As Bangladesh moves into 2025, it faces a new set of economic challenges threatening to slow down its momentum and test its resilience.
A combination of global and domestic factors is contributing to economic uncertainty. Rising inflation, an increasing trade deficit, energy shortages, and growing unemployment are placing pressure on both businesses and households. Additionally, political instability and the impacts of climate change add layers of complexity to the economic landscape.
This article explores Bangladesh’s significant economic challenges in 2025, examining their root causes, consequences, and potential solutions. By understanding these issues, policymakers, businesses, and citizens can work together to navigate the uncertainties ahead and build a more stable and prosperous economy.
Inflation and Rising Cost of Living
As of January 2025, the country’s point-to-point inflation rate is 9.94%, with a twelve-month average of 10.34%. This marks a slight decrease from December 2024, which recorded a 10.89% inflation rate. Despite various monetary and fiscal tightening measures, inflation has remained persistently high, above 10 per cent.
Several factors have contributed to the sustained high inflation in Bangladesh. Firstly, The Russia-Ukraine conflict, ongoing since 2022, has disrupted global supply chains, leading to increased prices for essential commodities such as fuel and food. Secondly, the Bangladeshi Taka has experienced depreciation against major currencies, making imports more expensive and raising domestic prices. Finally, political instability and labour unrest, particularly in the garment sector, have led to production slowdowns and supply shortages, further exacerbating price pressures.
The elevated inflation rates have directly impacted the cost of living for Bangladeshi citizens.These rising living costs have led to increased demands for higher wages, especially among garment workers, who have been protesting to secure better compensation in the face of escalating expenses.
The Bangladesh Bank has implemented several monetary policy measures in response to the inflationary pressures. It has maintained the policy rate at 10% in its newly announced monetary policy for the second half of the current fiscal year (2024-25) and aims to reduce inflation to a target range of 7–8% by June 30, 2025.
Trade Deficit and Export Challenges
As of November 2024, Bangladesh’s trade deficit stood at $1.6 billion, a decrease from the $2.1 billion deficit recorded in the previous month. This reduction is part of a broader trend observed in the first five months of the fiscal year, where the trade deficit narrowed by 20%, or $1.97 billion, compared to the same period in the previous fiscal year. Despite this improvement, the trade balance remains negative, indicating ongoing economic vulnerabilities.
The RMG industry faces several hurdles, accounting for over 80% of Bangladesh’s export earnings. Internally, worker protests demanding higher wages and better working conditions have disrupted production schedules. These protests have led international buyers to reconsider placing orders in Bangladesh due to potential supply chain uncertainties. Recent flooding has severely impacted the supply of raw materials, mainly cotton, leading to a 50% reduction in textile production. This disruption exacerbates existing backlogs caused by political unrest. Despite a 5% growth in export volume over the past 35 years, Bangladesh’s exports remain concentrated in 8 to 9 major products. This lack of diversification makes the economy susceptible to sector-specific downturns and global market fluctuations.
Globally, the economic slowdown has reduced consumer spending in key markets such as the United States and the European Union. This downturn has directly impacted the ready-made garments (RMG) sector, which is experiencing a notable decline. In April 2023, exports fell by 16.52% year-on-year. Industry experts have highlighted that Western countries’ persistent inflation and economic challenges have reduced appetite for apparel, adversely affecting Bangladesh’s export earnings.
Energy Crisis and Power Shortages
The country’s rapid industrialisation and urbanisation have led to a significant increase in electricity consumption. In March 2024, the power generation shortfall reached 2,296 megawatts (MW), starkly contrasting the balanced supply-demand scenario in December 2023. This deficit has resulted in frequent load-shedding, adversely affecting residential and commercial sectors.
Capacity charges—payments made to power plants for the right to utilise their generation capacity—have become a significant financial burden. Over the past 14 years, approximately Tk90,000 crore has been paid as capacity charges to private power plants, all in foreign currency. This model has been criticised as a “model for looting,” with recommendations to end such charges to alleviate financial strain. The Bangladesh Power Development Board (PDB) has paid Tk57,970 crore in capacity charges to Independent Power Producers (IPPs) between FY 2017-18 and FY 2021-22. These payments have strained the country’s foreign exchange reserves, which have dwindled from over $48 billion two years ago to around $20 billion recently. The financial obligations associated with capacity charges have also led to increased consumer electricity tariffs and diverted funds from potential investments in renewable energy projects.
Bangladesh’s transition from fossil fuels to renewable energy remains slow, with renewable sources contributing only 3% to the national energy mix as of 2024. Solar power accounts for 537 megawatt-peak (MWp) of installed capacity, but high investment costs, an unsupportive banking system, and limited land availability hinder expansion. The proposed Renewable Energy Policy 2025 has faced criticism for its limited targets, which may increase dependence on fossil fuels and weaken energy security. These challenges and energy shortages have severely impacted industries like textiles, which rely on consistent power supply. In November 2024, electricity imports from Adani Power’s Jharkhand plant fell by nearly a third due to a dispute over dues, forcing Bangladesh to increase its reliance on costly fuel oil. While policies like the Renewable Energy Policy of Bangladesh (REPB) 2008 aimed to boost renewable energy integration, their effectiveness has been limited. The government is now seeking international support, including financial assistance from Australia, to strengthen its green energy transition and reduce vulnerabilities tied to energy imports.
Unemployment and Labor Market Disruptions
Despite economic growth, youth unemployment remains a pressing issue. As of 2025, approximately 1.94 million individuals aged 15 to 29 are unemployed, representing 7.2% of the young labour force. This figure is notably higher among those aged 15 to 24, with an unemployment rate of 15.74%. A significant contributor to youth unemployment is the mismatch between job market demands and the skills possessed by job seekers.
The advent of automation and digital technologies poses additional challenges to traditional employment sectors. Studies indicate that by 2041, approximately 5.38 million jobs in key areas could be at risk due to automation, with the ready-made garment sector potentially losing 2.7 million jobs, accounting for 60% of its workforce.
Climate Change and Its Economic Impact
The World Risk Index 2023 ranks Bangladesh ninth globally for climate disaster risk, projecting that by 2050, the nation could lose 17% of its territory to sea-level rise, consequently forfeiting 30% of its agricultural land.
The Asian Development Bank estimates that developing Asian countries, including Bangladesh, require annual adaptation investments ranging from $102 billion to $431 billion to combat climate change impacts effectively. Recognising the financial demands of climate adaptation, Bangladesh has sought international assistance. In September 2024, the World Bank pledged over $2 billion in new financing to support the country’s reform efforts, including flood response and environmental improvements. The United Nations Development Programme (UNDP) also reported that Bangladesh requires $12.5 billion annually to address climate change effectively, highlighting significant gaps in adaptation and mitigation financing.
Conclusion and Way Forward
The interim government has introduced several policies to address Bangladesh’s financial challenges. Energy sector reforms have been a significant focus, including suspending procurement under the Quick Enhancement of Electricity and Energy Supply Act to curb financial mismanagement. To tackle economic instability, the government has secured over $2 billion in financing from the World Bank for flood response, healthcare, and environmental improvements. At the same time, the European Investment Bank has pledged to double its support to strengthen democracy and governance. Additionally, reform commissions have been established to propose economic and political stability strategies. In the energy sector, the government is reassessing existing agreements, including a $500 million debt linked to India’s Adani Group, and is working toward transparent regulatory reforms. These measures aim to stabilise Bangladesh’s economy, improve financial governance, and ensure long-term sustainability. As Bangladesh navigates these uncertain times, a balanced combination of policy innovation, international cooperation, and governance improvements will be crucial in overcoming its financial challenges and securing sustainable economic growth.
Author: Tasnim Safwan
