Economic resilience, defined as the ability of an economy to quickly rebound from shocks while remaining stable and growing over the long term, is one of the most important determinants of a country’s ability to resist internal and exogenous shocks. For Bangladesh, this resilience is being rigorously tested amid a backdrop of domestic inefficiencies and global uncertainties. As much as the country has registered important economic and social advancements over the last five decades since its independence, mounting uncertainty in the global economic environment and internal political economy dynamics and institutional deficiencies pose fundamental questions regarding its resilience to absorb and respond to growing disruptions. Can Bangladesh sustain and accelerate its growth while mitigating risks from both domestic vulnerabilities and international shocks? To answer this, it is essential to dissect the structural, institutional, and geopolitical factors that underpin its economic resilience.
Despite narratives of sustained economic and political stability over the past decades, deep-seated structural weaknesses pose significant threats to Bangladesh’s ability to navigate ongoing and future economic crises. The most glaring weakness of the country is its excessive dependence on RMG exports and overseas remittances. Though these two sectors have been the major driving force behind economic growth, excessive dependence on them has created an unbalanced economic structure that is highly vulnerable to external shocks. The lack of diversification into alternative growth engines, such as other labour and skill-intensive manufacturing, information technology, and high-value services, has further constrained Bangladesh’s economic flexibility and resilience.
Compounding these structural weaknesses are persistent governance challenges and institutional deficiencies. Corruption, crony capitalism, a lack of transparency in public policy, and political instability have undermined effective economic management. As the strength of democratic institutions eroded and the power became concentrated among political and business elites, increasingly it became difficult to implement much-needed structural reforms. In addition, inconsistencies and possible manipulation of official statistics undermined the credibility of economic evaluations, impacting both domestic policymaking and foreign investment decisions.
The structural fragility of Bangladesh’s economy is further reinforced by several interrelated challenges. Private investment, for instance, has remained stagnant as a share of GDP for more than a decade. Bangladesh lags behind regional peers in attracting FDI, missing opportunities to integrate into global value chains and diversify its industrial base. Fiscal constraints also loom large, as the country struggles with one of the lowest tax-to-GDP ratios in the world. Rising non-performing loans, inadequate regulatory oversight, and political interference in loan disbursements have weakened the banking sector. Meanwhile, the underdeveloped capital market restricts long-term financing options, hindering private sector expansion. External debt is another growing concern, as increasing reliance on non-concessional loans has raised debt servicing costs, putting pressure on foreign exchange reserves and raising questions about long-term debt sustainability.
Persistent underinvestment in education and healthcare has also resulted in human capital constraints, limiting the productivity and employability of the workforce. Job creation remains insufficient to absorb the growing labour force, while social protection programs suffer from low coverage and inefficiencies in targeting the most vulnerable populations.
Geopolitical dynamics further complicate Bangladesh’s economic resilience. The country must navigate a delicate balancing act in its relationships with major global and regional powers like the US, the European Union, India and China. Moreover, development financing and FDI are increasingly influenced by geopolitical considerations, potentially limiting the country’s policy autonomy and bargaining power.
Meeting these interconnected challenges will demand a full-spectrum and multi-dimensional approach.
First, economic diversification and industrial upgrading must be prioritized. Moving beyond the RMG sector by investing in labour-intensive and skill-intensive manufacturing and services sectors, fostering entrepreneurship, and integrating into global value chains can enhance economic flexibility and reduce vulnerability to external shocks.
Second, macroeconomic stability and financial sector reform are necessary. Fiscal discipline must be enhanced, tax collection increased, and regulation of the financial system strengthened as the most urgent measures. Non-performing loans and the development of the capital market must also be resolved in order to access long-term channels of financing.
Third, human capital development has to be on the agenda of resilience. Increased investment in education, vocational training, and health is required to generate a skilled and productive workforce. Increased scaling up of social protection programs will help constrain exposure to risk factors among the poor, leading to enhanced social and economic inclusion.
Fourth, proactive foreign policy and strategic engagement are essential. Diplomatic relations, advantages from regional trade agreements, and climate diplomacy will facilitate Bangladesh’s navigation of geopolitical risks and pursue its long-term development agendas.
Lastly, institutional and governance reforms are vital. The strengthening of democratic institutions, curbing corruption, and regulatory efficiency will strengthen state capacity and deliver a more stable economic environment.
It is a matter of deep concern that numerous reform agendas, debated for over three decades, have yielded minimal progress. While civil society consistently advocated for reform, the lack of interest from political and business elites in Bangladesh remained a significant hurdle. To safeguard its economic resilience and effectively respond to ongoing and future crises, Bangladesh must implement decisive measures to rectify its structural vulnerabilities, governance deficiencies, and external dependencies. Continued inaction will severely limit the country’s capacity to withstand shocks.
This article was first published in the March, 2025 edition of the Thinking Aloud
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