The Bangladesh Nationalist Party (BNP) has taken office with a strong parliamentary mandate but a fragile economy, inheriting more than Tk23 lakh crore in public debt, persistent inflation, energy crunches, weak private investment and a stressed banking sector.
Economists say the political transition has removed a layer of uncertainty, but the government’s credibility will depend on how swiftly it addresses immediate macroeconomic risks while laying out a coherent medium-term reform agenda.
Economist Zahid Hussain said the interim administration managed to avert a deeper crisis, but underlying vulnerabilities remain.
“Foreign exchange reserves have recovered and exchange rate pressures have eased compared to 2024. But growth momentum is weak, private investment is stagnant and the banking sector remains fragile,” he said. “The new government must focus on restoring macroeconomic discipline and rebuilding investor confidence.”
According to Bangladesh Bank data, total public debt stood at Tk23,25,155 crore by December, driven largely by heavy domestic borrowing. Government borrowing from banks grew nearly 32% last year, significantly overshooting monetary policy targets.
Economists warn that such borrowing risks crowding out private sector credit. Private loan growth slowed to just over 6% in December, one of the lowest rates in recent years, as lending rates climbed to 14-15% under tight monetary policy.
“The first priority is a credible fiscal strategy,” Zahid Hussain said. “The government has to balance debt servicing, election commitments and inflation control. If fiscal discipline weakens, inflationary pressure could resurface.”
Election a necessary, not sufficient condition
Mustafizur Rahman, distinguished fellow at the Centre for Policy Dialogue (CPD), described the election outcome as a “necessary condition” for economic recovery.
“A peaceful and credible election has removed uncertainty and sent a positive signal to trade and commerce,” he said. “But that alone will not revive investment. Improvements in law and order, good governance, institutional efficiency and macroeconomic stability are essential.”
He stressed that reducing the cost of doing business, strengthening contract enforcement and ensuring regulatory consistency are crucial to attracting both domestic and foreign investment.
“Investment will not surge overnight simply because political stability has returned,” Mustafizur said. “But early, coherent reforms can send a strong signal that confidence will gradually be restored.”
First test: inflation and Ramadan
The new government’s first major credibility test will come during Ramadan, when prices of essential commodities typically rise.
Headline inflation eased to 8.58% in January but remains elevated, eroding purchasing power. Economists say effective supply chain management, market monitoring and anti-hoarding measures will be critical to containing seasonal price spikes.
Failure to stabilise food prices early in its tenure could undermine public trust before broader reforms take hold.
Budget pressures and debt legacy
The upcoming national budget will be central to defining the government’s economic direction.
The administration faces a threefold fiscal challenge: servicing inherited debt, fulfilling electoral pledges and maintaining macroeconomic stability. Promises such as a new pay scale for public employees and expanded social programmes could significantly increase expenditure.
Revenue performance, however, remains weak. Even in the first half of the current fiscal year, collections fell short of targets, increasing reliance on bank borrowing.
Mustafizur Rahman cautioned that excessive debt-financed spending could reignite inflationary pressure.
“Domestic resource mobilisation must improve. Without revenue reform, fiscal space will remain constrained and reliance on borrowing will continue,” he said.
Banking sector risks
The banking system remains another major concern. Non-performing loans surged to around Tk6.44 lakh crore last September, with the default rate exceeding 35%.
Zahid Hussain said restoring discipline in the financial sector will be critical for medium-term stability.
“Banking sector governance and regulatory autonomy must be strengthened. Without credible reforms, private investment will not recover,” he said.
Economists argue that completing bank restructuring, accelerating loan recovery and reducing political interference in lending decisions are necessary to restore financial sector health.
Business leaders cautiously optimistic
Business leaders have expressed cautious optimism following the election, hoping political stability will revive investor sentiment and ease operational disruptions.
However, they continue to cite high interest rates, energy constraints, logistical bottlenecks and bureaucratic delays as major obstacles to expansion. Many say policy predictability and faster regulatory approvals will be key to unlocking fresh investment.
Mustafizur Rahman emphasised that macroeconomic stability and governance reform must go hand in hand.
“Ease of doing business must improve, and institutional efficiency must be strengthened. Only then will investment flows increase,” he said.
A narrow window
Foreign exchange reserves have climbed above $34 billion, offering short-term breathing space. Remittance inflows have improved and exchange rate volatility has moderated. Yet export growth has softened and structural weaknesses persist.
Economists say the BNP government’s early months will determine whether political capital can be converted into reform momentum.
Immediate priorities include controlling inflation during Ramadan, presenting a credible and disciplined budget, strengthening revenue mobilisation and advancing banking reforms.
In the medium term, restoring private investment and improving productivity will be key to sustaining growth.
“The mandate is strong,” Zahid Hussain said. “But expectations are high. The challenge now is to translate political legitimacy into economic credibility.”