Bangladesh has achieved remarkable economic progress, transitioning from one of the poorest nations in 1971 to a lower-middle-income country by 2015, driven by robust GDP growth averaging 6.4% between 2010 and 2023. Its Vision 2041 aims for upper-middle-income status, underpinned by a youthful demographic dividend and strategic investments in infrastructure and key industries. While the Ready-Made Garment (RMG) sector remains the primary export engine, accounting for over 80% of earnings, the nation is actively pursuing diversification into pharmaceuticals, IT and digital services, light engineering, leather, and agro-processing. Transformative mega-projects like the Padma Bridge and deep-sea ports are enhancing connectivity and trade efficiency. Significant remittance inflows also bolster economic stability and poverty reduction. However, this trajectory is fraught with challenges, including persistent political instability and governance issues, critical infrastructure gaps, particularly in the power sector, and a business environment that still lags regional peers. The economy’s heavy reliance on RMG and its vulnerability to global shocks and climate change impacts necessitate urgent strategic reforms. Addressing these multifaceted challenges through strengthened governance, accelerated export diversification, targeted human capital development, and climate-resilient infrastructure is paramount for Bangladesh to achieve sustained prosperity and resilience.
1. Introduction: Bangladesh’s Ascent as an Emerging Economy
Bangladesh’s economic journey since its independence in 1971 has been one of remarkable transformation, evolving from a low-income country to a lower-middle-income nation by 2015. This progress has been characterized by consistent economic growth and significant strides in poverty reduction. The nation now harbors an ambitious “Vision 2041” to achieve upper-middle-income country status by 2031 and developed-nation status by 2041.
From LDC to Lower-Middle Income: A Remarkable Transformation
Bangladesh has maintained an average annual real GDP growth of 6.4% between 2010 and 2023, a cornerstone of its development. This sustained economic expansion has translated into tangible improvements in the lives of its citizens. Poverty incidence, a critical indicator of development, significantly declined from 48.9% in 2000 to a notable 18.7% in 2022. This substantial reduction underscores the inclusive nature of its economic gains, demonstrating that growth has, to a significant extent, reached the broader population.
Beyond income, human development outcomes have improved across various dimensions. There has been a notable reduction in infant mortality and stunting, alongside a rise in literacy rates and expanded access to electricity. Indeed, access to electricity reached a near-universal 99.5% of the population in 2023. This comprehensive progress, from foundational human development to basic economic structures, appears to have laid a robust groundwork for the nation’s resilience. The consistent growth and poverty reduction from a very low base suggest that these early, foundational investments created a stable and adaptable economic foundation, allowing Bangladesh to absorb and navigate subsequent global and domestic shocks. For other emerging economies, this trajectory highlights that prioritizing fundamental human capital development and poverty alleviation in early stages can yield a “resilience dividend,” making later economic growth more sustainable and robust even when faced with external adversities.
Vision 2041: Aspirations for Upper Middle-Income Status
The government’s long-term perspective plan, “Vision 2041,” articulates a clear and ambitious pathway for Bangladesh. The goal is to achieve upper-middle-income country status by 2031 and ultimately developed-nation status by 2041. This ambitious vision is underpinned by a strategic framework that prioritizes several interconnected pillars. These include creating jobs through a competitive business environment, enhancing human capital by building a skilled labor force, developing efficient infrastructure, and establishing a policy environment conducive to attracting private investment. The successful execution of these strategies will be crucial in realizing Bangladesh’s long-term economic aspirations.
2. The Current Economic Landscape: A Macroeconomic Snapshot
Bangladesh’s macroeconomic performance has been robust, yet it faces contemporary challenges including inflationary pressures and a slowdown in growth forecasts from international bodies.
GDP Growth and Per Capita Income Trends
Bangladesh’s nominal GDP was US$420.52 billion in 2023, positioning it as the 37th largest economy globally. On a Purchasing Power Parity (PPP) basis, its GDP reached US$1.48 trillion, ranking 25th worldwide. These figures underscore Bangladesh’s growing economic footprint on the global stage. GDP growth, while strong in recent years, has shown signs of moderation. It stood at 7.1% in FY2022, but estimates indicate a slowdown to 5.5% in 2023 and 5.4% in 2024.
Forecasts for FY2025 from international organizations present a more conservative outlook compared to the government’s initial targets. The International Monetary Fund (IMF) projects a GDP growth of 3.8% for Bangladesh in FY2025, while the Asian Development Bank (ADB) forecasts 3.9%. The World Bank’s projection is even lower at 3.3%. These figures stand in contrast to the government’s initial 6.75% target for FY2024-25. This significant difference in growth projections from various reputable sources is a critical observation. Such a discrepancy suggests either an optimistic stance in government projections or an insufficient accounting for recent economic and political challenges that have impacted the nation. This divergence in forecasts can erode investor confidence, as it may signal a potential lack of realism or transparency in official economic outlooks. For foreign investors, this creates an environment of heightened caution, potentially limiting the inflow of Foreign Direct Investment (FDI) and hindering broader economic expansion. It also highlights a need for more robust, transparent data collection and reporting mechanisms to align expectations and build trust among international stakeholders.
Despite the varying growth forecasts, GDP per capita has shown a consistent upward trend. It reached $2,687 in 2022 and $2,551 in 2023. Provisional data for FY2025 indicates a further rise to $2,820.
Inflation and Unemployment Dynamics
Inflation remains a significant concern for Bangladesh. The IMF projects an inflation rate of 10% for 2025, and the ADB anticipates 10.2% in FY25. This persistent high inflation directly erodes the purchasing power of the populace, particularly impacting the general public and contributing to economic hardship.
The overall unemployment rate is reported at approximately 4.7%. However, a more pressing challenge lies in youth unemployment, which is significantly higher at around 11.3% in 2023 and 12% in 2024. This disparity indicates a struggle to absorb new entrants into the labor force, highlighting a critical underutilization of human potential. The interplay between high inflation and high youth unemployment presents a complex economic dynamic. Persistent inflation can lead to increased business costs, which in turn discourages new investments and job creation. This exacerbates the existing challenge of youth unemployment. The inability to productively employ a large, young demographic results in reduced overall economic contribution and can fuel social discontent, creating a negative feedback loop that further complicates economic stability and carries the potential for social and political instability.
Poverty Reduction and Human Development Progress
Bangladesh has made substantial progress in poverty alleviation. The poverty headcount ratio at $3.00 a day (2021 PPP) was 8.0% in 2022, demonstrating a significant reduction in extreme poverty. Human development outcomes have also shown marked improvement. Life expectancy at birth reached 75 years in 2023, reflecting advancements in healthcare and overall living standards. Furthermore, access to electricity has become nearly universal, reaching 99.5% of the population in 2023. ### Sectoral Contributions to GDP The service sector is the largest contributor to Bangladesh’s GDP, accounting for approximately 51% of the total and providing 38% of all jobs. Key sub-sectors within services include wholesale and retail trade, transport, and financial services. The industrial sector contributes a substantial 38% to GDP, with the Ready-Made Garment (RMG) industry forming its cornerstone. Manufacturing alone accounted for 24.45% of GDP in FY2021-22. While agriculture’s contribution to GDP has decreased to 11.5% in FY2021-22, it remains a vital sector, employing around 40.6% of the labor force.
3. Pillars of Growth and Emerging Opportunities
Bangladesh’s economic progress is built upon several key sectors and strategic advantages, with significant opportunities for further expansion and diversification.
3.1. The Enduring Strength of the Ready-Made Garment (RMG) Sector
The Ready-Made Garment (RMG) sector is the undisputed cornerstone of Bangladesh’s economy, accounting for over 80% of total export earnings and employing over 4 million people, predominantly women. Bangladesh holds the position of the world’s second-largest garment exporter, trailing only China. Despite a volatile political and economic landscape, RMG exports demonstrated resilience, growing by 7.23% in 2024, reaching $38.48 billion. The industry has also made commendable strides in sustainability, boasting over 200 LEED-certified green garment factories.
However, the extreme reliance on the RMG sector, while a source of strength, also represents a significant vulnerability. This over-dependence makes the economy highly susceptible to external shocks, global demand fluctuations, and protectionist trade policies. For instance, the recent imposition of additional US tariffs on Bangladeshi garments directly illustrates how shifts in international trade dynamics can disproportionately impact the nation’s primary export engine. This concentration creates systemic risk; a slight downturn in global apparel demand or a shift in sourcing strategies by major brands could have severe repercussions on Bangladesh’s export earnings, employment, and overall economic stability. The ongoing push for diversification, therefore, is not merely about achieving higher growth but fundamentally about building economic resilience and reducing exposure to single-sector shocks.
Furthermore, the sector faces a complex challenge with the increasing adoption of automation. While automation offers economic benefits and increased efficiency, it is leading to significant job reductions, particularly affecting entry-level positions and women. Reports indicate a 30.58% reduction in overall employment in the RMG sector due to technological upgrades, with women’s share in the workforce reportedly dropping from 80% to 60%. This situation is further complicated by the fact that new machinery, such as Jacquard, is specifically recruiting male labor. This transformation highlights a critical disruption to the industry’s historical comparative advantage, which was built on low-cost female labor. If not proactively managed, this shift could exacerbate existing gender disparities in employment and lead to significant social instability as a large segment of the female workforce is displaced without adequate reskilling or alternative employment opportunities. This underscores the critical need for “Just Transition” strategies that involve proactive government and industry collaboration to retrain displaced workers, especially women, for new roles within the evolving RMG sector (e.g., higher-skill automated processes) or in other emerging industries. Failure to do so risks turning a potential demographic dividend into a demographic burden, with significant social and economic consequences.
3.2. Diversifying the Export Basket: Beyond Apparel
Recognizing the risks of over-reliance on RMG, Bangladesh is actively pursuing diversification across several promising sectors.
Pharmaceuticals
The pharmaceutical industry in Bangladesh has undergone a remarkable transformation, evolving from an import-dependent sector in the 1980s to a self-sufficient one that now meets 97-98% of its domestic demand. This sector has also expanded its global reach, exporting to over 100-150 countries worldwide. The domestic market size was approximately $3 billion in 2020 and is forecasted to exceed $6 billion by 2025. Export earnings reached $169 million in FY20-21 and further increased to $205 million in 2023-2024.
A significant competitive advantage for Bangladesh’s pharmaceutical industry is its benefit from an extended WTO TRIPS (Trade-Related Aspects of Intellectual Property Rights) patent waiver until 2033. This waiver allows Bangladesh to produce patented generic drugs, providing a unique opportunity to become a global hub for generic medicines. The government actively supports the sector through various policies, including the establishment of dedicated API (Active Pharmaceutical Ingredient) parks to encourage domestic production of raw materials, provision of export subsidies ranging from 7% to 20% on pharmaceutical products, and tax holidays for API producers.
Information Technology & Digital Services
The Information Technology (IT) and digital services sector is recognized as one of Bangladesh’s most promising industries, supported by a large pool of English-proficient, young, and tech-savvy workforce. Export earnings in this sector surpassed $1 billion in 2019 and reached $1.3 billion in FY2020-21. Bangladesh also boasts the world’s second-largest pool of online freelancers, with 650,000 registered and 500,000 actively working, generating aggregate earnings of $100 million per annum in 2017. The government’s “Digital Bangladesh” vision prioritizes digital technology adoption, fostering infrastructure development, and attracting investment, with 28 approved IT and software parks and plans for more across all 64 districts. Notably, operating costs in Dhaka are significantly lower, ranging from 16% to 30% cheaper than in major regional hubs like Bangalore or Cebu.
However, despite these advantages and ambitious targets, the IT sector’s export performance has faced challenges. IT exports saw a decline to $548.10 million in 2022-23, falling considerably short of the ambitious $5 billion target set for 2025. This underperformance is directly linked to a critical skills mismatch. Many existing training programs in Bangladesh focus on saturated trades, while high-demand niche skills, such as Software Quality Assurance (SQA), are underserved or lack standardized curricula. The rapid evolution of the global IT market demands specialized, continuously updated skills. If Bangladesh’s human capital development initiatives, including Technical and Vocational Education and Training (TVET) and the National Skills Development Authority (NSDA), do not rapidly adapt their curricula, training methodologies, and certification processes to these emerging niche demands, the country will struggle to fully capitalize on its low-cost labor advantage. This could limit its ability to move up the value chain in IT services, potentially trapping it in lower-value outsourcing rather than becoming a hub for high-value tech exports. This highlights the urgent need for dynamic, industry-led curriculum development and robust, agile certification frameworks that can quickly respond to emerging technological trends. Without this, the potential of the demographic dividend in the IT sector may remain largely untapped for higher-value contributions, impacting overall economic diversification efforts.
Light Engineering, Leather & Footwear, and Shipbuilding
These sectors represent significant untapped potential for Bangladesh’s export diversification:
- Light Engineering (LE): The domestic market size for light engineering goods was estimated at $12 billion in 2018, with local production meeting only 50% of the overall demand, indicating substantial import substitution potential. The sector employs 600,000 people across 40,000 companies. Export earnings reached $489 million in FY2020-21, demonstrating a 67% year-on-year growth.
- Leather & Footwear: This industry plays a pivotal role, ranking second in export earnings after RMG, and holds a 3% share in the global leather and leather products market. Exports of leather footwear have notably outpaced processed leather, signaling a strategic shift towards higher-value products. Policy incentives, including reduced corporate income tax and a 15% cash incentive on export value, further support this sector’s growth.
- Shipbuilding: Declared a “thrust sector” by the government, the shipbuilding industry has an ambitious vision to earn $4 billion annually from ship exports by 2025. Bangladesh possesses over 20 internationally accredited shipyards capable of building nearly 100 ships a year.
Agro-Processing
The agro-processing industry offers significant potential for export diversification and enhancing food security, leveraging Bangladesh’s inherent agrarian strength. Agro-processed exports reached $1.2 billion in 2022-23 and are on a rising trend. The National Agricultural Policy 2018 aims to increase agro-processing’s GDP share to 5% by 2025. This sector can also significantly reduce post-harvest losses, which are currently around 30% for vegetables and fruits due to inadequate processing and storage.
Table 2: Performance and Potential of Key Export Sectors (FY2020-2024)
| Sector Name | Export Earnings (FY20-21 / 2024) | Growth Rate (YOY) | Domestic Market Size / Global Share | Key Policy Support/Incentives |
| Ready-Made Garment (RMG) | $38.48 Billion (2024) | 7.23% (2024) | 2nd largest global exporter, 80%+ of total exports | Green factory certifications (LEED), shift to value-added products |
| Pharmaceuticals | $169 Million (FY20-21), $205 Million (2023-24) | 17% (2014-2020) | $3 Billion+ (2020), forecast $6 Billion+ by 2025 | WTO TRIPS waiver (until 2033), API parks, 7-20% export subsidies, tax holidays |
| IT & Digital Services | $1.3 Billion (FY20-21), $548.10 Million (2022-23) | 21% (2013-2019) | $1.4 Billion+ (local market 2023), 2nd largest freelancer pool | “Digital Bangladesh” vision, 28+ Hi-Tech Parks, low operating costs |
| Light Engineering | $489 Million (FY20-21) | 67% (YOY FY20-21) | $12 Billion (2018), 50% local demand met | High priority sector status, duty-free market access to 52 countries |
| Leather & Footwear | – | – | 3% global market share, 2nd in export earnings | Reduced CIT, 15% cash incentive on export value |
| Agro-processing | $1.2 Billion (2022-23) | Rising trend | Aims for 5% GDP share by 2025 | National Agricultural Policy 2018, tax incentives, low-cost credit |
3.3. Transformative Infrastructure: Fueling Connectivity and Trade
Bangladesh has made notable improvements in its Logistics Performance Index (LPI) ranking, climbing 12 notches to 88th out of 139 countries in 2023, up from 100th in 2018. This improvement is attributed to better logistics services, timely shipments, and effective customs and border management. The nation has embarked on several mega-projects designed to fundamentally transform its connectivity, trade efficiency, and energy security.
- Padma Multipurpose Bridge: This 6.1 km double-deck bridge is a self-funded national mega-project that has significantly improved transportation and communication by connecting the southern part of Bangladesh with the capital city of Dhaka. Opened to the public in June 2022, it facilitates the movement of goods and people, enhancing regional economic integration.
- Bangabandhu Sheikh Mujibur Rahman Tunnel (Karnaphuli Underwater Tunnel): As the nation’s first road tunnel, this 3.32km-long four-lane tunnel connects the port city of Chittagong, creating a “One City Two Towns” model, similar to East and West Shanghai. Inaugurated in October 2023, it is expected to bolster industrial development, enhance tourism, and expand trade and commerce near the project area, creating employment and boosting exports.
- Matarbari Deep Sea Port: This crucial port is designed with a 16-meter water draft, enabling it to accommodate large 8,000 TEU post-Panamax vessels. This capability will significantly reduce Bangladesh’s dependence on smaller feeder vessels that currently ferry goods from hub ports like Singapore, Colombo, and Port Klang, thereby increasing its capacity for direct international trade. The port is projected to boost Bangladesh’s GDP by over 1% and decrease import and export costs by 15% and 10% respectively. It is anticipated to be completed by the end of 2026.
- Payra Deep Sea Port: This port was planned with vital rail, road, and waterway links to Dhaka, aiming to facilitate faster export and import activities for the domestic economy and foster regional trade with neighboring countries like India, Nepal, and Bhutan. However, the Payra Deep Sea Port faces significant navigability challenges due to rapid sedimentation in its Rabnabad channel, requiring continuous and expensive dredging. A planning adviser controversially termed it a “painful burden” on the economy, noting that it “can barely function as a river port, let alone a seaport”. This situation highlights a critical gap between ambitious project planning and on-the-ground operational realities. The long-term economic impact and return on investment for such projects hinge not just on initial construction but critically on effective implementation, rigorous geological and environmental assessments, ongoing maintenance, and adaptive management to address unforeseen challenges. Without these considerations, even strategically vital projects can become financial liabilities and fail to deliver their full economic potential, potentially undermining investor confidence in future large-scale ventures.
- Dhaka Metrorail Project: As part of the Strategic Transport Plan, this project aims to provide safe, fast, and affordable urban transportation for city dwellers, significantly easing traffic congestion and reducing commute times. Properties near metro stations have already experienced soaring values and increased demand, transforming urban real estate dynamics as people prioritize living closer to efficient transport hubs.
- Dhaka Elevated Expressway: This 46.73 km elevated expressway is one of the largest infrastructure projects designed to alleviate severe traffic congestion in the capital. It directly benefits road logistics by providing a faster and more efficient route for vehicular traffic, thereby reducing travel times for goods transport within and around Dhaka.
- Rooppur Nuclear Power Plant: Bangladesh’s first nuclear power plant (2.4 GW), built with Russian assistance, aims to increase the country’s power production, enabling greater energy independence and providing low-cost electricity crucial for industrial and business operations. Unit 1 is planned for commissioning in 2022, and Unit 2 in 2023. Hydraulic tests for Unit 1 were successfully completed in March 2025, moving it closer to operational status.
Table 3: Major Infrastructure Projects: Status and Expected Economic Impact
| Project Name | Status/Completion Date | Estimated/Actual Cost (USD Billion) | Key Impact | Noted Challenges |
| Padma Multipurpose Bridge | Operational (June 2022) | $3.65 | Enhanced connectivity for southern region, improved goods/people movement | High domestic financing cost, increased toll fees |
| Bangabandhu Sheikh Mujibur Rahman Tunnel | Operational (Oct 2023) | $1.1 | Bolsters industrial development, enhances tourism, expands trade in Chittagong region | – |
| Matarbari Deep Sea Port | Anticipated completion by end of 2026 | – | Accommodates large vessels (8,000 TEU+), reduces import/export costs (15%/10%), boosts GDP by >1% | – |
| Payra Deep Sea Port | Commercial operations since Aug 2016, full by 2023 | $11-15 | Facilitates faster trade, regional trade hub for India, Nepal, Bhutan | Poor navigability due to sedimentation, requires continuous expensive dredging, termed “painful burden” |
| Dhaka Metrorail Project | Line 6 under construction, partial operation | $2.8 (Line 6) | Reduces urban traffic congestion, faster commute, increases property values near stations | Rising property prices, risk of overdevelopment |
| Dhaka Elevated Expressway | Expected completion by 2022 | $1.4 | Eases traffic congestion in Dhaka, improves road logistics, reduces travel times | Toll fees, need for improvements in cleanliness, lighting, emergency response |
| Rooppur Nuclear Power Plant | Unit 1 commissioning 2022, Unit 2 2023; hydraulic tests for Unit 1 completed Mar 2025 | $12.65 | Increases power production, energy independence, provides low-cost electricity | – |
3.4. Human Capital Development: Harnessing the Demographic Dividend
Bangladesh is currently in a favorable demographic transition, with an expanding working-age population (ages 15-64) comprising 65.6% of the total as of 2022. This phenomenon presents a unique and time-bound opportunity for rapid economic growth, often referred to as a “demographic dividend”. The country possesses a large and youthful workforce, with over 1 million people joining the labor force annually, and a majority of the population under the age of 27.
Human capital development is a key focus to capitalize on this demographic advantage. Nineteen ministries and approximately 18 organizations, including the Directorate of Technical Education (DTE), Bangladesh Technical Education Board (BTEB), Bureau of Manpower Employment and Training (BMET), and Bangladesh Skill Development Institute (BSDI), are actively involved in providing skill training programs. The National Skill Development Council (NSDC), chaired by the Honorable Prime Minister, serves as the highest policy-level body for skill development, aiming to coordinate and guide these efforts.
BMET alone operates 37 Technical Training Centers (TTCs) across the country, with a current training capacity of about 50,000 skilled persons per year. These centers offer courses in diverse trades such as automotive, electrical, computer (software and hardware), and industrial garments. BSDI complements these efforts by offering diploma, certificate, and short-term courses in high-demand areas like engineering, IT, business, and health sciences, with a focus on practical and hands-on learning. Initiatives like Bangladesh Digital Skills (BDskills) also provide online training programs and skill assessments to help professionals become job-ready for the ICT industry. Despite these efforts, challenges persist in aligning training with evolving industry demands and ensuring quality across all programs.
3.5. Remittance Inflows: A Critical Economic Stabilizer
Remittances serve as a vital source of external income for Bangladesh, playing a crucial role in bolstering foreign exchange reserves, stabilizing the exchange rate of the Bangladeshi taka, and increasing national savings. In 2024, remittances reached a record-breaking $27 billion, significantly surpassing the previous record of $22 billion in 2021. This momentum continued into March 2025, with monthly remittances hitting an all-time high of $3.29 billion.
A large portion of these funds is used for daily household expenses, but increasingly, remittances are being strategically invested in small businesses, education, and healthcare, particularly in rural areas. This contributes directly to poverty reduction, improves living standards, and creates local employment opportunities. However, the notable spike in remittances after the political changeover in August 2024, with a reported shift from informal ‘hundi’ channels to formal ones, suggests that previous political instability and a lack of trust in formal financial systems may have suppressed official inflows. While remittances are an undeniable economic lifeline, their volatility and sensitivity to the domestic political climate mean that relying too heavily on them without addressing underlying structural issues (like investment climate, job creation, and financial sector transparency) is risky. The observed shift to formal channels post-political change underscores the importance of good governance, stability, and a trustworthy financial system in maximizing even existing economic benefits and ensuring their sustainable contribution to national development.
4. Navigating the Headwinds: Key Challenges and Risks
Despite its impressive growth, Bangladesh faces significant internal and external challenges that could impede its long-term development trajectory and hinder its aspirations for upper-middle-income status.
4.1. Political Stability and Governance Imperatives
Political instability and a pervasive lack of good governance are fundamental impediments to sustainable development and economic progress in Bangladesh. Recent political unrest, including the resignation of the former Prime Prime Minister on August 5, 2024, and a popular uprising, directly disrupted economic activities in the industrial and service sectors, leading to a deterioration of law and order. This instability actively discourages investment, further worsening the employment situation. Both the Asian Development Bank (ADB) and the International Monetary Fund (IMF) have explicitly attributed their lowered GDP growth forecasts for Bangladesh to “political uncertainty” and “heightened uncertainty that weighed on investment”.
Corruption is widespread, permeating all levels of society, which not only hinders economic efficiency but also exacerbates social inequality. Inefficient government bureaucracy is frequently cited as a major obstacle to doing business. Foreign investors remain hesitant due to the absence of an elected parliament, weak contract enforcement, and unpredictable policy changes, including abrupt VAT changes. Consequently, Foreign Direct Investment (FDI) inflows shrank by 8.8% in the last fiscal year.
4.2. Persistent Infrastructure Gaps and Vulnerabilities
Despite significant investments in infrastructure, particularly transport, limitations persist in project implementation and ongoing maintenance, leading to rapid deterioration of newly built assets.
- Power Sector Instability: The Bangladesh Power Development Board (BPDB) incurred a substantial loss of BDT 117.65 billion in FY2022-23. Production costs are continuously rising, with the average cost per unit increasing from BDT 8.84 to BDT 11.33, necessitating repeated electricity price hikes that burden consumers and contribute to inflation. There is also a notable discrepancy between the declared power generation capacity (approximately 26,000 megawatts) and the actual operational capacity (not more than 21,000 megawatts), suggesting inefficiencies or underutilization of existing infrastructure. Many rural households still suffer from frequent power cuts and lack reliable access to grid electricity.
- Rural Infrastructure and Maintenance Deficiencies: Challenges in rural areas include a lack of region-specific designs for roads and highways, insufficient heavy machinery for contractors, and unclear maintenance policies.
- Road Safety and Traffic Congestion: Bangladesh faces a severe road safety crisis, with one of the highest road death rates globally, approximately 19 deaths per 100,000 people in 2021. This is primarily due to poor infrastructure, weak law enforcement, unsafe vehicles, and inadequate post-crash response mechanisms. Traffic congestion, particularly in densely populated urban centers like Dhaka, significantly impacts business logistics, travel times, and overall productivity.
4.3. Enhancing the Business Environment
Bangladesh’s business environment, while improving, still presents significant hurdles for investors.
- Ease of Doing Business: In the World Bank’s last publication of the Ease of Doing Business Index 2020, Bangladesh ranked 168th out of 190 countries, positioning it significantly lower than regional peers such as India (63rd) and Pakistan (108th).
- Business Ready (B-READY) Initiative: The World Bank’s Business Ready 2024 report, which replaced the Ease of Doing Business Index, evaluated Bangladesh across three core pillars: Regulatory Framework (score of 56.99), Public Services (41.64), and Operational Efficiency (70.49). Key areas of persistent weakness include business insolvency (score of 41), dispute resolution (42), and international trade (54). The legal process for dispute resolution is slow and unpredictable, with cases often taking years to resolve due to judicial backlogs, creating significant uncertainty for investors.
- Progress and Remaining Hurdles: While reforms have been implemented to make starting a business less expensive and faster, and to ease getting electricity and credit, challenges remain. The legal framework surrounding taxes is often seen as complex and confusing, with frequent changes and a lack of clarity. Labor laws, while beneficial for employees, can be perceived as overly stringent and inflexible for businesses.
- Financial Sector Vulnerabilities: The banking sector faces a severe crisis, characterized by skyrocketing non-performing loans (NPLs). Classified loans surged from Tk 2.45 trillion in September to Tk 3.45 trillion in December 2024, pushing the NPL ratio to an alarming 20.2%. An NPL ratio exceeding 10% signals severe distress, and the IMF estimates that over a quarter of all disbursed loans (more than Tk 5 trillion) are in distress. This high NPL ratio erodes bank earnings, destabilizes balance sheets, and weakens financial institutions’ ability to meet depositor demands, posing serious risks to economic stability.
- Revenue Mobilization and Fiscal Constraints: Bangladesh’s revenue collection remains low relative to the size and growth of its economy, with a tax-to-GDP ratio of just 7.4%, one of the lowest in South Asia. This significantly constrains the government’s fiscal space and ability to fund essential development projects and public services. Widespread corruption and inefficiency within the revenue department, along with high tax evasion, contribute to these revenue losses.
4.4. Climate Change: An Existential Threat to Development
Bangladesh is one of the most climate-vulnerable countries globally, with its low-lying geography making it highly susceptible to the impacts of climate change. Despite contributing only 0.3% of global greenhouse gas emissions, Bangladesh ranked ninth on the 2024 World Risk Index of countries vulnerable to extreme weather.
- Vulnerability to Floods, Cyclones, Sea-Level Rise, and Salinization: The country faces severe threats from rising sea levels, increased frequency of cyclones, and erratic weather patterns. It is estimated that by 2050, Bangladesh could lose approximately 11% of its land due to a projected 19.6-inch (50 cm) rise in sea level, potentially displacing up to 18 million people. Salinization, the infiltration of salt into agricultural land and drinking water supplies, is also a growing problem, threatening crop growth and the health of tens of millions in coastal communities.
- Economic and Social Impacts of Climate Disasters: Climate-related events have already caused significant economic losses, with Bangladesh suffering $3.72 billion in losses from 185 extreme weather events between 2000 and 2019. These disasters exacerbate poverty, displace communities, and put immense pressure on natural resources and urban infrastructure. Many climate refugees are forced to settle in densely populated urban slums with poor living conditions and limited opportunities. The agricultural sector, which employs a significant portion of the workforce, is particularly vulnerable to climate change, with changes in rainfall patterns and increased salinity reducing crop yields and threatening food security. Failure to address these challenges could undermine economic growth and exacerbate social inequalities, potentially turning the demographic dividend into a demographic burden.
4.5. Global Supply Chain Dynamics and Export Concentration Risks
As previously discussed, Bangladesh’s overwhelming reliance on the Ready-Made Garment (RMG) industry for over 80% of its export earnings makes it highly vulnerable to shifts in global demand and competition. This concentration risk means that any significant downturn in the global apparel market or a change in sourcing strategies by major international brands can have a disproportionately severe impact on Bangladesh’s export revenues, employment, and overall economic stability. The industry also faces challenges related to labor rights, environmental sustainability, and supply chain vulnerabilities, which are increasingly scrutinized by international buyers and regulators.
4.6. Regional Integration: Opportunities and Obstacles
Bangladesh is part of several regional trade agreements, including the South Asian Free Trade Area (SAFTA), the Asia Pacific Trade Agreement (APTA), and the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC). While these agreements present opportunities for regional economic integration, their effectiveness has been limited.
- SAFTA: The SAFTA agreement has largely failed to materialize its full potential, with intra-regional trade remaining below 5% of total trade, one of the lowest in the world. This is partly attributed to protectionist stances and a lack of political commitment from member states.
- BIMSTEC: BIMSTEC, which includes Bangladesh, Bhutan, India, Myanmar, Nepal, Sri Lanka, and Thailand, holds immense potential for addressing modern challenges through cooperation in trade, investment, and connectivity. Bangladesh hosts BIMSTEC’s permanent secretariat in Dhaka and expects the grouping to provide a platform for economic development. However, the proposed BIMSTEC Free Trade Agreement, stalled since 2004, remains unimplemented, largely due to India’s reluctance to fully open its markets to smaller neighbors. Intra-regional trade within BIMSTEC, while outpacing SAARC, still lags significantly behind ASEAN (approximately 7% vs. 25%). Institutional weaknesses, limited financial resources for the secretariat, and bilateral tensions (e.g., between Bangladesh and Myanmar) further hinder its progress. The imbalance in influence, with BIMSTEC often perceived as an India-centric initiative, also fosters wariness among smaller members, fearing economic dependency and political subordination.
Table 4: Bangladesh’s Business Environment: Comparative Analysis (2020/2024)
| Indicator | Bangladesh (2020/2024) | India (2020) | Pakistan (2020) | Sri Lanka (2020) | Nepal (2020) |
| Ease of Doing Business Ranking (2020) | 168th (out of 190) | 63rd | 108th | 99th | 94th |
| Business Ready (B-READY) Scores (2024) | |||||
| – Regulatory Framework | 56.99 | – | – | – | – |
| – Public Services | 41.64 | – | – | – | – |
| – Operational Efficiency | 70.49 | – | – | – | – |
| Specific Topic Scores (B-READY 2024) | |||||
| – Business Entry | 74 | – | – | – | – |
| – Dispute Resolution | 42 | – | – | – | – |
| – Business Insolvency | 41 | – | – | – | – |
| – International Trade | 54 | – | – | – | – |
| Tax-to-GDP Ratio (2023) | 7.4% | 20% (approx.) | – | – | 23.4% |
| NPL Ratio (Dec 2024) | 20.2% | 7% (2012-2021 avg) | 10.32% (2012-2021 avg) | 3.94% (2012-2021 avg), 12% (2022) | – |
5. Strategic Recommendations for Sustainable Prosperity
To navigate the complex challenges and fully capitalize on its growth potential, Bangladesh must implement a multi-pronged strategic approach focused on strengthening governance, diversifying its economy, investing in human capital, building resilient infrastructure, and deepening regional integration.
5.1. Strengthening Governance and Investment Climate
Addressing the pervasive issues of political instability, corruption, and weak governance is paramount for fostering a predictable and attractive investment climate.
- Regulatory Reforms and Contract Enforcement: Accelerating reforms in the Companies Act, foreign exchange regulations, and investment protection laws is crucial to ease the entry of Foreign Direct Investment (FDI). Strengthening the legal framework for contract enforcement, potentially through specialized commercial courts and improved alternative dispute resolution (ADR) mechanisms, would reduce business uncertainties and expedite dispute resolution, which is a significant concern for investors.
- Anti-Corruption Measures: Implementing a zero-tolerance policy against corruption and strengthening institutions like the Anti-Corruption Commission are vital. This includes procedural reforms within the revenue department, stronger oversight, and greater accountability to combat tax evasion and trade mispricings that lead to significant revenue losses.
- Targeted FDI Attraction Policies and Special Economic Zones: While Bangladesh has established Export Processing Zones (EPZs), Economic Zones (EZs), and High-Tech Parks offering incentives, further efforts are needed. A strategic approach to restructure the Bangladesh Investment Development Authority (BIDA) to provide targeted investment promotion and faster, quality services is essential. This includes streamlining entry processes, ensuring access to serviced land, and providing robust investor aftercare. The government’s policies, such as tax holidays and duty exemptions for API producers and IT developers, should be consistently applied and clearly communicated to build investor confidence.
5.2. Accelerating Export Diversification and Value Addition
Reducing the economy’s over-reliance on the RMG sector requires a concerted effort to expand and enhance other export-oriented industries.
- Investment in R&D, Quality Control, and International Certifications: For sectors like pharmaceuticals, agro-processing, and light engineering, investing in research and development (R&D) is critical for product innovation and improving manufacturing processes. Adhering to international quality standards and obtaining certifications (e.g., OEKO-TEX, ISO, HACCP) is essential to access high-value global markets.
- Promoting Emerging Sectors:
- Pharmaceuticals: Continue leveraging the TRIPS waiver to expand generic drug production and invest in API manufacturing to reduce import dependence.
- IT & Digital Services: Shift focus from saturated trades to high-demand niche skills like Software Quality Assurance (SQA) through industry-led curriculum development and agile certification frameworks. This would enable the country to move up the value chain in IT services.
- Light Engineering, Leather & Footwear, and Shipbuilding: Provide targeted financial support, market access assistance, and skill development programs for SMEs in these sectors to help them innovate and expand their reach.
5.3. Investing in Human Capital for a Future-Ready Workforce
Harnessing the demographic dividend requires strategic investments in education and skill development to address the existing skills gap and youth unemployment.
- Aligning Education and Training with Industry Demands: The National Skill Development Authority (NSDA) and other TVET institutions must continuously update curricula to match the evolving demands of emerging sectors like IT, healthcare, and agro-processing. This includes strengthening industry-institute linkages through active private sector participation in curriculum design and industrial attachments.
- Empowering Women in the Workforce: Proactive “Just Transition” strategies are needed to address the gendered impact of automation in the RMG sector. This involves retraining displaced female workers for new roles within the evolving RMG industry or in other growing sectors, ensuring that technological progress does not come at the expense of equitable employment opportunities. Addressing cultural norms, improving access to education and training, and ensuring safety can further boost women’s labor force participation beyond the RMG sector.
5.4. Building Resilient Infrastructure and Green Growth
Addressing infrastructure gaps and climate vulnerabilities is crucial for sustained economic development.
- Addressing Power Sector Stability and Rural Connectivity: Resolve the financial instability of the power sector and discrepancies between declared and actual generation capacity. Invest in diversified energy sources, including renewables, to ensure a stable and affordable energy supply for industrial operations. Improve rural infrastructure development and maintenance policies, ensuring region-specific designs and adequate resources.
- Climate-Resilient Development and Green Industrialization: Prioritize climate-resilient infrastructure projects, particularly in vulnerable low-lying areas, to mitigate the impacts of floods, cyclones, and sea-level rise. Promote green industrialization through clear standards, tax breaks for green investments, and support for renewable energy, wastewater recycling, and waste management. This includes adopting circular economy principles and independent verification through global frameworks like LEED, GRI, and ISO standards.
5.5. Deepening Regional and Global Economic Integration
Leveraging its strategic geographic position and existing trade agreements can unlock new avenues for growth.
- Strengthening Regional Trade Blocs: Despite past challenges, Bangladesh should continue to push for the full implementation of regional trade agreements like SAFTA and the BIMSTEC Free Trade Agreement. This requires advocating for reduced non-tariff barriers, simplified customs procedures, and greater market access among member countries.
- Exploring New Partnerships and Trade Routes: Bangladesh can position itself as a regional trade and logistics hub, particularly given its access to the Bay of Bengal and its location between India and China. Investing in multimodal connectivity (rail, road, waterways) and leveraging its deep-sea ports can facilitate regional and global trade. Exploring digital payment system linkages within BIMSTEC and with ASEAN countries could also streamline cross-border trade.
6. Conclusion: Bangladesh’s Resilient Path Forward
Bangladesh stands at a pivotal juncture in its economic development. The nation’s journey from a nascent economy to a lower-middle-income country, driven by robust growth, significant poverty reduction, and a burgeoning demographic dividend, is a testament to its inherent resilience and strategic vision. The enduring strength of the RMG sector, coupled with promising diversification into pharmaceuticals, IT, light engineering, and agro-processing, alongside transformative infrastructure projects, paints a picture of substantial opportunity. Remittance inflows continue to provide a crucial economic buffer, supporting stability and grassroots development.
However, the path to sustained prosperity is not without significant obstacles. Persistent political instability, deeply entrenched governance issues, and critical infrastructure gaps pose fundamental threats to investment and operational efficiency. The economy’s heavy reliance on the RMG sector exposes it to global volatilities, while the gendered impact of automation within this industry demands proactive social and economic adjustments. Furthermore, the existential threat of climate change, manifest in rising sea levels, floods, and salinization, necessitates urgent climate-resilient development strategies. The unfulfilled potential of IT exports and the operational challenges faced by key infrastructure projects underscore the need for more agile and adaptive implementation.
To achieve its ambitious Vision 2041, Bangladesh must move beyond incremental reforms. It requires a concerted, integrated approach that prioritizes transparent governance, strengthens the rule of law, and actively combats corruption to foster an environment conducive to both domestic and foreign investment. Accelerating export diversification through targeted investments in R&D, quality control, and niche skill development across emerging sectors is vital for long-term economic resilience. Critically, human capital development initiatives must be dynamically aligned with evolving industry demands, ensuring that the youthful workforce is equipped with future-ready skills, and that women are empowered to participate fully and equitably in the changing labor market. Finally, building truly resilient infrastructure that accounts for climate vulnerabilities, coupled with a commitment to green industrialization, will safeguard development gains for future generations. By addressing these multifaceted challenges with strategic foresight and unwavering commitment, Bangladesh can solidify its position as a dynamic emerging economy, capable of navigating global complexities and achieving sustainable prosperity.
