Bangladesh enters 2026 facing a mix of cautious optimism and deep structural challenges, with economists warning that the post-election political trajectory, banking sector reforms and energy security will largely determine whether the economy stabilises or slips back into uncertainty after a difficult 2025.
Former World Bank chief economist in Dhaka Dr Zahid Hussain said a free, fair and credible election followed by a peaceful transfer of power could significantly improve business confidence and the overall investment climate in 2026.
“The most important question is not just whether the election will be held, but what happens after the election,” he said, noting that prolonged political uncertainty has kept investors on the sidelines.
According to him, if political uncertainty eases, some improvement could be seen in growth, inflation, employment and wages, which have remained largely stagnant in recent years. However, he cautioned that recovery will ultimately depend on how effectively the new government manages the economy and pursues reforms.
Reality check after a tough 2025
The outlook for 2026 comes against the backdrop of a challenging 2025, marked by high inflation, pressure on foreign exchange reserves, energy shortages, weak private investment and stress in the banking sector. While remittance inflows showed signs of resilience and agriculture avoided major shocks, industrial production struggled under high energy costs and supply disruptions.
Exports remained volatile, particularly garments, as global demand softened and competition intensified in key markets such as the US and Europe. Although fears of an immediate global recession eased, uncertainty over tariffs and geopolitical tensions continued to cloud the outlook.
Global headwinds, domestic weaknesses
Dr Zahid said rising global tariffs—especially in the US—pose risks for Bangladesh’s garment exports, with early signs already visible in slower imports and squeezed profit margins. Still, he does not expect tariffs alone to trigger a major economic shock if the global economy avoids a severe downturn.
“The bigger problem lies within our own weaknesses,” he said, identifying three major domestic risks: the energy crisis, fragility in the banking sector and political uncertainty. Unless these issues are addressed, Bangladesh will remain vulnerable to external shocks.
He stressed that reforms in energy supply, banking regulation and infrastructure management are essential. “We need to fix our own house first. Only then can we withstand external pressure,” he said, likening global economic turbulence to climate change—something countries must adapt to rather than avoid.
Banking sector emerges as top concern
Echoing similar concerns, CPD Distinguished Fellow Professor Mustafizur Rahman said the banking sector will be the single most critical economic agenda for Bangladesh in 2026. “Interest rates, investment and overall economic stability are all linked to banking reforms,” he said.
Although reform initiatives have begun, he warned that any loss of momentum or lack of standardisation could push the economy back into deeper trouble. “If there is complacency, we risk returning to the previous situation, which is unacceptable,” he said.
LDC graduation adds pressure
Both economists pointed to Bangladesh’s graduation from the least developed country (LDC) category in November 2026 as a major structural challenge. The transition will gradually reduce duty-free market access and trade preferences, increasing pressure on export competitiveness.
Professor Mustafizur noted that potential tariff policies under a future Trump administration, combined with geopolitical and geo-economic tensions, could further strain exports. Recent export data already reflect these pressures, he said.
To cope, he emphasised the need to boost productivity and skills at the enterprise level, ensure compliance, and create a supportive policy environment. Faster progress on free trade agreements and deeper engagement with regional markets in South and Southeast Asia will also be crucial.
Path forward hinges on reforms
Despite the challenges, both economists see room for moderate growth—around 4–5 percent—if political stability holds and no major global or natural shocks occur. Remittance inflows have been encouraging, exports are still growing overall, and agriculture remains relatively stable.
However, sustained recovery will depend on decisive action by the next government. Key priorities include resolving the energy crisis, cleaning up the banking sector, improving infrastructure and governance, reducing the cost of doing business, and restoring investor confidence.
“If the new government can tackle these structural problems,” Dr Zahid said, “Bangladesh can move forward in a more stable and organised way—even in a difficult global environment.”