Bangladesh facing ‘economic emergency’ as IMF slashes growth outlook: Panam Institute

Bangladesh is facing an economic emergency marked by slowing growth, persistent inflation, collapsing investment and mounting banking-sector risks, economist Jyoti Rahman from Panam Institute has warned, calling on the government to acknowledge the severity of the crisis.

In an article titled A State of Economic Emergency, published Tuesday in the weekly Counterpoint, Jyoti said the country's economic outlook had deteriorated sharply, with international lenders repeatedly downgrading growth projections.

The International Monetary Fund (IMF) has cut Bangladesh's projected GDP growth for FY2027 from 4.7% in January to 3.2% in October. Its FY2028 forecast has fallen even more sharply, from 4.6% to 2.2%.

The IMF now expects growth to remain below 3% annually into the next decade, according to Jyoti's analysis.

The World Bank has also reduced its FY2027 growth projection from 4.6% to 3.4%, while cutting its FY2028 forecast from 5.5% to 3.9%.

Jyoti, Counterpoint's executive editor, argued that Bangladesh's problems extend beyond the economic fallout from the Middle East conflict.

He identified weak banks, distressed corporate balance sheets, falling investment and policy uncertainty as domestic obstacles to recovery. 

Inflation outlook worsens sharply

The IMF has raised its FY2027 inflation forecast from 6% in January to 10.9% in October. It no longer expects inflation to return to 5.5% until FY2031.

Bangladesh's inflation reached 9.4% in May and remains above 8%. Food inflation stood at 7.2% in September, while non-food inflation reached 9.3%.

Jyoti Rahman said the combination of weak growth and persistent inflation was eroding household purchasing power.

He also pointed to declining real wages and weakening labour market participation. Female labour force participation fell from 42.8% in 2022 to 38.4% in 2024.

The World Bank now expects total investment to contract by 0.5% in FY2026. It projects investment growth of just 0.3% in FY2027 and 1% in FY2028.

The IMF, meanwhile, forecasts Bangladesh's investment-to-GDP ratio falling from 28.5% in FY2025 to 23.8% by FY2031.

In January, the Fund had expected the ratio to approach 33%.

Jyoti said the investment slump was particularly concerning because it would undermine growth, employment and government revenue simultaneously.

He cited the World Bank's warning that banking vulnerabilities had intensified and were creating growing systemic risks.

Financially stressed banks were struggling to lend, while heavily indebted businesses lacked the capacity to invest.

The problems, he argued, could not be resolved through monetary easing or temporary credit support alone.

Poverty rises, fiscal space shrinks

The World Bank has also substantially revised its poverty outlook. In April, it expected Bangladesh's poverty rate to decline from 20.5% in FY2025 to 19.3% by FY2028.

Its latest projections instead put poverty at 22.5% in FY2026 and 22.4% in FY2028.

Jyoti noted that record remittances of $35.6 billion in FY2026 had supported household consumption but could not compensate for weak domestic investment and employment.

Public finances were also deteriorating.

The IMF now expects government revenue to remain around 8% of GDP through the end of the decade, compared with an earlier projection of approximately 11.5%.

Interest payments are projected to consume nearly 40% of government revenue by FY2031, up from 27.5% in FY2025.

The analysis also highlighted exchange-rate risks.

Based on IMF projections, Rahman estimated that the taka could weaken from approximately 120 against the US dollar in FY2025 to nearly 160 by FY2031.

That figure is an implication of the IMF's forecasts, rather than an announced exchange-rate target.

Banking rescue could cost thousands of crores

Jyoti argued that resolving banking-sector distress would require substantial public resources.

He cited Bangladesh Bank Governor Md Mostaqur Rahman's estimate of 60,000 crore taka annually over several years to support the banking sector.

He also referred to a $40 billion multiyear estimate from the prime minister's finance and planning adviser.

Such interventions would require stronger revenue collection, transparent recognition of banking losses and credible restructuring plans, he said.

Bangladesh is currently seeking a new IMF programme, with discussions continuing over its size and reform commitments.

Jyoti said that the programme should be judged by its ability to restore investment and financial stability, rather than the amount of financing secured.

He recommended comprehensive banking and corporate restructuring, prudent fiscal policy, consistent exchange-rate management, subsidy reform and targeted support for vulnerable households.

He also cautioned against expectations of a rapid recovery.

Even successful reforms, he argued, were unlikely to restore strong growth before the end of the decade.

The government's aspiration of achieving 8% economic growth was therefore increasingly unrealistic under current conditions.

Jyoti urged the government to publicly recognise the scale of the crisis, disclose banking-sector losses and begin a national discussion on austerity.

Without decisive action, he warned, Bangladesh risked entering a prolonged period of weak investment, stagnant growth and high inflation.

—