Bangladesh faces major macroeconomic challenges amid energy crisis

Bangladesh is grappling with significant macroeconomic challenges stemming from years of mismanagement, with the ongoing US-Iran war further complicating the situation, particularly within the energy sector. These issues have escalated to a point where substantial reforms are crucial to prevent an economic crisis.

The energy sector's difficulties have broad economic repercussions. The energy import bill has surged from $4.3 billion in FY2021 to $11.2 billion in FY2026 due to domestic supply shortages and increased global prices. Simultaneously, the energy subsidy bill ballooned to Tk 837 billion (1.5% of GDP) in FY2025, consuming a significant portion of tax revenue. Energy shortages and higher prices have also hampered export competitiveness, disrupted manufacturing and transport, and contributed to slower GDP growth and reduced private investment, leading to a rise in non-performing loans.

Long-standing issues plague the energy sector, including the dominance of public entities, weak pricing policies, a lack of a clear energy strategy, political interference, corruption in investments and procurement, and poor accountability. The current crisis management approach is unsustainable.

The new government has an opportunity to implement bold reforms. Key measures should include deregulating the energy sector to boost private participation, corporatizing all public energy entities, and establishing credible primary energy strategies with hard budget constraints. Addressing these deep-seated problems is essential for sustained economic progress.