Uneasy recovery: strong reserves, weak exports

For Bangladesh’s economy, the year 2025 closed not with a definitive verdict, but with a mixed bag that has left economists in more than the usual anxiety. On one side of the ledger, the news was almost jubilant: remittances surged to an all-time high of $32.8 billion. The foreign-exchange reserves, which were over $21 billion a year ago, have staged a reassuring recovery. As the new year dawned, readily usable reserves stood at $28.5 billion, enough to cover five months of import bills. This is a cushion comfortably above the International Monetary Fund’s three-month threshold, a statistic that, in simpler times, might have been cause for a victory lap.

While some indicators are brightening, the factory floors are telling a gloomier story. Exports that have driven Bangladesh’s economic growth for decades stumbled in the final months of 2025. The downturn exposes a structural fragility that has long worried economists: the country’s overwhelming reliance on the readymade garment industry. Garment exports managed only a tepid one percent year-on-year increase, bringing in $38.82 billion. This stagnation in the primary sector was compounded by a collapse in others; shipments of frozen fish, agricultural products, and various manufactured items all fell, dragging the overall export figures down with them.

“Falling exports are deeply concerning and point to a structural weakness that remittances alone cannot offset”, said Mohammad Abdur Razzaque, chairman of Research and Policy Integration for Development, a research organisation, cautioning that the pressure on the export sector is unlikely to lift anytime soon, reflecting both cyclical and longer-term challenges in global trade.

The causes of this malaise are both external and domestic. The external world is no longer the reliable partner it once was.

“There is no credible signal that the global trading environment will turn supportive any time soon. It remains unfavourable, fragmented, and highly unpredictable,” Razzaque added.

“There is no indication that the global trading environment will improve. It remains unfavourable and unpredictable,” Razzaque added. The shifting tectonic plates of international commerce -- specifically the impact of increased US reciprocal tariffs, the opacity of American trade policy, and an increasingly complex geopolitical landscape are reshaping trade flows and investment decisions, with adverse implications for export-dependent economies such as Bangladesh.

In the United States, a newly protectionist mood has taken a heavy toll on the global economy. Following the imposition of an additional 20 percent tariff, prices for Bangladeshi apparel rose, and American demand predictably softened. Closer to home, a logistical severing occurred last year when India removed transhipment benefits for Bangladesh’s exports to third countries. The result was an immediate increase in lead times and delayed deliveries, prompting unsentimental foreign buyers to shift their orders to alternative suppliers.

Razzaque also points to specific unknowns that complicate the calculus for Dhaka, particularly regarding its neighbours.

“We do not know how US tariff policy towards India or for any other country will evolve, and that uncertainty matters for Bangladesh’s competitive position in key markets,” he said.

“Taken together, these unresolved policy issues and extremely volatile global geopolitical landscape suggest a period of heightened uncertainty in the global trading system, an assessment widely shared by economists working on applied international trade and development.”

Domestic headwinds have been equally fierce. Political uncertainty, coupled with interest-rate hikes designed to curb inflation, has driven up the cost of doing business, eroding price competitiveness.

This is concerning, even though the economy had, until recently, shown genuine signs of recovery. Imports, after two years of contraction, had finally rebounded in 2025, posting a 2 percent increase -- usually a signal of industrial vitality. Private investment, too, seemed to be waking from its hibernation; in November, credit flow to the private sector ticked up to 6.58 percent, from 6.23 percent just a month prior.

This modest progress towards economic stabilisation has come at a steep cost: slow growth, stagnant investment, rising unemployment, and declining real wages. The economy has been suffering from a slowdown for the fourth year running. If the export downturn persists, it will undo the gains of the last few months.

The business community is currently in a state of suspended animation, waiting for the national election scheduled for next month. The hope is that the polls will usher in a democratic transition, restoring policy predictability and unleashing what some are calling an investment frenzy. There is also the seasonal promise of the coming months: Ramadan and Eid-ul-Fitr are expected to stoke consumer demand.

A political transition is viewed not merely as a democratic formality but as an economic necessity.

“A credible political transition is indispensable. The incoming government will inherit formidable challenges in dismantling long-standing bottlenecks that constrain export growth, while simultaneously safeguarding external competitiveness at a time of weakening demand and rising costs,” said Razzaque, noting the amplification of pressure for the country’s graduation from the least developed country category and looming loss of preferential trade treatments that have long shielded the economy.

Ashikur Rahman, the principal economist at the Policy Research Institute of Bangladesh, suggests that the era of predictable stability is over. “Internal political uncertainty, institutional stress, and governance challenges will continue shaping macroeconomic management,” he said. In his view, the economic policymaking of 2026 cannot rely on old assumptions. Instead, he offered a metaphor that captures the anxious alertness of the moment. “In many ways, we must behave like a deer in a forest,” Rahman said. The nation must be “always alert, always conscious of the environment, attuned to early warning signals and crisis-time economic playbooks.”

In this new world, where the stable ground of today can become the chaotic sinkhole of tomorrow, survival will depend on “vigilance, adaptability, discipline, and readiness to act decisively”.