Four Interconnected Economic Traps Are Deepening Bangladesh’s Poverty: Report

The report argues that isolated reforms are unlikely to deliver lasting economic improvements because these challenges reinforce one another, weakening institutions, discouraging investment and restricting employment opportunities.

“Recapitalising troubled banks without confronting politically connected lending may restore liquidity without accountability,” the report observed, highlighting the need to address structural problems alongside financial reforms.

Political Conflict and Corruption Weaken Institutions

Political confrontation is identified as the first major trap, creating uncertainty, disrupting business activity and weakening institutions. According to the report, this environment allows other economic problems to become entrenched.

Corruption further distorts economic activity through connections between politicians and bureaucrats. The report said such relationships can influence the allocation of credit, contracts and licences, benefiting politically connected interests while productive businesses struggle to secure financing.

These practices can undermine fair competition and prevent resources from reaching enterprises capable of supporting economic growth and generating jobs.

Extortion Increases Business Costs

Extortion adds another layer of expense for businesses and informal workers, raising production and distribution costs. The additional burden is frequently passed on to consumers, with low-income households particularly vulnerable to higher prices.

Citing an estimate by Transparency International Bangladesh (TIB), the report said private buses and minibuses pay nearly Tk 10.59 billion annually in extortion.

It also highlighted the economic consequences of political unrest. During the hartals and blockades from late October to November 2023, the president of the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) estimated economic losses at Tk 65 billion per day.

Such disruptions can affect transport, supply chains and commercial operations, further weakening business confidence.

Capital Flight Drains Investment Resources

The fourth trap, capital flight, removes funds that could otherwise support domestic investment, business expansion and job creation. The report also described it as a route through which wealth generated through illegal activities can leave the country.

Citing World Bank figures, the report said net foreign direct investment (FDI) in fiscal year 2025-26 declined by 15 per cent to around $1.5 billion, equivalent to just 0.3 per cent of gross domestic product (GDP).

The report argued that low foreign investment, combined with weaknesses in the banking system and limited private-sector credit growth, constrains the economy’s ability to create employment on a sustained basis.

Banking Sector Weaknesses Compound the Problem

Bangladesh’s banking sector faces significant challenges, with the report citing a non-performing loan (NPL) ratio of 33.2 per cent. It also pointed to exceptionally weak private-sector credit growth and foreign investment levels of just 0.3 per cent of GDP.

High levels of non-performing loans can constrain banks’ capacity to extend credit to viable businesses, while weak lending growth can limit investment, expansion and recruitment.

The report’s central conclusion is that Bangladesh’s poverty challenge cannot be addressed through financial interventions or isolated reforms alone. Tackling the interconnected problems of political instability, corruption, extortion and capital flight is essential to creating conditions for stronger investment, sustainable employment and broader economic growth.