Government Cuts FY25 GDP Growth Forecast to 5.25%

The International Monetary Fund (IMF) projects a positive economic turnaround for Bangladesh by FY26, with inflation expected to ease to 5% and GDP growth rebounding to 6.7%. While FY25 growth is forecast at a reduced 3.8%, challenges such as double-digit inflation, declining foreign exchange reserves (down to $20 billion from $50 billion three years ago), and a distressed banking sector with high non-performing loans persist.

The IMF has reduced Bangladesh's GDP growth forecast for FY25 to 3.8%, down from 4.5% in October, citing output losses from the July uprising, floods, and tighter policies. This projection is lower than the World Bank’s 4% estimate and marks the slowest growth since FY20. The IMF anticipates a rebound to 6.7% growth in FY26 as policies relax.

Debapriya Bhattacharya, head of the panel that prepared a white paper on Bangladesh’s economy, criticized the former Awami League government's inflated economic growth narrative. Bhattacharya revealed that economic growth data was overstated by an average of 3.5 percentage points annually, with actual growth much lower than reported.

A recent white paper on Bangladesh's economy reveals that the country has already fallen into the middle-income trap, where it struggles to advance from middle to high-income status despite earlier rapid growth. Key factors cited include a reliance on inflated official data, stalling structural reforms, policy reversals, institutional decline, and widening gaps between policymakers’ perceptions and reality.

The IMF has urged Bangladesh to increase its tax-to-GDP ratio by 0.6 percentage points this fiscal year to offset last year’s shortfall, where the ratio stood at 7.3%. This adjustment exceeds the loan condition of a 0.5 percentage point annual increase, adding pressure on the National Board of Revenue (NBR). 

The Bangladeshi government has revised its FY25 GDP growth projection down to 5.25% from 6.75% due to ongoing financial challenges, political instability, and a business slowdown. Inflation, currently in double digits, is forecasted to ease slightly to 9% by the end of the fiscal year, despite an initial budget estimate of 6.5%.