Is Bangladesh's economy collapsing? Experts raise alarm as Yunus delays election

Over a year after the ousting of Bangladesh’s former Prime Minister Sheikh Hasina, economic troubles for Dhaka are far from over. According to the assessment released by the Asian Development Bank (ADB), the country’s economy is facing one of its most severe crises in recent history.

The ADB assessment noted that all three pillars of Bangladesh’s economy, the banking sector, non-bank financial institutions (NBFIs), and the stock market, are mired in instability despite the Muhammad Yunus-led government’s efforts to bring things back to normal.

The country has been trapped in a vicious cycle of defaulted loans, weak regulation, political influence, corruption, and the dominance of junk companies. All these aspects have left the economy in a precarious state, leading to uncertainty about the future as the country braces for elections next year.

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Here’s a look at the current status of the three pillars of the Bangladeshi economy:

1 Banking sector stuck in a default trap

Financial experts noted that years of lax policies, political interference, and corruption have left the Bangladeshi banking sector burdened by defaulted loans, The Dhaka Tribune reported. According to the estimates shared by the Bangladesh Bank, these defaulted loans have amounted to 6 lakh crore Taka by the end of June this year.

Apart from this, another 3.18 lakh crore Taka is hidden in default, which the apex bank believes is currently in the process of being disclosed. This includes Tk 1.78 lakh crore stuck in money loan courts, Tk 80,000 crore written off, and Tk 60,000 crore under court stay orders, according to the Bangladesh Bank.

“There was widespread looting in the name of loans during the previous government. Despite having the ability, many influential businessmen did not repay loans. That is why the new draft proposes to remove this definition," a Bangladesh Bank official told The Dhaka Tribune, when asked about the Yunus government’s new law proposed removing the definition of “wilful defaulter” in the draft of the new Banking Company Act 2023.

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In light of this, Bangladesh Bank Governor Dr Ahsan H Mansur pledged to ensure greater transparency. “From now on, no information will be kept secret. All defaulted loans will be made public, and strict recovery efforts will be carried out,” he said.

• ADB raises alarm 

While Bangladesh tries to get itself together, the Asian Development Bank’s (ADB) recent report suggests that Bangladesh now has the highest volume of defaulted loans in Asia. As per the body, in 2024, 20.2 per cent of the country’s total disbursed loans defaulted, which was 28 per cent higher than the previous year.

In the report, the ADB went on to describe Bangladesh as having the “weakest banking system” in Asia. “The stricter the rules, the more the number of defaulted loans increases. Without bold reforms like India, this crisis will not end," former World Bank chief economist Dr Zahid Hussain said after the report was released.

In light of the concerning report, the Bangladesh Bank decided to merge five Islamic banks—First Security, Social Islami, Global Islami, Union, and Exim Bank—into a new state-owned entity, tentatively named United Islami Bank. The default loan rates of these banks range from 48 to 98 per cent.

“This initiative is in the interest of protecting depositors,” said the Bangladesh Bank Governor at the time of the merger. “There is nothing to panic about. The government will take all responsibility," he added.

2 Non-banking sector faces the ripple effect

According to The Dhaka Tribune, the instability in the banking sector has also spilled over into non-bank financial institutions (NBFI) as well. What is more concerning is the fact that the situation in this sector is even more alarming.

According to Bangladesh Bank, defaulted loans of 20 troubled NBFIs total Tk 21,462 crore, representing 83 per cent of their loan portfolios. To mitigate this challenge, the country’s central bank has recommended the liquidation of nine of these institutions.

The experts argue that the sector has almost gone bankrupt, with many unable to repay depositors, further eroding public confidence, The Dhaka Tribune reported. According to the Bangladesh Bank, as of December 2024, the total debt of these 20 institutions was Tk 25,808 crore, but collateral stood at only Tk 6,899 crore, which was just 26 per cent of the total debt.

Central bank officials have been warning that unless swift action is taken to protect depositors, the sector could collapse entirely.

3. The stock market is in a bad position

When it comes to the third pillar of the economy, Bangladesh’s stock market has been under prolonged stress. According to The Dhaka Tribune, over the past 16 years, the market has shrunk by about 38 per cent. As per the report, investors in the country have lost capital at an average rate of 3 per cent annually.

According to the Dhaka Stock Exchange (DSE), shares of 98 out of 397 listed companies are now trading below the face value of Tk 10. More than half of these are priced under Tk 5.

“The fact that the price of such a large number of shares has fallen below face value proves that the performance of these companies is not good. As a result, investors are leaning towards a few strong companies,” Kazi Monirul Islam, CEO of Shanta Asset Management, told The Dhaka Tribune. 

“So many junk shares in the stock market are discouraging foreign and institutional investors. Weak companies need to be closed or merged quickly, and new strong companies must be brought into the market," Saiful Islam, president of the DSE Brokers Association of Bangladesh, explained. While the Yunus administration is trying to bring in reforms, experts are still concerned about what the future holds for Bangladesh.