—Dr Selim Raihan—

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 withstand internal and exogenous shocks. For Bangladesh, this resilience is being rigorously tested against the backdrop of domestic inefficiencies and global uncertainties. As much as the country has registered important economic and social advancements since its independence in 1971, mounting uncertainty in the global economic environment, internal political economy dynamics and institutional deficiencies pose fundamental questions regarding its resilience in absorbing and responding 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 forces behind the country’s economic growth, excessive dependence on them has created an unbalanced economic structure that is highly vulnerable to external shocks. 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, lack of transparency in public policy, and political instability have undermined effective economic management. As the strength of democratic institutions eroded and power became concentrated among political and business elites, it became increasingly difficult to implement much-needed structural reforms. In addition, inconsistencies and possible manipulation of official statistics have 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 foreign direct investment (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 the 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 programmes 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 prioritised. Moving beyond the RMG sector by investing in labour-intensive and skill-intensive manufacturing and service 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 financial system regulation strengthened as the most urgent measures. Non-performing loans must be addressed, and development of the capital market is essential to accessing long-term financing channels.

Third, human capital development has to be central to resilience. Increased investment in education, vocational training, and healthcare is required to generate a skilled and productive workforce. Scaling up social protection programmes will help mitigate exposure to risk factors among the poor, leading to enhanced social and economic inclusion.

Fourth, proactive foreign policy and strategic engagement are essential. Strengthening diplomatic relations, leveraging regional trade agreements, and engaging in climate diplomacy will help Bangladesh navigate geopolitical risks and pursue its long-term development agendas.

Lastly, institutional and governance reforms are vital. Strengthening democratic institutions, curbing corruption, and improving regulatory efficiency will enhance state capacity and create 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 the civil society has consistently advocated for reforms, the lack of interest from the country’s political and business elites remains 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.

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Dr Selim Raihan is professor in the Department of Economics at the University of Dhaka and executive director of the South Asian Network on Economic Modeling (SANEM). He can be reached at [email protected].