5% in 2023-24, recovering from a severe economic slump through policy interventions and foreign aid.
- Sri Lanka and Nepal: Both economies are stabilizing post-crisis, with projected GDP growth of 3.5% and 5.1%, respectively.
Bangladesh’s economic prospects are less optimistic in the short term. However, the World Bank projects GDP growth to improve to 5.4% in 2025-26, provided political stability returns and reforms are implemented.
Economic Risks for 2025
The World Economic Forum (WEF) identifies five major risks for Bangladesh in its Global Risk Report 2025:
- High Inflation: Persistent price increases eroding purchasing power.
- Extreme Weather: Climate-related risks such as floods and heatwaves disrupting agriculture and infrastructure.
- Environmental Pollution: Widespread air, water, and soil contamination.
- Unemployment and Lack of Opportunities: Limited job creation amid slower economic growth.
- Economic Stagnation: Challenges in revitalizing industries and exports.
These risks underscore the urgent need for comprehensive and timely reforms.
Policy Recommendations
Economists and business leaders have proposed several measures to address these challenges:
- Enhance Political Stability: Political calm is essential to restore investor confidence. Transparent governance and fair elections could encourage investment and drive economic growth.
- Strengthen Inflation Control: The government must adopt a coordinated approach to tackle inflation, including harmonizing monetary and fiscal policies and ensuring market stability.
- Invest in Energy and Infrastructure: Addressing energy shortages and upgrading infrastructure will boost industrial productivity and exports.
- Support Private Sector Engagement: Greater collaboration with the private sector can spur innovation and attract foreign direct investment.
- Implement Structural Reforms: Modernizing financial regulations, improving ease of doing business, and fostering digital transformation are critical for long-term growth.
Optimism for the Future
Despite the current economic challenges, there is hope for recovery. Abul Kasem Khan, former president of the Dhaka Chamber of Commerce and Industry, remains optimistic. He suggests that ongoing reforms and improved law enforcement, coupled with stable energy prices and reduced interest rates, can help Bangladesh overcome its current hurdles.
However, these measures must be implemented swiftly and efficiently to prevent long-term damage to the economy. National elections in 2025 could also play a pivotal role in shaping the economic outlook by influencing both domestic and international confidence in the country.
Bangladesh stands at a critical juncture in its economic journey. The slowdown in GDP growth and persistent inflation pose significant challenges, but they also present an opportunity for reforms and policy innovation. By addressing structural inefficiencies, ensuring political stability, and fostering a supportive environment for businesses, Bangladesh can regain its economic momentum and secure a brighter future for its citizens.
