Uprising, exodus, and the second liberation

The student led protests that began in early July 2024 started with a specific grievance: the quota system for government jobs. When the High Court invalidated the 2018 circular that had reformed quotas, students mobilised through the Students Against Discrimination movement. The government's response escalated the crisis. Security forces and affiliated groups conducted what became known as the July massacre. The United Nations estimated that as many as 1,400 people may have been killed during the July through August uprising period. In January 2025, Bangladesh's Ministry of Liberation War Affairs published a gazette listing 834 martyrs, though comprehensive casualty accounting remains disputed.

By early August 2024, the movement evolved into a non cooperation campaign with a single demand: the resignation of Prime Minister Sheikh Hasina and her cabinet. On August 4, ninety seven people were killed in violent clashes. The following day, protesters called for a long march to Dhaka despite a nationwide curfew. Faced with mass mobilisation and declining security force support, Hasina resigned and fled to India on August 5. Three days later, on August 8, Muhammad Yunus was sworn in as Chief Adviser of the interim government.

Many Bangladeshis described Hasina's downfall as a second liberation, referencing the 1971 independence war. The Awami League, which had ruled since 2009 and won a fourth consecutive term in the stage managed January 2024 election boycotted by opposition parties, was subsequently banned from political activity. In May 2025, the interim government formally prohibited Awami League activity until trials over the July killings concluded. The party's student wing, Chhatra League, was banned under anti terrorism laws in October 2024.

The constitutional crisis that followed Hasina's resignation exposed structural fragility. Bangladesh's constitution contains no provisions for an interim government when the prime minister resigns and parliament is dissolved. Article 123 mandates general elections within ninety days of parliament dissolution, but provides no clear guidelines for interim governance powers or structure. The military facilitated the transition, with Army Chief Waker uz Zaman announcing the formation of an interim government. This military involvement was closely watched given Bangladesh has experienced twenty nine actual or attempted coups in its half century history.

Collapse, stabilisation, and stubborn constraints

The interim government inherited an economy grappling with severe distress across multiple fronts. GDP growth decelerated sharply to 3.7 percent in FY25 from 4.2 percent in FY24, reflecting production delays during the uprising, a tighter policy mix, and heightened uncertainty. This represents the slowest growth in years and falls far below the historical average required to generate adequate employment for a rapidly growing labour force. By the fourth quarter of 2024, GDP expanded to just over 4 percent, an improvement from the dismal 2 percent recorded in the first quarter but still fragile.

Inflation proved particularly stubborn. Consumer prices began rising sharply in March 2022, breaching the 10 percent mark in October 2024. On a moving average basis, inflation stayed above that threshold for nine consecutive months. The fever finally broke in July 2025 following prolonged fiscal and monetary tightening, but as of September 2025, general inflation reached 10.87 percent, up from 9.92 percent, demonstrating the difficulty of achieving sustained price stability. The IMF November 2025 mission noted headline inflation fell from double digit levels in early FY2025 but remained elevated at 8.2 percent year over year in October, well above the Bangladesh Bank target range of 5 to 6 percent.

The balance of payments crisis compounded growth constraints. The current account deficit narrowed in FY23 and moved into surplus in early FY24, driven primarily by import suppression measures rather than export growth. However, the overall balance of payments deficit widened to $8.2 billion in FY23 and $4.7 billion in the first seven months of FY24 as the financial account deficit expanded. Continued Bangladesh Bank intervention in the forex market resulted in gross foreign exchange reserves declining by $4 billion, reaching $20.8 billion in February 2024 and falling further to $19.91 billion by March 2024. Reserves briefly exceeded $20 billion in April 2024 due to increased export earnings and Eid ul Fitr remittance flows, but vulnerability persisted.

The interim government's primary economic achievement has been stabilisation without collapse. Exchange rate reform launched in May 2024 helped foreign reserves begin rebuilding. Net international reserves have consistently hovered in the $15 to 16 billion range through 2025, modest recovery but persistent vulnerability to external shocks. The narrowing current account deficit and persistence of financial account surplus helped the overall balance of payments deficit decline. Banking system net forex balances maintained positive daily positions between $200 to 700 million. The real policy rate turned positive in January 2025, marking the first such shift since February 2020.

However, the human cost of stabilisation has been high. Private investment fell to 22.48 percent of GDP in FY25, its lowest level in five years, raising serious concerns about future growth and job creation. Between August 2024 and July 2025, nearly 245 factories shut down, affecting around 100,000 workers. Major export oriented industries, particularly the garment sector, were hit hard, with companies like Nassa Group and Beximco Group laying off thousands of workers due to financial and operational crises. Poverty and inequality have risen, accumulated since 2022 and fully realised in 2025. The number of poor people has increased, though the exact magnitude remains contested due to data quality issues.

When the largest market turns protectionist

In April 2025, the Trump administration imposed 37 percent reciprocal tariffs on Bangladesh, the second highest in South Asia after Sri Lanka's 44 percent. This represented a major blow particularly for the garments industry, which generates the majority of Bangladesh's export earnings. The New York Times described it as potentially devastating for an industry already struggling with post uprising disruption and weak global demand.

The immediate response from US buyers was predictable. Many started to halt orders, stating that the tariffs made it too costly to bear the import duties. France24 reported that sourcing managers began shifting procurement to alternative suppliers in Vietnam, Cambodia, and other ASEAN countries not subject to the same tariff levels. For a country where garments constitute the export spine and where foreign exchange is chronically constrained, this external shock arrived at precisely the wrong moment.

The tariff episode illustrates Bangladesh's structural vulnerability. The economy industrialised at scale through ready made garments, absorbing labour and building export capacity. But concentration creates fragility. When global demand weakens, when compliance costs rise, or when buyers shift sourcing, the entire macro picture feels it. Energy import bills, the cost of dollars, and policy choices all become more constrained. A state can declare stability. It still has to pay for fuel, fertiliser, and food.

When statistics become political

In July 2024, Bangladesh Bank disclosed that the country's export figures for the first ten months of the July 2023 to June 2024 fiscal year were inflated by approximately $10 billion due to multiple entries of export shipments by the National Board of Revenue. This revelation came amid the political crisis and raised fundamental questions about data credibility, reliability, and methodology for key economic indicators that investors and multilateral institutions rely upon for decision making.

The statistical capacity issues run deeper than a single accounting error. According to IMF assessments in 2024, the Bangladesh Bureau of Statistics faces technical and resource constraints that prevent it from producing higher frequency indicators to monitor short term changes in economic activity. Bangladesh's statistical performance indicator is 70.8, placing it in the third quintile globally. Performance in data services and data sources are relatively low. The IMF assisted BBS through its Real Sector Statistics Advisor to establish a quarterly GDP program, develop experimental estimates, and recommend memoranda of understanding with data source agencies. The BBS published historical quarterly GDP series in 2023 for the period 2015-16 to 2022-23 and has since started publishing current estimates, but gaps remain.

This matters because markets watch data quality closely. When export figures can be inflated by $10 billion without detection for ten months, when inflation statistics are contested, and when reserve calculations vary depending on methodology, investors price in uncertainty. Businesses shorten their horizon. Capital moves into precautionary positions. The country runs at a discount even when fundamentals improve.

Household insurance and national buffer

Remittances have provided a critical stabilising force amid economic turmoil. During July to November FY26, remittances reached $13.04 billion, representing a year over year increase of 17.1 percent. This marks a notable improvement from earlier lows and reflects both increased overseas employment and policy measures to channel remittances through formal banking channels. For FY24, total remittances reached approximately $27 billion, representing 6 percent of GDP, up from $22 billion and 5.5 percent in FY23.

The surge in formal channel remittances followed the May 2024 exchange rate reform that eliminated the gap between official and parallel market rates. Before the reform, migrants avoided formal channels because official exchange rates were punitive compared to parallel market offerings. Recorded remittances collapsed while informal flows surged. The flexible exchange rate regime brought transfers back to formal banking channels, boosting recorded inflows and supporting reserves. This demonstrates that policy choices, not external factors alone, determine whether flows appear in official statistics and provide macro benefits.

Yet remittances also create temptation. When inflows are strong, structural reform can be postponed. The state learns to tolerate inefficiency because the household sector is silently recapitalised from abroad. That is endurance, not transformation. For Bangladesh, the policy message is blunt. Make formal channels attractive, fast, and trusted. Keep exchange rate incentives realistic. Reduce friction and cost. Every time a migrant chooses an informal corridor, the state loses part of its buffer. The long term objective must be an economy where mobility is choice, not insurance, and where citizens can live with dignity without exporting the wage earner.

Minority safety and property security are growth variables

Bangladesh cannot build a credible modern economy while parts of society fear targeted harm or arbitrary loss. Reports in recent years have documented episodes of communal violence and intimidation affecting Hindu communities and other minorities, including attacks on homes, temples, and businesses. Following the August 2024 transition, attacks on Awami League offices spread to communal targeting, raising concerns about inclusive governance. The arrest of Hindu religious leader Chinmoy Krishna Das in December 2024 sparked protests in India and an attack on Bangladesh's diplomatic mission in Agartuja by protesters, straining bilateral relations.

Such episodes are not only moral failures. They are investment failures. They signal that protection is uneven, enforcement is selective, and citizenship is conditional. There is also a long historical shadow around property insecurity. Bangladesh inherited legal and administrative legacies that enabled minority owned assets to be treated as contestable. Even where laws have been amended or restitution mechanisms introduced, the practical burden often falls on citizens to prove ownership and survive the process. When property rights are uncertain, capital stays shallow. People invest in mobility rather than in factories. The state loses the very trust that makes long term development possible.

The interim government's handling of minority safety will be a critical indicator of whether institutional restraint can replace political impunity. Public guarantees must be backed by fast prosecution, victim support, and consistent police protection. Where communal targeting is tolerated, investors learn that rules are optional. That lesson spreads. Development is not only roads and GDP. It is the everyday assurance that a family can worship, vote, trade, and own without fear. If that assurance is missing, the economy may grow, but it does not become stable.

A reset is not guaranteed by a ballot

The February 2026 elections scheduled by the interim government arrive amid deep uncertainty about inclusiveness and legitimacy. The Awami League, banned under anti terrorism laws, will not contest. Sheikh Hasina, now in exile in India facing charges of crimes against humanity, has been tried in absentia. The Bangladesh Nationalist Party, which boycotted the January 2024 elections, is expected to compete but faces criticism over internal disunity and allegations that members have engaged in extortive politics. Bangladesh Jamaat e Islami, which opposed independence in 1971 and whose leaders were executed for war crimes during the Hasina period, has been unbanned and will likely participate. Student leader movements have formed new parties like the National Citizens Party.

The practical test is whether security services, bureaucracy, courts, and regulators behave as institutions rather than as extensions of factional power. Markets watch this closely. Institutional restraint determines contract confidence, capital flight risk, and whether a banking system can intermediate savings rather than merely recycle politically safe lending. Bangladesh has repeatedly shown that formal procedures can coexist with contested legitimacy. When trust thins, businesses shorten their horizon. Households move into precaution mode. Informal finance expands. Inflows shift toward cash and away from long term commitments. The economy keeps running, but it runs at a discount.

The July National Charter signed in October 2025 by main political parties outlines proposed reforms including a bicameral legislature, term limits for prime ministers, proportional representation, and constitutional recognition of the 2024 uprising. However, the document is nonbinding and proposals must be approved by a new parliament after elections. Political parties disagree on timing, scope, and implementation. Without genuine consensus on institutional constraints and minority protections, the upcoming elections risk becoming another flashpoint rather than a reset.

When preferences expire and competition intensifies

Bangladesh is set to graduate from Least Developed Country status in November 2026. This milestone, typically celebrated as development progress, carries immediate economic costs. LDC graduation entails the gradual withdrawal of trade preferences currently covering approximately 90 percent of Bangladesh's exports. The garment sector, which depends heavily on preferential market access to the European Union and other developed markets, will face higher effective tariffs as LDC benefits phase out.

The timing could not be worse. US tariffs imposed in April 2025 already disrupted sourcing patterns. LDC graduation removes another competitive advantage precisely when the economy is struggling with low growth, high inflation, weak investment, and political uncertainty. Competitors like Vietnam, Cambodia, and Indonesia that never had LDC status built competitiveness through productivity, infrastructure, and policy credibility. Bangladesh now must make that transition while managing a political transition, reforming institutions, and stabilising macroeconomic fundamentals.

The energy sector compounds fiscal pressure. High generation costs, unplanned capacity expansion, and excessive capacity payments impose heavy burdens. The government pays for idle power plants while struggling to mobilise revenue. At 7.7 percent of GDP in FY23, tax collection remains among the lowest globally. Revenue growth languished at just 1.9 percent in FY24, equivalent to 6.6 percent of GDP. The interim government initiated structural overhaul, dismantling the National Board of Revenue and replacing it with separate Revenue Policy and Revenue Management departments. Early signs are encouraging. Revenue collection jumped 20.3 percent in the first quarter of FY26. But the reform must be sustained beyond the interim period.

Six imperatives for the next government

The February 2026 election will not change Bangladesh's fundamentals by itself. A shift in the model requires a sequence that the public can see and that investors can price. The next government, whichever coalition emerges, faces six imperatives that will determine whether Bangladesh exits the maintenance trap.

First, restore credibility through restraint. Predictable enforcement, visible limits on political intimidation, and professional regulators reduce the risk premium that silently taxes every loan and import contract. The real policy rate turning positive in January 2025 was a signal. Sustaining it requires central bank independence from political cycles and fiscal coordination. Markets respond to institutions that enforce rules consistently, not to declarations of good intent.

Second, widen the export base beyond garments. Ready made garments should remain strong, but the economy needs additional engines. Higher value manufacturing, services exports leveraging Bangladesh's IT and BPO capacity, and domestic productivity upgrades that raise wages without inflationary wage politics. The pharmaceutical sector, which meets 98 percent of domestic demand through local production and shows 12 percent annual growth, demonstrates that diversification is possible. Shipbuilding has potential given low cost skilled labour. But industrial policy requires consistent implementation, not episodic attention during crises.

Third, make minority safety non negotiable. Public guarantees must be backed by fast prosecution, victim support, and consistent police protection. The December 2024 Chinmoy Krishna Das arrest and resulting bilateral tension with India illustrated the regional stakes. Domestically, communal targeting signals that rules are optional. That lesson spreads to commercial enforcement, contract reliability, and investment protection. Development requires trust across all groups that participation is protected.

Fourth, make property rights boring. Boring is good. It means ownership is not a political argument, courts move at a usable pace, and citizens are not forced into informal protection. Stable property systems deepen capital markets, expand credit, and encourage business formation. Historical grievances around Vested Property Act legacies and Enemy Property confiscations must be resolved through transparent restitution that does not require citizens to endure decades of litigation.

Fifth, resolve financial sector vulnerabilities. The ratio of stressed assets in banks, including non performing loans and rescheduled credits, remains high. Banking sector undercapitalisation constrains credit growth and concentrates risk. An efficient resolution framework for NPLs is urgently needed to maintain financial stability and revive private sector credit. This framework must address both the stock and flow of bad loans. Bank mergers under consideration require thorough asset quality assessments to protect healthy institutions. Guidelines on mergers and acquisitions must be developed as part of a comprehensive bank resolution strategy.

Finally, treat remittances as support, not strategy. Bangladesh received the freedom of speech dividend in 2025 compared to the stifling atmosphere under Hasina's final years. The economic dividend requires different inputs. Remittances stabilised consumption and reserves through the crisis. But the long term objective is an economy where departure is choice, not necessity, and where young workers can earn competitive wages at home without placing a family member in a foreign currency zone to manage basic risks.

Bangladesh's challenge is not that it lacks talent or industry. The country built a garment sector employing millions, achieved near self sufficiency in pharmaceutical production, and demonstrated resilience through repeated external shocks. The issue is that it has not yet built a political economy in which competence is rewarded more reliably than control, where institutions enforce restraint on power, and where all citizens can participate without fear. The next government will be judged less by rhetoric than by whether it changes the incentives that keep the country trapped in maintenance mode.

Modest recovery, persistent fragility

The medium term outlook indicates modest recovery with significant downside risks. The Ministry of Finance's Medium Term Macroeconomic Policy Statement projects GDP growth of 5.5 percent and inflation of 6.5 percent in FY26. Bangladesh Bank forecasts are marginally lower: real GDP growth of 5.38 percent and average inflation of 7.26 percent. The World Bank estimates growth between 3.3 and 4.9 percent in FY25, rising to 4.9 percent in FY26. The IMF projects growth from 3.9 percent in FY25 to 6.5 percent in FY26. The Economic Intelligence Unit estimates Bangladesh's economy will grow around 7 percent from 2027 to 2029, assuming reforms take hold and political stability emerges.

These projections assume policy consistency, regulatory transparency, and political stability that may not materialise. Global trade and geopolitical shocks are anticipated to influence FY26 significantly. The extent of disruptions remains uncertain due to deep policy ambiguity on the international stage. The combination of global economic slowdown and rising inflation could reduce Bangladesh's exports and real GDP growth by 1.7 and 0.5 percentage points respectively compared to earlier forecasts, according to World Bank assessments.

The political uncertainty compounds economic fragility. Many Bangladeshis who participated in the July 2024 uprising report that the sense of unity and hope has given way to disillusionment as various political groups jostle for power ahead of elections. Student leaders complain that the interim government no longer owns the uprising and that safeguarding the coalition should have been the first task. Without genuine reconciliation, including fair trials for past abuses and protections for minorities, the elections risk triggering renewed instability rather than delivering the reset that the second liberation promised.

Bangladesh stands at a juncture where existing rules are being contested while new ones have yet to emerge. Political change is inevitable, but its form and impact remain uncertain. The economy can never be decouple from the larger political ecosystem. The February 2026 vote will determine whether Bangladesh uses this moment to build institutions that can constrain power, protect rights, and enable the productivity growth required for dignified livelihoods at home. Or whether it returns to the familiar pattern: new faces, same incentives, maintenance instead of transformation.