The Cost of Uncertainty on Bangladesh’s Economy

H. M. Nazmul Alam :

The economy often sends warnings long before a crisis becomes visible to the naked eye.

Those warnings are now arriving in Bangladesh in unmistakable patterns. The signals are scattered across credit markets, factories, ports, and trading floors, yet they all point to a single conclusion.

The country is facing an investment freeze triggered by collapsing confidence, and it is unfolding at a moment when political uncertainty is gradually becoming the central variable shaping economic outcomes.

The downward trend in private sector credit growth captures this economic anxiety with stark clarity.

Bank lending to businesses slipped to 6.29 percent in the September quarter, the lowest in four years.

Credit demand reveals the appetite for expansion, risk-taking and future planning. When it slows to this level, it means entrepreneurs are retreating into survival mode.

Many are hesitating to borrow not because money is scarce, but because the future feels unpredictable.

Even the central bank’s assessments indicate that dollar supply has stabilised and exchange rate volatility has eased. The problem is not liquidity; it is confidence.

The collapse in foreign net equity investment, down by 62 percent in the June quarter, adds another layer of unease.

Foreign investors usually act as early movers when conditions improve, yet they also withdraw at the slightest sign of political disruption.

Their retreat signals that external perception of Bangladesh has shifted from promising to precarious.

When both domestic and foreign players pull back simultaneously, it marks a deeper structural concern. Investment is not merely slowing, it is pausing until the political dust settles.

The slowdown is visible in capital machinery imports as well. Imports of new equipment have been falling consistently, which confirms that industrial expansion is no longer on the agenda for many firms.

Capital machinery is not an optional expense. It is the physical foundation of new factories, new lines of production and expanded capacity.

When businesses stop importing machines, they are signalling that they do not intend to scale up. They are preparing to wait out uncertainty rather than build for the future.

Letters of credit reflect the same reality. Import LCs worth about 5.64 billion dollars were opened in October, a decline of over 12 percent from the same month last year.

Payments against earlier LCs have also fallen by more than 11 percent. Some of this is seasonal, but the deeper reason lies in weakening domestic demand and an environment where risk appears unmanageable.

This economic cooling would be concerning enough on its own, but it coincides with pressures that have accumulated over several years. High inflation has chipped away at real incomes and purchasing power. Gas shortages continue to disrupt production schedules.

A cash-strapped private sector is struggling to absorb interest rates that now exceed 14 percent in many cases.

The combination has created an ecosystem where businesses cannot plan, consumers cannot spend as before, and lenders cannot take new risks. The outcome is a shrinking circle of activity that touches every level of the economy.

Factory closures reveal the most human side of this contraction. Over the past fourteen months, more than 3,500 small and medium-sized factories across the country have ceased operations.

Within the ready-made garment sector alone, 353 factories in major zones such as Savar, Gazipur, Narayanganj, Narsingdi and Chattogram have shut their doors.

Nearly 120,000 workers have been displaced from these closures. Savar alone accounts for 214 factory shutdowns. Some were permanent, some temporary, but the effect on households is the same.

Tens of thousands of families have lost their source of income. In a sector that has carried the weight of national exports for decades, this scale of disruption is not simply a labour-market concern; it is an indicator of systemic stress.

The unemployment rate has risen to 4.63 percent in the October to December quarter, the highest in the country’s recent history.

While that number may appear modest by global standards, the real concern lies behind it. An additional 330,000 people became unemployed in a single year.

The total number now stands at 2.73 million, compared to 2.4 million during the same period the previous year. Rising joblessness in a youthful population means rising frustration, falling household demand, and a generation increasingly unsure about opportunity.

Economists point to inflation, the deterioration of the investment climate and high borrowing costs as the drivers. These are not temporary shocks. They are entrenched problems that require a stable political environment to resolve.

The export sector is slowing at a time when Bangladesh can least afford it. Export orders fell from 2.45 billion dollars in September to 2.2 billion dollars in October, a monthly drop of nearly 400 million dollars.

Factories in Dhaka saw orders decline by 15 percent. Chattogram experienced a deeper contraction of 26 percent.

The Dhaka Stock Exchange has shed 420 points in a month. The main index now sits around 4702 points after another daily drop of more than 120 points. Trading volumes remain low. Investors are exiting rather than entering.

The Chittagong Stock Exchange shows similar patterns. Market stress is not merely psychological; it reflects an economy that is losing its forward drive. Equity markets often function as barometers of expectation. Today, those expectations are bleak.

Growth forecasts have adjusted accordingly. The IMF expects the economy to expand by 4.9 percent at the end of the current fiscal year. The previous year’s growth was even lower at 3.8 percent.

The Asian Development Bank estimates 5 percent, and the World Bank suggests 4.8 percent if reforms are implemented.

These numbers remain below the government’s target of 5.5 percent. Bangladesh’s historical growth trajectory was built on strong export performance, robust domestic demand and steady investment.

Today, each of those pillars is under pressure. The present slowdown is not cyclical; it is structural.

Political instability sits at the core of these disruptions. Investors, both large and small, interpret uncertainty as a cost.

When there is no clarity about the nature of the next government or the rules under which businesses will operate, investment becomes a gamble.

Firms avoid taking long term commitments, halt expansion plans and focus on protecting existing assets. Political volatility also encourages capital flight.

Money quietly moves into safer jurisdictions when domestic risks rise. This trend intensifies whenever instability deepens, depriving the country of the capital it urgently needs to stay competitive.

The path forward requires confronting a difficult reality. No reform package can be implemented meaningfully until political actors step back from confrontation.

Without a functioning political settlement, energy supply will remain unreliable, regulatory reforms will stall, credit risks will continue to rise and the investment climate will erode further.

The international community watches these developments closely, and their confidence is shaped not only by macro indicators but also by political signals.

A stable environment creates predictability. Predictability creates investment. Investment creates growth.

The responsibility lies with the political leadership to break the cycle of fear and hesitation. A credible electoral process, a transparent policy direction and efforts to avoid confrontation can restore confidence.

Once stability returns, investment will resume, LCs will rise, exports will recover and the economy will regain its momentum.

Without that stability, Bangladesh risks drifting into an economic crisis where the burden will fall on ordinary households long before it reaches the upper layers of power.

(The Writer is an Academic, Journalist, and Political Analyst based in Dhaka, Bangladesh. He currently teaches at IUBAT. Contact: [email protected]))