Bangladesh is caught in a trap of low growth, high inflation, and weak job creation that will not break without decisive governance reforms, prominent economists warned following a series of grim regional forecasts.
According to the International Monetary Fund's (IMF) latest World Economic Outlook on Tuesday, Bangladesh is projected to become South Asia's slowest-growing economy through 2031. The IMF expects growth to decelerate to 3.2% in the current fiscal year (FY27) and bottom out at 2.2% in FY28, before making a sluggish recovery to roughly 3% by FY31. This trajectory contrasts sharply with the interim government's five-year strategic framework published in August, which sets an ambitious growth target of 8.5% by FY31.
Compounding the growth slowdown, the IMF projected average inflation to reach 10.9% this fiscal year, a 16-year high and nearly double the 6% rate forecast six months ago. Bangladesh has already endured inflation exceeding 8% for four consecutive years.
Zahid Hussain, former lead economist at the World Bank's Dhaka office, said the IMF has provided a baseline projection that could materialise if the government fails to deliver on its promised reforms or restorations in three areas – banking, energy, and business regulation.
Fahmida Khatun, a distinguished fellow at the Centre for Policy Dialogue, said the downgrade reflected a prolonged slowdown and high inflation since mid-2022. She said policy mistakes, including a 6-9% interest rate cap, and reform inertia had made matters worse, and that the Middle East war had made the situation more critical.
Hossain Zillur Rahman, executive chairman of the Power and Participation Research Centre (PPRC), said Bangladesh is in a low-growth, high-inflation, and low-employment trap. He said poverty reduction, once a hallmark success for Bangladesh, was now reversing.
Pessimistic
The IMF's outlook for the current fiscal year is more pessimistic than those of the World Bank and the Asian Development Bank. Just a week ago, the World Bank projected 3.4% growth for Bangladesh in FY27, while the ADB forecast 4% in September.
The successive downgrades by the three global lenders over less than three weeks reflect chronic structural bottlenecks further aggravated by energy shortages stemming from the persistent Middle East war.
The IMF's forecast for FY31 is 5.5 percentage points below the government's target. The framework, published in August, targets 6.5% growth in FY27, rising by half a percentage point each year.
Bangladesh ranks last among seven South Asian economies in the IMF's table in both FY27 and FY31. India is forecast to grow above 6.8% every year from 2027 to 2031. By FY31, the IMF expects Bhutan to grow 5.52%, Nepal 5.02%, Pakistan 4.5%, the Maldives 4.03% and Sri Lanka 3.51%, against 2.97% for Bangladesh.
The World Bank attributed Bangladesh's subdued growth prospects partly to the prolonged Middle East war, which is aggravating existing economic weaknesses, including problems in the financial sector, low revenue mobilisation, energy-sector inefficiencies and an unfavourable investment climate.
"The return of political stability was expected to lead to a rebound in economic activity, but this has not yet materialised," the World Bank said in its Bangladesh Development Update, released on 6 October.
The assessment followed the ADB's outlook on 23 September, which warned that banking-sector distress and structural constraints would continue to weigh on economic growth.
"High nonperforming loans, weak bank balance sheets, bank preference for safer government securities, and high borrowing costs limit private-sector access to credit," the ADB said.
It also pointed to unreliable energy supplies, logistical constraints and lengthy regulatory and approval procedures as factors holding back investment and limiting the economy's response to monetary easing or fiscal stimulus.
What economists say
Forecasts by international development partners are in line with those of local research organisations because both use the same available data, said Hossain Zillur Rahman.
If we cannot improve political and economic governance, the trap (stagflation) will not be broken.
Hossain Zillur Rahman Executive chairman, PPRC
He said Bangladesh is caught in a trap of low growth, high inflation and low employment, which is the outcome of long-running economic and institutional trends. The country had cut its poverty rate over the years, but that progress is now reversing.
"If we cannot improve political and economic governance, the trap will not be broken," Zillur said.
He also outlined what needs to be done. Law and order must improve first, he said, followed by decentralisation, more efficient administrative services, coordinated policies and less wastage.
Fahmida Khatun said the IMF's latest forecast is grimmer than its earlier one because current data and trends justify it.
The government should not focus on growth; its core focus should be on controlling inflation.
Fahmida Khatun Distinguished fellow, CPD
She noted, however, that the IMF revises its forecasts every few months, so the next one could be better or worse.
"But the latest projection signals that the economy has become from weak to weaker and riskier as well," Fahmida said.
She said the main reasons behind the weak forecast are a prolonged slowdown in economic activity, low growth and high inflation since mid-2022. A lack of appropriate policies, at times wrong ones such as the 6-9% interest rate cap, and reluctance to carry out reforms have made matters worse, Fahmida said. The Middle East war and wider geopolitical situation have made things more critical, she added.
Fahmida said the government should keep monetary policy tight to contain inflation, which hits the poor and low-income people hardest. It should also follow austerity measures, she said, because its revenue is not rising amid low investment and high inflation.
"Now, the government should not focus on growth; its core focus should be on controlling inflation, which will help the poor and contribute to a cut in the cost of doing business," she said.
Rejecting arguments that attribute the country's economic woes purely to external shocks, Zahid Hussain pointed to systemic institutional failures.
If you compare Bangladesh's governance scores with those of regional countries, you will find that we rank in the bottom 20-25% across all six indicators.
Zahid Hussain Former lead economist, World Bank's Dhaka office
"If you compare Bangladesh's governance scores with regional peers using World Bank indicators, we rank in the bottom 20–25% across all six parameters," Hussain said. "This explains why our performance is weaker than that of other countries facing identical global crises. Blaming external factors alone is a half-truth at best."
Zahid Hussain added that the IMF's figures present a baseline scenario that will materialise unless the government delivers on structural restorations across banking, energy, and regulatory frameworks.