War introduces new risks to the economy

Bangladesh’s economy faces fresh uncertainty as tensions involving Iran, the United States and Israel raise fears of prolonged instability in the Middle East. Economists warn that disruptions in energy supplies, rising global oil prices and higher transport costs could create new pressure on inflation and overall economic activity.

They caution that declining investment, slower implementation of development projects and weaker job creation could follow if the conflict persists for an extended period. A prolonged crisis could deliver a significant shock to the country’s macroeconomic stability.

The General Economics Division (GED) of the Planning Commission highlighted these concerns in its report Economic Update and Outlook, February 2026. The report noted signs of limited stability in some indicators but raised concerns over weak revenue collection, sluggish investment and slow development spending. It warned that global conflict could intensify these economic challenges.

GED Member (Secretary) Monzur Hossain said the war in the Middle East could trigger a new crisis through disruptions in energy supply. He noted that a prolonged conflict could undermine economic stability and require timely policy responses.

Although inflation has eased slightly in recent months, it remains above a comfortable level. Data from the Bangladesh Bureau of Statistics shows inflation has remained above 9% after rising steadily for four months. Economists say higher global fuel prices could increase transport costs, electricity generation expenses and industrial production costs, pushing up prices of essential goods.

Investment growth is already showing signs of weakness. Lower imports of capital machinery suggest that private sector investment has not expanded at the expected pace. Greater global uncertainty may also make entrepreneurs more cautious about launching new projects or expanding production, which could slow employment growth.

Pressure on government finances has also intensified. Revenue collection grew by 12.9% until January of the current fiscal year, far below the 34.5% target. The government would need a 59.4% increase in revenue in the remaining months to meet that target, which economists consider unrealistic. The revenue shortfall has reached nearly Tk600 billion.

As a result, the government has relied more heavily on bank borrowing. By December, it had borrowed about Tk596.55 billion from the banking sector, while non-bank borrowing and foreign assistance declined significantly. Economists warn that heavy government borrowing from banks could reduce credit flow to the private sector.

Implementation of development projects has also slowed sharply. From July to January, the implementation rate of the Annual Development Programme stood at only 20–21%, the lowest in the past 15 years. Delays in project preparation, complex procurement procedures and weak coordination among agencies have contributed to the slowdown. Rising global prices of fuel and raw materials could further increase costs and delay major infrastructure projects.

External sector indicators show mixed trends. Exports from the ready-made garment sector have increased slightly and remittance inflows remain stable. Bangladesh received about $3.17 billion in remittances in January, while foreign exchange reserves stood at around $33 billion.

However, economists warn that prolonged conflict in the Middle East could create uncertainty in remittance flows. Millions of Bangladeshi workers live in the region, and instability in labour markets there could affect remittance income.

Mehedi Mahbub, president of the RMG Centre, said the Middle East conflict could pose a major risk to Bangladesh’s economy. He noted that the region plays a crucial role in remittances and employment for Bangladeshi workers. He added that a global economic slowdown could weaken demand in Europe and the United States, affecting Bangladesh’s export sector, particularly garments.

Finance and Planning Minister Amir Khasru Mahmud Chowdhury said the government has begun preparing to address possible economic impacts. He said authorities are considering both short-term and long-term scenarios of the conflict while planning policy responses.

Economists say the government should reform the revenue system, reduce unnecessary expenditure, encourage investment and strengthen energy security. They also suggest policy incentives such as lower taxes and duties to promote investment in renewable energy.

They added that although some indicators show signs of stability, several risks continue to build within the economy. If global instability intensifies, Bangladesh could face renewed pressure on inflation, employment and overall economic growth.