The International Monetary Fund (IMF) has delivered a sobering economic forecast for Bangladesh, showing neither leniency nor ungrounded optimism.
While the government continues to project robust economic expansion, expecting growth to accelerate to 8.5% by FY31 and turn Bangladesh into a $1 trillion economy by 2034 (doubling its current size), the IMF's latest outlook presents a stark contrast. The IMF projects that Bangladesh's growth will slow to merely 3% by FY31. Worse still, growth over the preceding three years is expected to remain below 3%, less than half the government's target, leaving Bangladesh with the lowest growth rate in South Asia through FY31.
The root cause: A crisis of governance
What is driving this severe deceleration? The answer lies in two words: governance crisis.
While this diagnosis is far from new, the depth of the crisis is clearly mapped out in the World Bank's Worldwide Governance Indicators (WGI). Good governance is not an accidental byproduct of development; it is the essential foundation of any economy. It functions as the invisible infrastructure that converts potential into sustainable prosperity.
Why is governance so important for an economy to grow?
As the World Bank highlights in its WGI report, governance, defined as the traditions and institutions by which authority in a country is exercised, plays a central role in shaping development outcomes. A substantial body of research demonstrates that inclusive, accountable institutions drive higher growth, foster stronger public services, and expand opportunity. When governance fails, these development gains inevitably collapse.
Bangladesh's current economic stagnation testifies to a system struggling to perform its most fundamental duties. The IMF's grim projection is a direct reflection of this governance breakdown.
Measuring the institutional decay
Let's have a quick look at how Bangladesh has performed in the World Bank's governance indicators which provide annual composite indicators summarising six dimensions of governance: voice and accountability, political stability, government effectiveness, regulatory quality, rule of law, and control of corruption.
Take it one by one. Among the six indicators, Bangladesh slightly improved in political stability and government effectiveness. But the overall score is not inspiring. In political stability, Bangladesh scored 49.11 out of 100 in 2025 from 42.03 in 2015. Government effectiveness too slightly improved to 43.24 in 2025 from 41.19 in the last one decade. Its score slightly declined in the other four indicators. The overall scores in voice and accountability, political stability and regularity quality remained in between 39 to 49 out of 100. Among South Asian countries, Bangladesh is ahead of only Afghanistan and Pakistan in most of the indicators. The countries having an effective governance system score above 90. [See the infographic]
The cumulative effect of the poor score in the above five indicators has made controlling corruption a herculean task with Bangladesh always scoring lowest. In 2015, it scored only 26.33 out of 100 which increased to 28.20 after a decade. Bangladesh's failure to curb corruption is also reflected every year on the Corruption Perception Index published by Transparency International in which Bangladesh is also bracketed among the world's most corrupt countries underscoring how systemic graft drains public resources, erodes institutional capacity, and weakens the state's economic foundation.
At the heart of unbridled corruption is a compromised judicial framework. The World Justice Project's Rule of Law Index which evaluates police, courts, and correction systems, ranks Bangladesh near the bottom. Over the past decade, Bangladesh's score has hovered between 0.30 and 0.34 (out of 1.00), lagging well behind the global average (0.47–0.50) and the regional South Asian average (0.36–0.39). With courts overwhelmed by millions of pending cases, maintaining law and order remains improbable, leaving corruption to flourish unabated.
The above scores portray a fragile state of Bangladesh's governance. Vulnerability and maladministration in the banking sector, fiscal deficits, revenue shortfalls, debt traps, poor tax-GDP ratio, persistent high inflation, market syndicate and extortion, stagnant foreign direct investment, private sector constraints, regulatory red tape are among the fallouts of the governance crisis. Ultimately it is ordinary citizens and local businesses who bear the financial brunt of these failures.
Extractive institutions and the reform paradox
Reaching the ambitious target of a $1 trillion economy by 2034 requires sweeping, fundamental structural shifts. Yet, successive reform attempts have routinely lost momentum. Current policy adjustments lack the depth needed to rebuild decaying institutions.
Institutional economists advocate for actively building and reforming institutions. The necessity of institutions for economic growth is loud and clear. They believe that markets cannot function efficiently in a vacuum. Institutions set the "rules of the game" that dictate whether an economy will flourish or stagnate. Four prominent economists-- Douglass North, Daron Acemoglu, James Robinson and Simon Johnson who won Nobel for their groundbreaking institutional analysis argue that institutions are the fundamental cause of long-term economic growth, far outweighing factors like geography or culture.
The World Bank's governance report speaks for inclusive institutions for growth. Unfortunately, in Bangladesh, political and economic institutions turned into extractive institutions, concentrating political and economic power within a small, unconstrained group of elites. That elite group exploits the system to extract wealth from the general population for their own benefit.
Reversing this trajectory requires unyielding, uncompromising reform to transition toward inclusive institutions.
Band-aids on a deep wound
In practice, meaningful reform remains elusive. Dr Zahid Hussain, former Lead Economist at the World Bank's Dhaka office, notes that while some efforts have been made, progress remains severely constrained.
"In banking, some work has gone into standing up the consolidated bank, and that is the one big step toward resolving distressed institutions. But most of the central bank's circulars — on rescheduling, on emergency liquidity — are not reforms; they are band-aids that cover the bleeding," he observes.
He says governance helps explain why Bangladesh is performing worse than comparable countries despite the various crises unfolding around the world. After all, those countries are operating in the same global environment. They are facing many of the same external shocks, yet their economic performance is better than ours.
Emphasising political reforms the economist says the economy's structure stands on the political structure; if the political equilibrium does not change, shifting the economic one is very hard—both in how fast the economy grows and in who enjoys the gains.
"And look at where the politics has gone. Search the term "political settlement" on Google Trends and you will see it spike after August 2024 and then fade to almost nothing. All that intense talk of a new political settlement has gone quiet—not because we achieved one, but because we did not, and perhaps we have given up hope for it."
In the FY27 budget speech last June, the finance minister outlined ten core priorities—placing the issue of building transparent, efficient, and accountable institutions and administration dead last at number ten.
Metaphorically speaking, Bangladesh governance system needs organ transplant to remove structural malaise acting as deadliest pathogen crippling institutions. But what if reform measures are acting as band-aids as noted by economist Zahid Hussain? Will it cure the failing system which is urgently needed overhaul?
When a nation fails to disrupt the vicious cycle of extractive institutions, the inevitable outcome is clearly foretold in Acemoglu and Robinson's seminal work: Why Nations Fail.