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Bangladesh On The Brink

• By  Textile Excellence
• January 03, 2026

A fragile banking system, acute foreign exchange shortages and collapsing investor confidence are reinforcing each other, creating a polycrisis that risks worsening social instability.

Bangladesh’s economy, already fragile at the time of the August 2024 coup, has entered a sharp downward spiral since. While the country has made headlines for radicalisation, extremism and political violence, the deeper and more enduring crisis lies in its economy. A fragile banking system, acute foreign exchange shortages and collapsing investor confidence are reinforcing each other, creating a polycrisis that risks worsening social instability.

Foreign exchange stress is the clearest warning signal. Bangladesh’s forex reserves fell from a peak of US$ 46 billion in 2020–21 to US$ 26.7 billion in 2023–24, indicating sustained hard-currency outflows and an overvalued currency. As an import-dependent economy for fuel, fertiliser and food, Bangladesh has tried to keep the taka artificially strong to limit inflation. The result has been repeated episodes of sharp devaluation when the pressure becomes unbearable. The most recent adjustment was a 7% devaluation in May 2024. Since then, the taka has been kept almost flat at around 122 BDT to the US dollar, even as currencies of stronger economies such as India and China have weakened.

Analysts estimate that if the taka were allowed to float freely, it would trade closer to 135–140 BDT per dollar. Instead, authorities have restricted “non-essential” imports, including electronics, vehicles and even capital goods. Capital machinery imports have declined for three consecutive years, undermining future growth. Reflecting these constraints, the IMF has revised Bangladesh’s 2025 GDP growth forecast downwards for the fourth time.

Forex shortages are distorting markets. Despite global rice prices being at their lowest since 2017, domestic prices in Bangladesh remain high because traders lack the dollars needed to import and exploit arbitrage opportunities. At the same time, foreign companies are struggling to remit profits due to deliberate administrative hurdles. Of the estimated US$ 18.9 billion invested in Bangladesh, companies reinvested US$ 1.13 billion in retained earnings in 2024–25 because funds could not be repatriated. Fresh FDI fell to just US$ 554 million, less than half its 2020–21 peak.

Political instability has compounded economic stress. Since August 2024, the interim government has cracked down on business leaders linked to the previous regime. The arrest of Beximco vice-chairman Salman F Rahman led to the closure of 16 textile factories employing 40,000 workers. Similar actions against other major conglomerates have further shaken investor confidence.

Underlying everything is a deeply distressed banking system. Non-performing loans now account for around 35% of outstanding credit, rendering banks effectively insolvent and unable to lend. Fixing balance sheets will either force losses on depositors or require monetary expansion that weakens the taka, both politically and economically painful.

With an overvalued currency and a paralysed banking sector, Bangladesh has few good options. Without restoring financial stability, growth will remain elusive, prolonging economic hardship and social unrest.

As an import-dependent economy for fuel, fertiliser and food, Bangladesh has tried to keep the taka artificially strong to limit inflation. The result has been repeated episodes of sharp devaluation when the pressure becomes unbearable. The most recent adjustment was a 7% devaluation in May 2024. Since then, the taka has been kept almost flat at around 122 BDT to the US dollar, even as currencies of stronger economies such as India and China have weakened.