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Bangladesh's Economic Woes to Spill Into 2026 Amid Loan Crisis

Bangladesh's economic challenges, including a rise in non-performing loans and high-cost government borrowing, are expected to persist into 2026. The banking sector is constrained, with banks preferring safe government bonds over riskier private loans, stifling investment. Critical fiscal and revenue reforms have stalled due to bureaucratic hurdles, despite IMF pressure. The report calls for political stability, better tax collection, and lower business costs to revive growth as Bangladesh graduates from Least Developed Country status.

Key Points: Bangladesh Economic Crisis to Extend into 2026

  • Rising bad loans weaken banks
  • High interest rates deter investment
  • Sluggish private sector credit
  • Pending revenue reforms under IMF
  • Export growth slows
2 min read

Bangladesh's mounting economic woes to spill into 2026

Bangladesh faces mounting economic challenges from bad loans to sluggish investment, with issues set to persist into 2026, reports The Daily Star.

"a conducive law and order situation is non-negotiable - The Daily Star report"

New Delhi, Jan 4

Several challenges faced by the Bangladesh economy from 2025, such as the rising non-performing loans in the financial sector, are likely to spill into the new year, according to local media reports.

The Bangladesh Bank had limited room to act, as the government relied heavily on high-cost borrowing from the banking sector. At the same time, debt defaults continued to weaken banks' ability to extend fresh credit, the Dhaka-based The Daily Star reported.

High interest rates discouraged even capable entrepreneurs from pursuing new investments. Large banks found a "safe haven" in high-yield government treasury bonds rather than extending new loans to the private sector, the report said.

The interim government largely opted to maintain the status quo in public financial management. As a result, no new model emerged for budget allocation, social safety net management, or broader fiscal policy. Long-pending revenue reforms were pushed forward under IMF pressure, but deeper restructuring faltered due to legacy constraints within the civil bureaucracy, the report points out.

Investment remains sluggish, and the pressure to create decent jobs for young people continues. In an emerging economy like Bangladesh, inflation must be managed carefully through market oversight and supply-side measures. Rising debt repayments call for stronger domestic revenue mobilisation through tax digitisation, capacity building, a firm stance against corruption, reduced VAT leakages, and expanded income tax collection. Close monitoring of the exchange rate is also essential, the report stated.

According to the report, "a conducive law and order situation is non-negotiable" if Bangladesh has to progress. The new government should engage more actively with global investors, trade partners, and development agencies. This requires political stability and peace in production belts. Lower energy and food prices, alongside resilient global supply chains, could further support growth, provided no major disruptions emerge, the report added.

Export growth has slowed in recent months, highlighting the need to lower the cost of doing business, improve turnaround times, and ensure better management of industrial zones.

The report further states that while diversification of products and markets has long been discussed, progress remains limited. As Bangladesh prepares to graduate from the LDC category this year, these measures will demand sharper focus and decisive action.

- IANS

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Reader Comments

P
Priya S
The part about banks preferring "safe haven" government bonds over private loans is a classic problem we've seen here too. It stifles innovation and job creation. Young people need opportunities, not just safety nets. Bangladesh's youth bulge is similar to ours – this needs urgent focus. 🤔
R
Rohit P
"Legacy constraints within the civil bureaucracy" – that's the key phrase. Reform is impossible without administrative will. It's not just a Bangladesh issue, it's a South Asian issue. Hope the new government finds the courage to break these old structures.
S
Sarah B
As someone who follows development economics, the LDC graduation is a double-edged sword. They lose trade benefits but gain credibility. The slowdown in export growth right now is terrible timing. They need to improve logistics and ease of business FAST to compete with Vietnam and others.
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Vikram M
Political stability is non-negotiable for investment. The report is correct. We've seen how much our own manufacturing sectors benefit from peace in industrial corridors. I hope for our neighbour's sake that the situation improves. A struggling economy next door is not good for anyone.
K
Karthik V
With respect, some of the analysis feels like it's stating the obvious. "Need to lower cost of business, improve turnaround times..." Every developing economy knows this. The real question is *how*. The article mentions digitisation and capacity building – those are concrete steps. More focus on implementation roadmap would be helpful.

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