Bangladesh's political economy is at a crossroads
Bangladesh will graduate from Least Developed Country (LDC) status in November 2026, which was the poster child of the "Development Miracle" by the UN Office of the High Representative for Least Developed Countries. Unfortunately, after the regime of the fascist Awami League Govt., that miracle is colliding with a harsh political reality. The transition from long-term oligarchy to extremely weak and fragmented democracy leaves Bangladesh with the transitory tensions of the problems of power and money. The current government, led by the Bangladesh Nationalist Party (BNP), has inherited a hollowed-out economy. Unfortunately, its initial moves suggest it may be falling into the same traps of political patronage that crippled its predecessor.
The recent economic indicators were found alarming. According to the Bangladesh Bureau of Statistics (BBS), the Gross Domestic Product (GDP) growth of Bangladesh has plummeted for 3 consecutive years, reaching only 3.49% in the fiscal year 2024-25. While the previous Awami League administration boasted of high growth, that growth was "Jobless" and exclusionary. Between 2016 and 2022, nearly half of the 14 million youth entering the labor market each year found no work, while those who did were often pushed into low-productivity work.
This is the foremost failure of Bangladesh's political economy: a system which designed to enrich a narrow elite at the expense of the masses. Wealth concentration has reached a breaking point, with the top 5% of the population now controlling one-third of the national income. Meanwhile, the middle class is shrinking and inflation is currently at 8.71%, is cannibalizing real wages. For the 36 million Bangladeshis living below the poverty line, the "miracle" never arrived.
The banking sector serves as the clearest autopsy of this cronyism. Decades of political interference allowed "oligarch" business groups to treat banks as personal slush funds, leading to a culture of non-repayment. Defaulted loans have surged to a staggering 35.73% of total credit—the highest in Asia. While the interim government began the painful process of investigating these financial crimes, the new administration's appointment of a businessman as Central Bank Governor has signaled a potential return to "business as usual".
The government is now caught in a "populist trap." To secure its base, it has promised expensive measures: family cards, farmers' cards, agricultural loan waivers, and unemployment benefits. The Tax-to-GDP ratio of the country has fallen below 7% for the first time in 15 years, meaning the government lacks the revenue to fulfill its own promises without printing money and further stoking inflation.
External shocks are tightening this vice—the conflict involving the Middle East has spiked energy crisis & prices (also increased daily necessary commodity price), forcing a desperate government to choose between crippling subsidies or inflationary price hikes. This year, 1.7 million people will get out of poverty due to the conflict in the Middle East. Without a proper macroeconomic plan, the country is also likely to face a spiral of continual devaluation and increasing debt.
The path forward requires more than technical adjustments; it requires separating politics from private sector development, between political power and private gain. Moreover, Govt. must move beyond populist promises and election-cycle rhetoric to formulate a comprehensive macro-economic stability strategy.
First, the government must ensure the Central Bank's absolute autonomy. The recent impulse to lower interest rates for political optics must be resisted.
Second, banking reform must be blind to party loyalty. Those who looted the Bank and financial system under the previous fascist regime and those attempting to do so under the current one must face prosecution and asset recovery.
Finally, the government must prioritize revenue collection over rhetoric by reforming the National Board of Revenue (NBR), Bangladesh, to ensure the wealthy finally pay their taxes and the coverage of the tax net must be extended by creating hassle-free tax return submission.
Bangladesh is at a crossroads in navigating deepening crises and structural reform. The time for cosmetic fixes is already ended due to the bank robbery of previous fascist governments and the energy crisis as a result of the Iran war. If the ruling government fails to restore investor confidence and repair the financial stability of the state, the current economic "pressure" will inevitably transform into a systemic collapse.
Arafatur Rahaman is a Research Analyst from Southeast University, Bangladesh. His academic work focuses on political economy, governance, and development policy, with research spanning finance, migration, and digital transformation. He engages with global policy debates by bridging perspectives from Asia and the West.
