The central bank has warned that Bangladesh may face mounting external-sector pressures by the end of fiscal year (FY) 2025-26 amid global trade tensions, geopolitical uncertainties and potential tariff shocks.
"…global trade tensions, geopolitical uncertainties, and potential tariff shocks could pose challenges to external sector performance in FY26," the Bangladesh Bank (BB) said in its latest annual report for FY 2024-25.
The central bank also said global headwinds, including tariff shocks, trade fragmentation and intensifying geopolitical uncertainties, may continue to limit Bangladesh's export growth prospects in FY26.
The observation comes against the backdrop of volatility in global oil markets, which could add to external cost pressures on the economy.
"Such shocks may continue up to FY27, not only FY26, as lower export earnings are likely to persist in the near future," said Md Ezazul Islam, director general of the Bangladesh Institute of Bank Management (BIBM), explaining the country's potential external challenges.
He also said that India and China enjoy greater export competitiveness than Bangladesh in the European market.
"Apart from these shocks, the recent US-Israel-Iran conflict may also affect our external sector by increasing the cost of international trade in goods and services," said Dr Islam, a former executive director of the central bank.
In a new political landscape, Bangladesh's economy faces significant macroeconomic challenges, including elevated inflationary pressures, sluggish private sector investment, weak governance and uncertainties in international trade policy, according to the report.
"Due to sluggish private sector investment, along with supply chain disruptions emanating from social unrest and political uncertainties, domestic demand has slowed down," the central bank explained.
Meanwhile, Bangladesh's economy grew by 3.97 per cent in FY25, down from 4.22 per cent in FY24.
Headline inflation, which peaked at 11.66 per cent in July 2024, gradually eased to 8.48 per cent in June 2025, reflecting the impact of a tight monetary policy stance, declining global commodity prices, and stabilisation of the Bangladeshi taka (BDT) against the US dollar through a crawling peg exchange rate system, as the economy moved towards a fully flexible exchange rate regime in May 2025.
"Upside risks may persist in the near term owing to increased import costs stemming from escalated US-imposed tariffs, passing through essential commodities and thus further fuelling inflationary pressure," the central bank noted.
However, adequate rainfall and a favourable agricultural environment, eased geopolitical tensions, subdued global prices and an effective monetary policy stance may help ease inflationary pressure, it added.
It also said private sector investment remained subdued in FY25, constrained by high interest rates, persistent inflation and tighter liquidity conditions.
Shifting towards a fully flexible exchange rate, Bangladesh's external sector showed signs of improvement in FY25, supported by better export performance, stronger remittance inflows and inflows of external assistance.
Foreign exchange reserves are projected to reach approximately US$34 billion in FY26, though the outlook remains contingent on global demand conditions, commodity price movements and the effectiveness of domestic policy measures.
"Over the medium term, sustained remittance inflows, increased foreign investment and prudent management of a flexible exchange rate are expected to alleviate pressures on the balance of payments and bolster external sector resilience," the report added.
siddique.islam@gmail.com