Bangladesh’s Economic Outlook for 2026: Cautious Optimism and Challenges Ahead

As Bangladesh steps into 2026, the atmosphere is laden with a sense of cautious optimism. The early signs of macroeconomic stability, bolstered by robust remittance inflows and a gradually recovering global economy, offer a glimpse of hope for a more vibrant year ahead. Business leaders and economists are particularly looking to the national parliamentary elections scheduled for February, with aspirations that a new government could usher in an era of increased investment, breaking through the stagnation that marked the entirety of 2025.

The Dual Reality of the Economy

Yet, amidst this optimism exists a stark dual reality. The Bangladeshi economy is grappling with long-standing structural issues that could impede progress. Stagnant private investment, a beleaguered banking sector, and significant constraints in energy and infrastructure pose risks that could trap the nation in a "stagnation trap" if not addressed alongside the anticipated political transitions.

Current Economic Landscape

The economy remains primarily driven by the private sector. However, recent quarterly data fail to indicate a clear recovery across the key sectors of manufacturing, services, and agriculture. For four consecutive years, the private investment-to-GDP ratio has lingered around 22-23%, a figure deemed insufficient to generate substantial growth or create adequate job opportunities.

Export growth has been similarly sluggish, highlighting the vulnerability of Bangladesh’s economic structure. Both investment and exports—the twin engines of economic growth—are flagging, raising serious concerns about the sustainability of any recovery.

Insights from Economic Leaders

Dr. Mashrur Riaz, Chairman of Policy Exchange Bangladesh, aptly summarizes the prevailing sentiment: "Assuming that a democratically elected government will automatically boost investment is a misconception." He emphasizes that political stability alone will not suffice to attract investment if the structural gaps in production and trade remain unaddressed.

Employment Trends and Labour Market Challenges

The labor market is also experiencing troubling shifts. Employment levels have stabilized at around 68-70 million, but the nature and quality of jobs are deteriorating. There is a notable decline in opportunities within industry and services, leading labor back to lower-productivity agriculture. This trend contributes to stagnant wages and diminished income growth, ultimately restraining overall productivity levels.

Barriers to Business and Investment

At the heart of current stagnation lies a myriad of unfavorable business and investment conditions. High taxation, convoluted licensing processes, slow regulatory decisions, weak contract enforcement, and ineffective dispute resolution all undermine investor confidence. To compound these issues, the scarcity of industrial land, unpredictable energy supply, and soaring logistics costs inflate production expenses. Consequently, even if political stability is achieved, an immediate surge in investment remains unlikely.

The Path to a Revived Economy

Despite these hurdles, the prospect of a credible and democratically elected government offers a possible foundation for recovery. Consistent policy decisions and institutional trust could pave the way for long-term planning and investment. The revival of investment in 2026 will largely depend on how swiftly and effectively the new government implements structural reforms addressing the economic bottlenecks.

The Banking Sector: Risks and Reforms

The banking sector poses another significant risk. Currently, non-performing loans hover near 35%, liquidity remains tight, and governance is poor. While forced mergers among banks may provide temporary relief, rebuilding depositor confidence requires greater transparency and accountability. Furthermore, public finances are under pressure, with a tax-to-GDP ratio of merely 7%, while the servicing of foreign debt presents another ongoing challenge. Hence, careful evaluation of new project potentials regarding foreign currency earnings, paired with a critical review of nearly $40 billion in pending projects, will be essential.

Positive Signs Amidst Challenge

Yet it’s not all gloom and doom. Remittances exceeded $30 billion during the 2024–25 fiscal year and could remain stable as long as banking discipline is maintained. According to Tasneem Siddiqul, founding chair of the Refugee and Migratory Movement Research Unit, "The sustainability of remittances hinges on a transparent and credible banking system. If trust falters, informal channels like hundi could rise, leading to serious economic risks."

Energy Sector Improvements

The energy sector also holds potential for positive developments. Initiatives in nuclear power and new solar and renewable energy tenders may gradually reduce production costs. Dr. Zahid Hossain, a former lead economist at the World Bank in Dhaka, stresses the importance of immediate, import-based energy solutions, along with expanded regasification capacity, complemented by assertive policy decisions surrounding household gas use.

The Road Ahead

In summary, while Bangladesh’s economy stands on the brink of a year filled with cautious optimism, it is intertwined with complexities. Structural reforms, effective governance, and robust banking reforms will be paramount in determining the trajectory of growth and investor confidence. As DCCI President Taskeen Ahmed aptly points out, "From 2026 onwards, sustained improvement will require policy consistency, predictable regulation, and stable governance." The path ahead is fraught with challenges, yet with collective effort and decisive action, Bangladesh can work toward breaking free from stagnation and building a resilient economy.