[🇧🇩] Monitoring Bangladesh's Economy

[Saif]

Economy poised on higher trajectory of pickup

Bangladesh's economy recorded a stronger performance in May as the country's purchasing managers' index (PMI) climbed to 58.9-up six points from April by official count. The PMI rise indicates a faster pace of economic expansion across key sectors, in a rebound from certain recent upsets, econom

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MAY PMI HITS 58.9 IN FASTER RISE
Economy poised on higher trajectory of pickup
May PMI readings indicate overall economy growing faster, riding on export-led manufacturing buoyancy, uptick in agriculture, says Masrur Reaz

FE REPORT
Published :
Jun 16, 2025 00:34
Updated :
Jun 16, 2025 00:34

Bangladesh's economy recorded a stronger performance in May as the country's purchasing managers' index (PMI) climbed to 58.9-up six points from April by official count.

The PMI rise indicates a faster pace of economic expansion across key sectors, in a rebound from certain recent upsets, economists say in their interpretation of the purchasing-index upturn.

The latest data show agriculture, manufacturing, and services sectors all posted robust gains.

However, the construction sector stagnated with no month-on-month change in overall expansion.

Analysts say the May figures reflect a robust momentum ahead of the Eid season and improving external demand, particularly for manufacturing exports.

However, risks remain, particularly in the construction sector, which has struggled to maintain consistent growth.

"The May PMI readings indicate that the overall Bangladesh economy grew at a faster rate, riding on the export-led manufacturing buoyancy and uptake in agriculture and its supply chain ahead of Eid festival," says Dr M Masrur Reaz, Chairman and CEO of Policy Exchange Bangladesh.

"The construction sector, however, remains the only sector without any growth in expansion," he adds.

Agriculture posted its eighth consecutive month of expansion, with accelerated growth in new business, business activity, employment, and input costs.

Notably, the order-backlog index returned into positive territory.

Manufacturing marked its ninth straight month of expansion, benefiting from strong new business and production activity. However, the order backlogs index continued to contract, albeit at a slower pace-extending its contraction streak to ten months.

Services saw faster growth in May, with significant gains in new business and input costs. Employment growth moderated, but both business activity and order backlogs rebounded into expansion.

Construction remained flat compared to the previous month. While construction activity picked up and order backlogs improved, new business and employment both declined, signaling a mixed bag for the sector.

The future business outlook saw slower expansion in manufacturing, construction, and services, while agriculture remained upbeat with a faster expansion rate.​

 

[Saif]

Bulging NPLs enough to derail economy

A sound banking sector is the bedrock of a sound economy. The experience of economies across the world attests to this assertion: without a vibrant, healthy, and functioning banking system, no country can dream of sustainable development, let alone achieve rapid economic growth. In Bangladesh, howe

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Bulging NPLs enough to derail economy

Mir Mostafizur Rahaman
Published :
Jun 17, 2025 00:00
Updated :
Jun 17, 2025 00:00

A sound banking sector is the bedrock of a sound economy. The experience of economies across the world attests to this assertion: without a vibrant, healthy, and functioning banking system, no country can dream of sustainable development, let alone achieve rapid economic growth. In Bangladesh, however, the very pillar that is meant to support the economy stands increasingly weakened by a long-standing and dangerous affliction -- classified loans, also known as non-performing loans (NPLs).

Non-performing loans are the Achilles heel of the country's banking sector. This is not a new problem; it has plagued Bangladesh for decades. Yet the gravity of the crisis has intensified alarmingly in recent years, especially since the previous Awami League-led government came to power. That regime, often accused of favouring certain oligarchic business groups, oversaw a disturbing trend of ballooning bank credit disbursed to politically connected individuals and firms. As these borrowers defaulted on repayment, with little or no punitive action, the culture of willful default took root and grew like an unchecked weed.

Despite efforts by the current interim government to restore discipline in the banking sector, the classified loan problem continues to snowball. The new administration had pledged decisive steps to reduce bad loans, and indeed it undertook several measures aimed at stricter classification rules and enforcement. Yet, the latest figures paint a grim picture: the volume of NPLs has risen significantly, threatening not just the stability of the banking sector but also the broader economy.

According to the latest data, classified loans in Bangladesh's banking industry soared by around Tk 750 billion in just three months -- an astronomical jump that pushed total NPLs to a record Tk 4.20 trillion by the end of March 2025. This now accounts for a staggering 24.13 per cent of all loans -- up from just 11.11 per cent a year earlier. In real terms, nearly one out of every four taka lent by the banks has gone bad.

To put this into perspective, the total outstanding loans across the 61 commercial banks in the country now stand at Tk 17.42 trillion. The Tk 4.20 trillion in classified loans includes substandard, doubtful, and bad/loss categories. Alarmingly, a massive 81.38 per cent -- over Tk 3.41 trillion -- of this amount falls under the "bad loan" category, which means there is little hope of recovery unless extraordinary measures are taken.

The implications are serious. When banks are saddled with high NPLs, their ability to disburse fresh loans gets crippled. As more of their funds are locked up in unrecoverable accounts, their liquidity dries up, forcing them to become extremely conservative in extending new credit. This hits private investment hard. Without access to finance, businesses cannot expand, create jobs, or innovate. Economic stagnation follows. And in a country like Bangladesh, where private sector investment is a key growth driver, this can be disastrous.

Furthermore, banks are legally required to maintain provisioning -- setting aside a portion of their earnings to cover the potential losses from bad loans. As NPLs mount, so does the provisioning requirement, which eats into bank profits and leaves them less capitalised. Weak capitalisation can invite further regulatory scrutiny, damage investor confidence, and eventually force banks into a vicious cycle of distress.

The Bangladesh Bank (BB), the country's central bank, acknowledges the worsening trend. In an effort to impose tighter discipline, the central bank revised the overdue loan classification system, reducing the tenure from nine months to six months. Starting from March 31, 2025, the classification period will be further shortened to three months. While these stricter norms are commendable and necessary, they also mean that the banks must brace for more loans turning classified in the coming quarters unless recovery improves dramatically.

There are structural and historical reasons behind this surge in NPLs. For the last 15 years, during the previous government's rule, a number of business accounts were opened by individuals and entities favoured by the regime. Many of these accounts were based on inflated projections, non-existent cash flows, or political protection. With the change in regime following the July-August 2024 mass uprising, many such businesses have gone into hibernation. Sales turnover has plummeted, and cash flow has dried up. These accounts are now turning toxic, and banks are left to deal with the fallout.

Moreover, some banks have been effectively captured by vested interest groups -- a "vicious circle" of politically connected borrowers and complicit bank directors. These forces have laundered public money with impunity, leaving behind a hollowed-out financial system. Now, with the regulatory environment tightening, the hidden rot is surfacing.

The problem is not just managerial but also philosophical. Many banks in Bangladesh have failed to recognise that banking is a high-risk business -- especially in emerging markets. Lending money is not just a routine function; it requires robust Credit Risk Management (CRM) frameworks, capable loan appraisals, and vigilant monitoring. Unfortunately, in several banks, especially state-owned ones, risk management has been perfunctory or even non-existent. Even the presence of Board Risk Management Committees (BRMCs), a requirement in many jurisdictions, has been symbolic at best.

The way forward requires a multi-pronged approach.

First, banks must urgently intensify their cash-recovery efforts. The current recovery rate is abysmally low and reflects a lack of seriousness. Legal processes to recover defaulted loans need to be streamlined, special tribunals empowered, and willful defaulters publicly named and penalised.

Second, the regulatory role of the Bangladesh Bank must be strengthened. No more political interference in bank appointments -- especially at the board and managing director levels -- should be tolerated. Independent directors must be made truly independent, and audit committees must be empowered to flag irregularities.

Third, policymakers must realise that the banking sector does not operate in isolation. Global factors -- such as ongoing conflicts in the Middle East, fluctuating oil prices, and rising U.S. tariffs -- can all affect trade and investment in Bangladesh. Hence, any national strategy to improve bank performance must be built on macroeconomic foresight and external risk assessment.

Fourth, structural reforms are essential. The government must seriously consider merging weaker banks and recapitalising them, but only after ensuring good governance and accountability. No recapitalisation should be done blindly using taxpayer money without resolving the root causes of inefficiency.

Finally, a broader cultural shift is necessary. The idea that bank loans are grants or political rewards must be shattered. Loan default must carry social stigma and legal consequences. At the same time, good borrowers -- especially SMEs and exporters -- must be incentivised and supported.

Bangladesh's banking sector has reached a critical juncture. The rise in classified loans is not just a financial issue; it is a national crisis. If left unaddressed, it could derail the country's economic ambitions. The interim government must use this window of opportunity to enact meaningful reforms -- reforms that may be difficult but are indispensable. The alternative is continued decay and erosion of public trust in the very institutions that are supposed to safeguard the country's financial health.

As the numbers rise, so must our collective resolve. Bangladesh deserves a banking system that fuels growth -- not one that drowns it.​

 

[Saif]

Economy on positive growth path

Bangladesh economy has been showing signs of higher growth across its major sectors including manufacturing, agriculture and services. Going by the Purchasing Managers Index (PMI), which is a composite index based on surveys on the responses of the purchasing managers of different companies about v

thefinancialexpress.com.bd

Economy on positive growth path

Published :
Jun 17, 2025 23:30
Updated :
Jun 17, 2025 23:30

Bangladesh economy has been showing signs of higher growth across its major sectors including manufacturing, agriculture and services. Going by the Purchasing Managers Index (PMI), which is a composite index based on surveys on the responses of the purchasing managers of different companies about various aspects of their business, including new orders, production, employment, supplier deliveries and inventories, demonstrated a stronger performance of the economy.

In this connection, last May's PMI at 58.9 showed an increase by 6 points compared to what it was in the previous month (April). Evidently, it is a demonstration of reinvigoration seeing that the previous months since February were marked by a slowdown of the economy as indicated by their PMIs. So, the indicators point to an expansionary trend in the major sectors, especially agriculture, manufacturing and services. The agriculture, for example, showed the eighth consecutive month of growth so far as new business initiatives, business activity, employment and input costs were concerned. In particular, the order backlog index, which represents the undelivered portion of orders that a company had received, has returned to an expansionary trend. This is no doubt a positive trend since previous months had been the ones of contraction. Though the higher indices of order backlog indicate growth in business activity, they at the same time are also reflective of the output that is below its maximum potential. That is so because order backlog by definition is indicative of unfulfilled order deliveries. Across a particular sector of an economy, such as the agriculture, it is obviously indicative of a rising demand market. In a similar vein, the manufacturing sector, too, according to the last month (May)'s PMI, demonstrated a positive growth momentum driven by expansionary trend at an accelerated pace for the consecutive ninth month. The breakdown of the indices show that new business initiatives in the manufacturing sector demonstrated a rise. However, the order backlogs index remained contractionary though at a slower rate for ten straight months till May.

The construction sector, on the other hand, was expansionary for the sixth consecutive month, though, since April, the sector's growth remained stagnated. That means construction activities gained momentum with order backlogs demonstrating expansionary trend. But so far as new business initiatives and related employment generation was concerned, it reverted to a contractionary track. According to the PMI readings, the costs of inputs which involve the goods and services such as raw materials, components, energy a well as staff that a company employs to run its production process registered a rise, though at a slower pace. Similarly, the services sector demonstrated a faster growth with expansion into new business ventures with an attendant higher index value of order backlogs suggesting strong demands, moderate growth in employment and a rise in input costs. Overall, in experts' view, the economy exhibited an accelerated rate of growth for the month under review. In particular, Dr Masrur Reaz, Chairman and CEO of Policy Exchange Bangladesh (PEB), held that the latest PMI readings implied a faster rate of growth of the overall economy. And that growth took place against the backdrop of, what he pointed out, "export-led manufacturing buoyancy and uptake in agriculture and its supply chain ahead of the Eid festival".

The interim government would do well to take the growth indicators as reflected in last month's PMI into due consideration to devise its economic policies for the next fiscal year. For, that would help the elected government to take office next to build on a positive legacy left by the incumbent interim government. Though PMI is a widely used indicator tracking an economy's general health, there is still room for critically assessing its findings. Especially, the PMI depends on the company executives' responses which are basically subjective and prejudiced by personal bias. Even so, despite limitations, PMI can at least provide a good rule of thumb for the policymakers to take their cue from.​

 

[Saif]

Money-whitening facility unlikely in next fiscal

The much-debated black-money-whitening facility is unlikely in the upcoming fiscal year as the provision incorporated into the Finance Ordinance may finally be dropped amid outcry. The finance ordinance, promulgated on June 2, 2025 to ratify the interim government's maiden budget, has retain

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Money-whitening facility unlikely in next fiscal
Govt mulls over amending finance ordinance

Doulot Akter Mala
Published :
Jun 18, 2025 00:16
Updated :
Jun 18, 2025 00:16

The much-debated black-money-whitening facility is unlikely in the upcoming fiscal year as the provision incorporated into the Finance Ordinance may finally be dropped amid outcry.

The finance ordinance, promulgated on June 2, 2025 to ratify the interim government's maiden budget, has retained the provision allowing black-money whitening through real-estate investment, purchase of land, apartments and construction of residential buildings.

The tax rate has been increased up to five times and scope kept for raising question on source of the declared money by other government agencies excepting taxmen.

According to sources, the advisory council of the government may scrap the provision, incorporated into the Finance Ordinance 2025, in its meeting to be held on June 22.

Sources familiar with the change of heart have said the National Board of Revenue (NBR) is preparing to place the proposal for blocking the money-whitening scope, including the existing one in the outgoing financial year.

An amendment to the finance ordinance will be passed at the meeting separately through gazette as the ordinance was promulgated and issued on June 2.

The NBR may propose some other amendments, too, to the ordinance, including offering VAT exemptions on import of raw materials for compressor manufacturers.

If passed in the council meeting, the scope to whiten black money would end in June 2025.

Although the interim government scrapped some of the money- whitening provision in September last year, the opportunity to get undeclared money legalized through investing in realties was retained.

Hinting at a review of the provision, Finance Adviser Dr Salehuddin Ahmed, at the post-budget press conference, also admitted the measure is not 'commendable'.

However, officials have said the fiscal measure has aimed at bringing informal economy onto tax net.

The opportunity was offered to purchase of apartments, land with the undisclosed money by paying three-to five-time higher taxes.

Transparency International Bangladesh, the Centre for Policy Dialogue, economists and civil-society members deplored the retention of the facility for FY 2025-26.

Dr Fahmida Khatun, Executive Director of the CPD, has said the measure is morally discouraging and discrimination to the honest taxpayers.

"It encourages immoral practices---one is evading taxes and another not showing source of income," she said in the CPD disapproval of for the facility.

The advisers of the interim government too always spoke against such opportunity, Dr Fahmida reminded.

Rather, the government must intensify effort to reform total revenue- mobilisation process, she said.

Automation, restructuring, human capacity skills, regulatory measures "should be focused".

Unless the government overhauls the total revenue system, the country cannot achieve the expected domestic revenue-mobilisation growth, she said.

"First, the government must stop tax evasion and realise proper taxes from eligible taxpayers," she added.

To check automatic generation of undisclosed money on purchase of land property, Dr Fahmida found the necessity to ensure coordination between government's relevant institutions.

Dr Iftekharuzzaman, Executive Director of the Transparency International Bangladesh (TIB), terms the provision unjust and contradictory to the country's constitution.

"We have long been advocating for abolishing the black-money-whitening provision in the law," he has said about the interim government's move.

Citing reform commission's report, he said the report also recommended scrapping the law that encourages corruption.

According the ordinance, the tax rates for whitening black money through real-estate investment vary by location and property size.

A total of 11,839 people whitened about Tk205 billion in the fiscal year 2021 - the highest in the country's history in a single year.

Of the amount, Tk168.3 billion in cash, which was kept in banks or cash as a temporary provision of the National Board of Revenue, was legalised by 7,055 untaxed money-holders.

The rest of the money was invested in land, flats or stocks. The NBR received Tk20.64 billion in revenue from those investments.

Earlier in the 2007-2008 and 2008-2009 fiscal years - encompassing the regime of the military-backed caretaker government - about Tk96.83 billion of black money was whitened.

The government has provided the opportunity to invest money earned from undisclosed sources in various sectors, including the stock market and real estate, to overcome the fragile state of the economy brought about by the pandemic.​

 

[Saif]

Foreign firms' term loans in taka

Companies, whether local or foreign, require a sufficient and smooth inflow of working capital to continue their operations. Restrictions imposed by authorities to regulate capital flow and maintain financial balance can sometimes hinder the growth of business entities. Therefore, it is crucial to

thefinancialexpress.com.bd

Foreign firms' term loans in taka

Published :
Jun 19, 2025 00:03
Updated :
Jun 19, 2025 00:03

Companies, whether local or foreign, require a sufficient and smooth inflow of working capital to continue their operations. Restrictions imposed by authorities to regulate capital flow and maintain financial balance can sometimes hinder the growth of business entities. Therefore, it is crucial to periodically review existing regulations and revise them as necessary to meet the needs of business entities and facilitate investments. The government's move to relax the current rigidity of maintaining a 50:50 debt-equity ratio for foreign companies operating in Bangladesh, providing more room for accessing term loans in local currency, is a step in this direction. A report in the FE, published this week, mentions that the Bangladesh Investment Development Authority (BIDA) is going to request the central bank formally to withdraw the obligation of the debt-equity ratio.

According to the current foreign exchange regulations, any foreign company is allowed to obtain term loans in local currency, specifically in Bangladeshi Taka, provided that it maintains a 50:50 debt-equity ratio. In other words, foreign entities in the manufacturing and services sectors can get loans from the local financial market as long as the entities' total debt does not exceed the 50:50 ratio. Other conditions, like being in operation for at least three years in the country and the use of term loans in local currency for capacity expansion, are also in place. Now, relaxing the debt-equity ratio rigidity by enhancing the ratio of debt or entirely abolishing the restriction will help firms obtain more local financing. At present, foreign-owned or controlled firms are, however, free to access local banks for working capital on the basis of normal bank-customer relationships.

Statistics available from Bangladesh Bank showed that the outstanding amount of industrial term loans in the country stood at Tk 3.74 trillion at the end of last year, whereas financing for working capital stood at Tk 3.30 trillion. The share of term loans and working capital financing in total private credit was recorded at 22.85 per cent and 20.20 per cent, respectively, at the end of December last year. It means that these two types of industrial credits are the major drivers of overall advances to the private sector by the banks. Now, allowing foreign commercial entities to get more term loans in local currency is likely to increase the demand for the loan. It may also spark some competition among banks to attract foreign companies, and as a result, interest rates may decline modestly. Generally, foreign companies are considered more compliant compared to many local commercial entities. Therefore, banks may do more business with those companies to reduce the risk of loan defaults. Currently, the total amount of classified loans stands at Tk 4.20 trillion, equivalent to approximately one-fourth of the country's banking sector's total outstanding loans.

Some cautions are, however, necessary for the potential risks of relaxing the debt-equity ratio for foreign firms. Taking advantage of the relaxation, some firms may abstain from injecting fresh equity in foreign currency, which will not help to enhance FDI. Again, if the debt-equity ratio requirement is fully abolished, analysing the credit risks may be difficult for the banks. Banks will also not take the risk of providing unsecured loans, regardless of how reputable a foreign company is. There are some other issues also. All these need to be taken into consideration before entirely abolishing the 50:50 debt-equity ratio requirement. Instead, it may be relaxed to some extent and observed for the market response in the meantime. The status of the terms of loans so far availed by the existing foreign companies also needs to be reviewed before taking any decision.​