Weak Investment Appetite and Political Uncertainty
The fiscal recovery of late appears a tad precarious, with investment appetites still rather tepid. A decline in private credit growth and ongoing political uncertainty have dampened business confidence. This is despite commendable export and remittance performances, moderated inflation, and a bolstered foreign exchange reserve.
The Policy Research Institute shared these insights on Thursday during a discussion in the capital, showcasing its Monthly Macroeconomic Insights for September–October 2025. This report was crafted with support from the Australian Department of Foreign Affairs and Trade. For more on related economic insights, you may visit BBC Business.
Financial Sector Vulnerabilities
The banking sector is particularly vulnerable, with non-performing loans reaching a staggering Tk 6.4 trillion, accounting for 35.7% of Tk 18.04 trillion in total loans. The rate of growth in these loans did slow in the first quarter of the fiscal year 2025-26.
Furthermore, distressed assets within the sector have now risen to Tk 9.5 trillion. It’s evident that robust governance reforms and a comprehensive resolution system for NPLs are essential. These are not only crucial for banking resilience but also vital for macroeconomic stability at large.
Implications of Rising Non-Performing Loans
PRI’s principal economist, Ashikur Rahman, elaborated on the consequences of retaining an estimated Tk 6.4 trillion of NPLs on balance sheets. Such hefty volumes compel banks to maintain elevated lending rates and repeatedly seek liquidity support from central authorities.
These lend further to a vicious cycle: stymied investment, heightened inflationary pressures, and weakened growth. The report suggests a high volume of bad loans curtails credit flow to productive sectors.
Political Stability and Economic Development
Anwar-ul-Alam Chowdhury, president of the Bangladesh Chamber of Industries, asserted the significance of prioritising local development under a stable political canopy. Ensuring regular and credible elections is indeed key to fostering sustained progress.
Indeed, failing to recognise the sheer weight of NPLs, not for the mass uprising in July, would have left the economy’s sustainability in doubt. Professor Atiqur Rahman underscored this point by highlighting the latent risk factors.
Past and Present Trends in NPLs
Observed trends show that NPL growth slowed to 6% in the July-September period of FY26, down from 42.75% during April-June FY2025. Yet, they remain at a 25-year high. NPL volumes stood at 41.1% in 1999, hit a low of 6.1% in 2011, and have ascended since.
Exchange Rate Dynamics
Dr Sattar warned of the Real Effective Exchange Rate index’s rise since May, which could diminish competitiveness for exporters. Without the ability to purchase dollars to depreciate the taka, relaxing import restrictions is deemed a feasible remedy. A surge in vibrant imports will fortify exchange-rate management under current flexible regimes and bolster export dynamism.
In conclusion, the sentiment within economic circles is cautiously optimistic yet shadowed by looming challenges. For further reading on economic stability, consider perusing insights from The Economist.
