Bangladesh has been in the news for radicalisation, extremism, and brutal political violence since the August 2024 coup, but the lesser-known story is the economy, which is in a downward spiral. The country is facing a banking crisis, a shortage of foreign exchange and a weak business environment. The economic hardship may worsen other existing problems.
A foreign exchange shortage is usually an early warning sign of deeper economic problems. From a peak of $46 billion in 2020-21, Bangladesh’s forex reserves fell to $26.7 billion in 2023-24; hard currency outflow is an indicator that a country’s currency is overvalued. Bangladesh depends on imports for fuel, fertiliser, food, and most other products, and a falling Bangladeshi Taka (BDT) is leading to higher inflation. Therefore, the Bangladesh government has tried to maintain a fixed rate against the U.S. dollar. Whenever a situation becomes unsustainable, there is a sharp devaluation of the taka. The last such devaluation of 7% was in May 2024; since then, the taka has been almost flat against the U.S. dollar, unlike the currencies of stronger economies like China and India that have fallen against the dollar.
The taka currently trades at 122 BDT to one U.S. dollar; if the currency is allowed to truly ‘float’, the rate will be 135-140 BDT/USD. The current regime has kept the taka strong by restricting ‘non-essential’ imports, including electronics, vehicles and even capital goods.[1] Bangladesh’s import of capital machinery has fallen for three years in a row, and economic growth is paying the price for the artificially strong taka.[2] The IMF recently revised downwards Bangladesh’s projected GDP growth for 2025, the fourth downward revision in 2025.[3]
The forex shortage is manifesting in other ways too. For instance, world rice prices are at their lowest level since 2017,[4] but are high inside Bangladesh.[5] In a normal economy, traders would import rice to gain from the arbitrage, bringing down domestic prices as a result. In the forex-constrained environment of Bangladesh, this cannot happen.
Meanwhile, foreign firms doing business in Bangladesh are finding it hard to remit profits home, as the government has made the process deliberately cumbersome. An estimated $18.9 billion is invested in Bangladesh, mostly in the textiles, power and banking sectors. During 2024-25, companies reinvested retained profits of $1.13 billion – money they were unable to remit. Fresh Foreign Direct Investment (FDI) fell to just $554 million during 2024-25, less than half of the 2020-21 peak,[6] showing that other investors have taken note and are sitting it out.
Businesses seek stability, and since August 2024, Bangladesh has been anything but that. In addition to the violence, the state has cracked down on business leaders perceived as ‘close’ to the previous government.
On August 12, 2024, a week after the regime change from Sheikh Hasina’s presidency, the interim government of chief advisor Muhammad Yunus arrested Salman F. Rahman, vice-chairman of Beximco Group, a top business conglomerate with interests in pharmaceuticals, textiles, and media. Rahman is currently facing 17 charges of money laundering.[7] Beximco’s 16 textile factories, employing 40,000 workers, had to be shut down as the company couldn’t sustain operations.[8]
Twelve days later, Golam Dastagir Gazi, a minister in the deposed government and chairman of Gazi Group, which had interests in tyres, media, and real estate, was arrested by the new regime. On August 25, a mob burnt and looted the Gazi Auto Tyre Factory, which produced 50% of Bangladesh’s tyres.
The S. Alam Group, another leading business house, is facing fraud charges.[9] However, the group founder had the foresight to obtain Singaporean citizenship, and he remains outside Bangladesh as a fugitive. The speed at which Rahman and Gazi were arrested – within days and weeks of the change in government – indicates that the arrests were political. The criminal charges were an afterthought.
These self-defeating acts of requital are perpetuating economic mismanagement and hence, poverty. Bangladesh’s banking sector is currently insolvent: non-performing loans (NPLs) account for 35% of all outstanding loans, compared to 2.5%-3% in India. While many of these loans were made under the previous government, political instability and the vendettas of the new regime have worsened the problem. The high level of NPLs means that banks cannot make loans to businesses, hurting new investment and economic activity in general.
There are two ways to repair bank balance sheets so lending can resume. First, some of the losses are passed on to bank depositors who take a haircut. This will likely lead to more riots. Second, the government recapitalises the banks by ‘printing new money’ – which will lead to a drop in the value of the taka, which will rapidly spread the pain to the entire population. Neither is a good option, but unless banks are solvent again, Bangladesh won’t be able to grow.
The current situation of an overvalued currency and high bank NPLs is not sustainable. However, Bangladesh has no easy way out of this polycrisis. Letting its currency truly ‘float’ will bring growth but will push up already high inflation. Resolving the banking crisis will cause the Taka’s value to fall, eroding people’s savings. For the unelected Yunus regime, the best course of action may be to hand over power to the winner of the Feb 2026 elections, and leave them to deal with the problems.
For India, the Bangladesh economic crisis will be a long-term problem that isn’t going away and will need to be carefully managed.
Amit Bhandari is Senior Fellow for Energy, Investment and Connectivity.
This article was exclusively written for Gateway House: Indian Council on Global Relations. You can read more exclusive content here.
Support our work here.
For permission to republish, please contact outreach@gatewayhouse.in
©Copyright 2025 Gateway House: Indian Council on Global Relations. All rights reserved. Any unauthorized copying or reproduction is strictly prohibited.
References:
[1] The Business Standard, “Import settlements plunge 11% on decline in capital machinery import,” September 30, 2025, https://www.tbsnews.net/economy/import-settlements-plunge-11-decline-capital-machinery-import-1249396.
[2] The Daily Star, “Capital machinery imports fall for third year,” July 21, 2025, https://www.thedailystar.net/business/economy/news/capital-machinery-imports-fall-third-year-3944226.
[3]News on AIR, “IMF Lowers Bangladesh’s FY26 GDP Growth Forecast to 4.9%,” October 15, 2025, https://www.newsonair.gov.in/imf-lowers-bangladeshs-fy26-gdp-growth-forecast-to-4-9/.
[4] Food and Agricultural Organisation of the United Nations, “ Markets and Trends: FAO Rice Price Update,” https://www.fao.org/markets-and-trade/commodities/rice/fao-rice-price-update/en/
[5] Prothom Alo, “Rice price: Lowest in the world, highest in the country,” November 30, 2025, https://en.prothomalo.com/bangladesh/jtkovbuihh.
[6] Bangladesh Bank, “Foreign Direct Investment and External Debt,” https://www.bb.org.bd//pub/halfyearly/fdisurvey/fi%20and%20ed.pdf.
[7] The Business Standard, “$97m money laundering: CID to press charges in 17 cases against Salman F Rahman, others,” November 9, 2025, https://www.tbsnews.net/bangladesh/97m-money-laundering-cid-press-charges-17-cases-against-salman-f-rahman-others-1281111.
[8] Business and Human Rights Centre, “Bangladesh: Beximco Group closes down 16 textile factories, laying off 40,000 workers; incl. co. responses,” January 27, 2025, https://www.business-humanrights.org/en/latest-news/bangladesh-5000-workers-have-charges-filed-against-them-for-protest-over-closure-of-16-factories-that-left-40000-jobless-wpftc/.
[9] The Business Standard, “ACC sues S Alam Group in 3 more cases over Tk6,243cr Janata Bank loan scam,” December 21, 2025, https://www.tbsnews.net/bangladesh/corruption/acc-sues-s-alam-group-3-more-cases-over-tk6243cr-janata-bank-loan-scam-1315341.