Can economy turn around in 2026?

After a couple of challenging years, economists are cautiously optimistic about 2026. The national election scheduled for February is expected to boost confidence among entrepreneurs and investors, both local and foreign.

Many hope this political clarity will create the conditions for higher job creation and stronger GDP growth.

Inflation, stubborn through much of 2025, is also expected to ease. Analysts cite softer global food and energy prices alongside stabilisation in the domestic economy. Yet a full economic turnaround may take time, as any new government will need several months to implement policies effectively.

A source of some relief is progress in the balance of payments and foreign exchange reserves. Over the past year, the interim government tried to mend gaps in the macroeconomy and halt the erosion of foreign reserves.

The financial sector also endured a difficult 2025, grappling with mounting non-performing loans. The merger of five struggling banks provides a stronger foundation for lending and financial stability in 2026.

Prof Mustafizur Rahman, distinguished fellow at the Centre for Policy Dialogue (CPD), said that the primary hope for the year is the democratic transition in February.

He added that a new government must channel this political mandate into higher economic growth that is inclusive, equitable, and just.

M Masrur Reaz, chairman and CEO of Policy Exchange Bangladesh, expressed a similar view, saying, "The big hope for next year is the national election."

He said that ongoing reforms, combined with the stability offered by a five-year policy horizon, would give businesses the confidence to invest. Higher investment, he said, would boost employment, purchasing power, and overall growth.

Reaz also mentioned the role of international partners. He said global investors, trade partners, and development agencies are expected to engage more actively if political and economic stability is maintained.

According to him, lower energy and food prices, along with stronger global supply chains, could further support growth, provided no major disruptions occur.

Meanwhile, CPD's Rahman said several challenges from 2025 will continue into the new year. Investment remains sluggish, and creating decent jobs is an urgent task.

He said inflation requires careful management through market oversight and supply-side measures. Rising debt repayments demand stronger domestic revenue mobilisation, which can be achieved through the digitisation of the tax system, reducing VAT leakages, and expanding income tax collection.

He added that income and asset inequalities must also be addressed. Export growth has slowed in recent months, highlighting the need to reduce the cost of doing business, improve turnaround times, and develop specialised industrial parks.

According to economists, product and market diversification has long been discussed, but progress remains limited. As Bangladesh prepares to graduate from LDC club this year, these measures will gain greater urgency.

Reaz listed four priorities for 2026. First is addressing ongoing macroeconomic challenges.

Second, stimulating growth drivers that have slowed, including investment, exports, small businesses, and domestic demand. Third, restoring economic governance across the financial sector, including banks, insurance firms, non-banks, and the capital market. Fourth, rolling out a structured economic reform programme.

He said that despite some improvement, inflation is still high, private investment lags at around 22 percent of GDP, and export and product diversification are weak. Small businesses have received limited targeted support over the last 15 months.

Kamran T Rahman, president of the Metropolitan Chamber of Commerce & Industry, Dhaka (MCCI), said, "All of our focus is on the election. If it is held and a democratic government comes to power, they will address all the economic problems."

He added that a stable democratic government allows people to engage in dialogue and anticipate long-term policy, which in turn boosts the confidence of entrepreneurs. "Once a democratic government is in place, the law-and-order situation is expected to improve," he said.

However, he cautioned that progress will not happen overnight.