Bangladesh reserves rise as growth stays weak

That matters because the economy’s recovery is being driven more by foreign-currency inflows and stabilization than by a durable rebound in investment and consumption. Growth in FY25 fell to 3.5%, one of the weakest rates in a decade, before a provisional rise to 4.1% in FY26. Even that improvement remains well below the pace Bangladesh sustained in the years before the pandemic, when the economy was expanding at an average 7.2% a year. For investors, that points to a country that has become less vulnerable to an immediate balance-of-payments shock, but still lacks the domestic momentum needed for a full-cycle earnings and demand recovery.

The inflation backdrop is similarly mixed. Consumer prices are rising more slowly, which should eventually support real incomes and reduce pressure on monetary policy. But the cumulative price level is still much higher than two years ago, with the CPI up 21.6% over the period. In other words, disinflation is not the same as falling prices: households are still paying substantially more for essentials than they were when the political transition began. That helps explain why consumer confidence and private demand remain fragile.

Weak private credit is one of the clearest signs of that fragility. Annual growth in outstanding private sector lending slowed to 4.6% by July 2026 from 10.1% two years earlier, with the central bank citing tight financial conditions, rising loan defaults and heavier government borrowing. Banks are parking more funds in government securities instead of extending credit to business. For equities and private assets, that is a warning that the recovery in reserves and remittances is not yet translating into a broad-based credit cycle.

Bangladesh’s external accounts, by contrast, have improved enough to give policymakers some breathing room. Remittance inflows have been the standout, helped by taka depreciation and formal-channel incentives. Garment exports, the backbone of merchandise earnings, recovered after two down years and remain above FY24 levels even after a slight slip in FY26. But the export engine is not firing at the pace needed to offset weak domestic activity, and the economy still requires a fresh $4.5 billion IMF package.

The narrative is therefore not that Bangladesh has emerged from crisis, but that it has moved from acute stress to an uneasy stabilization. For investors, the upside case is that stronger reserves, a steadier currency and softer inflation create room for policy normalization and a gradual rebound in consumption. The bear case is that without stronger credit growth, higher tax collection and a deeper investment revival, Bangladesh risks remaining trapped in slow growth even as headline macro indicators improve.