It is economics, not politics

If one looks at what the Indian media states about Bangladesh, the overriding conclusion is that the real challenge for the interim ruler, Muhammad Yunus, is to control the extremist forces, and bring order to the ongoing political turmoil. The reality, however, is different. Today, Bangladesh faces an unprecedented economic crisis. Political stability, while welcome, will not solve the problems. Even if a political party wins a majority in the forthcoming elections (February 2026), the nation’s economy may spin out of control.

A few days ago, media reports in Bangladesh indicated that exports, particularly merchandise exports, declined for the fifth consecutive month in December 2025. In services, the nation is a non-player, and has not much to boast about. It is dependent on merchandise exports, and repatriations to shore up foreign exchange reserves. Couple this with the fact that the GDP growth declined significantly to 3.7 per cent in the 2026 fiscal year, and the bad news magnifies. (In Bangladesh, the fiscal year is July to June.)

Of course, it is easier to blame political developments for the economic trends. And, of course, politics and policy-making play a crucial role. But in the case of Bangladesh, political turmoil may not be an important factor. In fact, analysts and economists give undue importance to political stability, and consider it critical for economic growth. It may not always be true. Let us give two examples from India. Consider the case of West Bengal, which witnessed 34 years of continuous rule by the Left parties, followed by nearly 15 years by the Mamata Banerjee-led Trinamool Congress.

Despite this solid and stable state’s politics, West Bengal languished as an economy over the past six decades. Today, the state lags even Odisha, which was its poor country cousin till the beginning of this century. The message is clear for the developing economies. Political stability is helpful but may not be enough. Consider the flip side of the coin, and look at what happened at the national level. India had fragile governments between 1991 and 2014, including several wobbly and grand coalitions of dozens of parties.

Even during the Vajpayee regimes, when the coalition partners were varied and numerous, and cut across ideologies and beliefs, there was minimal impact on GDP growth rates, or living standards. Indeed, the major reforms were initiated during Atal Behari Vajpayee’s rule, especially in infrastructure. These were preceded by those related to manufacturing during the Narasimha Rao rule, which too was a minority one. There were protests and criticisms, but the eco took off, and left behind the ‘Hindu’ rate growth. Even when the Opposition accused the Manmohan Singh government of policy paralysis in the 2010s, the economic implications were not severe.

Let us return to Bangladesh. There are no doubts that the political turmoil, violence, and protests engulfed the nation in July 2024, after which Sheikh Hasina was deposed in early August 2025. The nation is ruled by an interim government led by Muhammad Yunus, a Nobel Prize winner. I am not interested in the atrocities being committed on minorities, but in the fate of the economy. For more than a decade or so, in the 2010s and early 2020s, Bangladesh outperformed Pakistan consistently in areas such as readymade garment exports, growth rate, life expectancy, literacy, and other socio-economic indicators.

Since the fall of the Sheikh Hasina regime, there is a looming danger that the economy may face an extreme crisis, something like what Pakistan has grappled with for a decade. After all, it takes years, perhaps decades, to build institutions and chalk out a growth momentum. It takes only a few months, or a year to decimate an economy. The dilemma of the political economy in Bangladesh is best represented by one of the more reputed local media platforms, the Daily Star. It is the same media house that was attacked and torched by the violent mobs during Sheikh Hasina’s exit.

On January 5, 2026, Daily Star reported that there was a positive churn in the export performance. This seemed like a shocker because the same article mentioned that exports declined for the fifth consecutive month. The prime reasons were uncertainties, high tariffs, and other external factors. The article did not focus on political uncertainty and violence in the country, and how they may have impacted the economy, and led to economic stress. Instead, the Daily Star wrote that “weakening global demand, US tariffs, intensifying competition, rising production costs, and ongoing geopolitical uncertainty created heavy external pressure.”

Domestic challenges did play a role. Industry leaders in the country cited “volatile political conditions, and limited access to bank financing as key constraints on exporters.” Here too, the politics was clubbed with paucity of funds to augment private investments. One can always contend that bad politics leads to conservative and risk-free banking. But the latter is influenced by several factors. In fact, the Daily Star, in an earlier article on December 11, 2025, talked about the significant decline in the GDP growth rate, and seemed to blame the Sheikh Hasina regime for the economic troubles.

This is understandable, as in most nations, the mainstream media, especially the one loyal to the ruling regimes, tend to blame the previous governments for the present ills. “When the interim government was formed following the July 2024 uprising, macroeconomic stability was weak, with several major economic indicators performing poorly. The accumulated costs of governance failures, corruption, and prolonged financial mismanagement had undermined the economy's potential. Since then, the free fall of the economy has been halted, and some negative trends have been reversed. However, the economy now experiences slower growth, elevated inflation, weakened investment sentiment, and rising vulnerabilities in the financial sector,” states the Daily Star.

Indeed, the financial and banking sector is in a state of distress. In the current fiscal, in September 2025, the non-performing loans, or bad debts, of the banks amounted to 35.7 per cent of the total loans disbursed. More than a third of the debt was in danger of default. This is an alarming trend, and can ruin the banks, and economy. The Daily Star, of course, blames the Hasina regime for it. Playing the blame game, however, is of little use when the chickens come home to roost for the Bangladesh economy. It will not solve the issues.

By November 2026, Bangladesh will not be categorised as a least-developed economy, and will transition to a low-income nation. It will lose the preferential trade terms it receives from the developed world. This is when the crisis will explode with a loud boom.

The author has worked for leading media houses, authored two books, and is now Executive Director, C Voter Foundation; views are personal