With the national parliamentary election concluded and the Bangladesh Nationalist Party forming a new government, political tensions in Bangladesh have eased. However, overall economic risks have increased since last August. During this period, the country’s economic risk score rose by 0.4 points to 7.1, compared with an Asia-Pacific regional average of 5.1. Bangladesh now ranks 141st among 164 economies in the global risk index.

These findings were published in a report by Oxford Economics titled “Political Calm Returns, but Transition Risks Remain.” Released on Thursday, the report notes that while a peaceful election reduced political uncertainty, restoring full confidence will take time. In recent years, Bangladesh’s macroeconomic stability has weakened, though gradual improvement in growth is expected.

Oxford Economics assesses economic risk using five indicators: market demand, market expenditure, exchange rate stability, sovereign creditworthiness, and trade credit. Scores are measured on a scale of 1 to 10, with 10 indicating the highest risk.

According to the report, Bangladesh’s most significant vulnerability lies in trade credit, where it received the maximum risk score of 10. High levels of non-performing loans—particularly in state-owned banks—along with weak supervision and limited credit data have worsened the situation. Banks tend to lend heavily to large borrowers and the services sector, while comparatively safer sectors like households and housing receive less financing.

Market expenditure also remains under pressure, scoring 8, largely due to high interest rates and bad loans. Market demand scored 7, above the regional average. Political instability, regulatory challenges, uncertainty in development projects, and reliance on Middle Eastern countries for remittances have all contributed to heightened demand-side risks.

Exchange rate risk stands at a moderate level with a score of 5. Although a floating exchange rate system has been introduced, the Bangladesh Bank continues to intervene. After a significant depreciation last year, the taka has somewhat stabilized. Foreign exchange reserves have recovered but remain below pre-pandemic levels. Continued reforms under the International Monetary Fund program could improve stability over the medium term.

Sovereign credit risk remains high, weighed down by banking sector weaknesses, low per capita income, institutional concerns, and a challenging business environment. Climate-related risks could also affect the country’s credit profile in the long run. Although political uncertainty has declined, structural weaknesses and reform-related risks persist.

Growth Outlook

Due to sluggish business activity and persistent inflation, Oxford Economics has revised down Bangladesh’s GDP growth forecast for the 2025–26 fiscal year from 4.7 percent to 4.5 percent. Growth is expected to rise to 5.7 percent in 2026–27.

In the 2024–25 fiscal year, growth stood at 4 percent—one of the weakest performances in decades outside the pandemic period. Political unrest, mass protests leading to government change, severe flooding in several districts, and weak external demand all contributed.

Inflation remains a major concern. After easing briefly, it climbed again to 8.6 percent year-on-year in January, up from 8.2 percent in October. To curb inflation and rebuild reserves, the central bank has kept the policy interest rate unchanged at 10 percent. However, wage growth of around 8 percent has reduced purchasing power, limiting consumer demand.

Rising External Pressures

The export sector, particularly ready-made garments, faces renewed challenges. Although exports rebounded in the third quarter last year, they declined in the fourth quarter. Reduced advance orders from the United States and weaker demand in Europe, including Germany, are key factors. The U.S. and Germany together account for about one-fifth of Bangladesh’s total goods exports. Lower service exports have added to the strain.

Lower tariffs and new trade agreements in the U.S. market may provide short-term relief. However, Bangladesh’s expected graduation from Least Developed Country (LDC) status next November could pose medium-term challenges. After graduation, export products may face tariffs of 9–12 percent, potentially reducing competitiveness.

Nevertheless, Oxford Economics believes exports could grow this year, supported by new trade agreements and a recent U.S. Supreme Court ruling declaring certain retaliatory tariffs unlawful. Improved political stability following the election and continued trade benefits ahead of LDC graduation may also help.

External Balance and Investment

Tighter monetary policy and IMF support helped foreign exchange reserves rise to $22 billion by mid-last year, up from about $17 billion in 2024. Even so, current reserves cover only around four months of import costs.

Investment growth may remain subdued due to fiscal tightening and high borrowing costs. Bangladesh Bank has indicated it will maintain the policy rate at 10 percent until inflation falls to 7 percent. With inflation at 8.6 percent in January, a near-term easing appears unlikely.

Oxford Economics concluded that rebuilding confidence after a prolonged period of political uncertainty will take time. Although February’s election removed one source of instability, liquidity support extended by the central bank to troubled banks has weakened the overall effectiveness of monetary policy.