Six months of interim rule: Fragile trust, struggling economy

Six Months of Interim Rule: Economic Struggles Persist Amid Uncertainty

For years, Ahsan, a rickshaw puller in his 50s, has longed for relief from the relentless surge in food and essential goods prices. Yet, despite the passage of time, his hopes of escaping the grip of soaring inflation remain unfulfilled.

In August last year, a mass uprising led to the ousting of the Sheikh Hasina government, ushering in an interim administration. However, six months into its tenure, Ahsan’s daily struggles continue, and his family’s living standards keep eroding—even as inflation eased for the second consecutive month in January.

"I haven't seen any real change in my life," he said, assessing the interim government's performance. "The only thing that has become cheaper is potatoes, but everything else has become more expensive."

As the sole breadwinner for his six-member family, Ahsan earns around Tk 700 per day—insufficient to meet essential expenses, including house rent. "How am I supposed to provide three meals a day for my family with such a meager income?" he asked. Living in Kamrangirchar, a densely populated low-income area in Dhaka, he grapples with the rising cost of basic necessities. Rice, once below Tk 50 per kilogram, now costs more, adding to his financial strain. Additionally, a recent drop in edible oil supply has further squeezed household budgets, exacerbating hardships for millions who endured over 9% inflation for 23 consecutive months until January.

Macroeconomic Uncertainty and Stagnation

Beyond Ahsan’s daily struggles, economists and business leaders warn of growing uncertainty clouding Bangladesh’s economic outlook.

"The economy has yet to recover from the risks it faced six months ago," said Mustafizur Rahman, a distinguished fellow at the Centre for Policy Dialogue (CPD). While some indicators have improved, investment has stalled, and job creation remains sluggish.

Private investment has remained stagnant at 23-24% of GDP for years, with little sign of improvement. The recent decline in private sector credit growth—dropping to 7.28% year-on-year in December, the slowest rate since 2015—further reflects a struggling investment climate.

"The economy seems trapped in a vicious cycle," Rahman noted, attributing the slowdown to the government's contractionary monetary policies, which have raised borrowing costs and deterred private investment.

Rising Costs and Dwindling Confidence

The government's decision to raise VAT on nearly 100 goods and services has further fueled inflation, weakening purchasing power. Meanwhile, the financial sector continues to grapple with rising default loans.

Taskeen Ahmed, president of the Dhaka Chamber of Commerce and Industry (DCCI), acknowledged the interim government's attempts to tackle economic challenges by easing import restrictions and initiating reforms in banking, taxation, and administration. However, he admitted, "Despite these efforts, persistent challenges hinder progress."

GDP growth fell to 1.81% in the first quarter of FY25—the lowest in four years—due to weak investment and industrial stagnation. A revenue shortfall of Tk 58,000 crore and sluggish credit growth have further strained the economy. High inflation, supply chain disruptions, low foreign direct investment, and a rising number of non-performing loans continue to fuel economic uncertainty. "Business confidence remains low," Ahmed noted.

Lack of Stability and Leadership Concerns

Selim Raihan, executive director of the South Asian Network on Economic Modelling (Sanem), pointed out that the interim government inherited a fragile economy burdened by inflation and stalled investment.

"We hoped for a recovery, but except for some areas, we haven't seen it," he said, acknowledging improvements in exports, remittances, and foreign reserves. However, he emphasized that a lack of law and order has further eroded confidence across the economy.

"There is a crisis of confidence among both investors and consumers," Raihan said, adding that better coordination among government agencies and policy coherence are crucial for stability. Instead, he observed conflicting statements from government advisers, which have only deepened uncertainty.

The recent vandalism at Dhanmondi-32 and other parts of the country has further shaken confidence. "If law and order don’t improve, economic fault lines may widen," Raihan warned, doubting any significant recovery in the remaining fiscal year.

Investor Sentiment and Business Climate

Mohammad Zaved Akhtar, president of the Foreign Investors' Chamber of Commerce & Industry (FICCI), described the business environment as "challenging" due to sustained high inflation, worsening security conditions, and rising energy costs. The devaluation of the local currency has only intensified pressures on businesses with foreign currency exposure.

Micro, small, and medium enterprises (MSMEs) have been particularly affected, struggling with higher borrowing costs as interest rates climb.

"While recent reforms provide some hope, there has been little tangible change on the ground," Akhtar noted. Without meaningful improvements, he warned, investor confidence could deteriorate further.

A Mixed Economic Outlook

Asif Ibrahim, former president of the DCCI, described the past six months as "bittersweet." While some indicators, such as the current account balance turning positive ($1.93 billion in December), offer signs of recovery, declining private investment remains a major concern.

"If investor confidence isn’t restored, industrial production will suffer in the coming months," Ibrahim cautioned.

Ahsan’s Everyday Struggles Mirror the Nation’s Challenges

For Ahsan, economic policy debates and macroeconomic trends matter little. What concerns him most is the lack of stability on the streets.

Navigating through the chaotic roads of Dhaka, from Banglamotor to Farmgate, he voiced his frustration. "Without clear direction from the authorities, chaos rules the streets. Every day feels like a struggle—not just to earn a living, but to survive."

Six months into interim rule, Ahsan’s reality—and that of millions like him—remains unchanged: higher prices, greater uncertainty, and a daily battle to make ends meet.