Political stability has improved following the formation of a BNP-led government through national elections, but Bangladesh’s overall economic risk has increased, according to a new report by Oxford Economics.
The report, titled “Political calm returns, but risks of transformation remain,” says Bangladesh’s economic risk score has risen by 0.4 points to 7.1 since last August, compared with a regional average of 5.1 in Asia-Pacific. The country now ranks 141st out of 164 economies in the Global Risk Index.
While peaceful elections have reduced political uncertainty, the report notes that it will take time for investor and business confidence to fully recover.
Oxford Economics assesses risk based on five indicators: market demand, market spending, exchange rate stability, government credit quality and trade debt, using a scale of 1 to 10.
Bangladesh’s most significant vulnerability lies in trade debt, which scored the maximum 10. The report cites large loan defaults — particularly in state-owned banks — weak regulatory oversight and limited credit information. Lending has been concentrated among large borrowers and the services sector, while relatively low-risk household and housing sectors have received less credit.
The broader credit environment scored 8, reflecting high interest rates and mounting non-performing loans.
Market demand risk stands at 7, above the regional average of 5.1. Political instability in recent years, regulatory hurdles, uncertainty in development projects and heavy reliance on remittances from Middle Eastern countries have heightened vulnerability.
Exchange rate risk is rated at a moderate 5. Although a floating exchange rate has been introduced, Bangladesh Bank continues to intervene. The taka has stabilized somewhat after a sharp devaluation last year, and foreign exchange reserves have recovered, though they remain below pre-pandemic levels. Continued reforms under the International Monetary Fund (IMF) program could improve stability in the medium term.
Oxford Economics has lowered Bangladesh’s GDP growth forecast for fiscal year 2025–26 to 4.5 percent, down from 4.7 percent, citing trade slowdown and persistent inflation. Growth is projected to rebound to 5.7 percent in 2026–27.
Inflation remains a major challenge. After briefly easing, it rose to 8.6 percent (annualized) in January, up from 8.2 percent in October. The central bank has maintained the policy rate at 10 percent to curb inflation and rebuild reserves. However, with wage growth around 8 percent, real purchasing power has eroded, dampening consumer demand.
The export sector — particularly ready-made garments — faces renewed pressure. Although exports rebounded in the third quarter last year, they declined in the fourth quarter due to weaker advance orders from the United States and reduced demand in Europe, including Germany. The United States and Germany together account for about one-fifth of Bangladesh’s total goods exports.
Service exports have also declined, adding to external pressures.
Foreign exchange reserves rose to $22 billion in mid-last year, up from around $17 billion in 2024, supported by tight monetary policy and IMF assistance. However, current reserves cover only about four months of imports.
Investment growth is expected to remain subdued due to reduced government spending and high borrowing costs. With inflation still well above the central bank’s 7 percent target, a near-term easing of monetary policy appears unlikely.
Despite the return of political calm, the report concludes that structural weaknesses and reform-related risks continue to weigh heavily on Bangladesh’s economic outlook.
Bd-pratidin English/ Jisan
