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Bangladesh—Trade barriers and political violence worsen fragile outlook
The mid-2024 uprising led to an intense period of economic turbulence and heightened investor uncertainty. The timely formation of an interim government stabilised the situation, and exports and remittances have proven resilient. Still, GDP growth is expected to have decelerated to 3.8% in FY2025, down from an annual average of 6.4% in the decade prior.
Lingering political tensions and social unrest are likely to increase ahead of elections expected in early 2026, particularly given high inflation and declining real incomes. Heightened global uncertainty and rising trade barriers also worsen the outlook. The US is set to impose a 35% tariff on Bangladeshi imports from 1 August unless a bilateral trade agreement is reached. While part of this cost will be borne by US consumers, Bangladeshi exporters in the critically important apparel industry (89% of exports) may face lower demand and tighter margins, potentially leading to wage delays and union-led strikes. Meanwhile, the government faces an emerging external financing gap, payment arrears have surfaced amid limited foreign exchange, and stress in the banking sector has intensified. These constraints imply less scope for stimulus measures despite increased downside risks.
In response, the authorities have tightened policies and requested additional financial assistance from the IMF. Last month, the IMF approved Bangladesh’s third and fourth reviews under the current programs, unlocking US$1.3 billion. While IMF program performance has so far been “broadly satisfactory”, continued momentum on difficult reforms—such as implementing a new exchange rate regime and addressing the shortfall in domestic tax revenues—are key to restoring economic stability in Australia’s 22nd largest export market. Indeed, Bangladesh was Australia’s fastest growing large export market over the past five years; up from $1.4 billion in 2019 to $3.3 billion in 2024 (Chart).
