Bangladesh’s economic downgrade by credit rating agency Moody’s from B1 to B2 signals a troubling convergence of political instability and economic fragility. With heightened political risks and lowered growth forecasts, the nation stands at a critical juncture where governance, economic resilience, and social cohesion must align to prevent deeper crises. The downgrade reflects more than just numbers; it is an indictment of the prevailing instability.

The transition from a long-standing political regime to an interim government, coupled with unresolved social tensions, underscores the fragility of the political landscape. Protests against public sector quotas that erupted into violence reveal deep-rooted grievances about governance and inclusivity. This unrest not only tarnishes Bangladesh’s image globally but also shakes the foundations of its economic engine, reliant on stability for domestic consumption and export growth. The interim government’s extended tenure without a clear electoral timeline compounds uncertainty. Governance appears reactive rather than proactive, leaving critical structural reforms in limbo. This environment discourages investment and undermines confidence in the nation’s ability to uphold democratic principles and legal order.

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Economic vulnerabilities further complicate matters. The downgrade of growth projections from 6.3 per cent to 4.5 per cent for the upcoming fiscal year reveals the cascading effects of political instability. The agriculture sector, a vital lifeline for millions, has suffered due to floods, while the garments sector, a significant export driver, risks losing its competitive edge amid global uncertainty. Declining foreign exchange reserves, which now barely cover three months of imports, heighten risks of a balance-of-payments crisis, exacerbated by delays in payments to energy suppliers. Looking ahead, the impending graduation from Least Developed Countries (LDC) status poses both opportunities and challenges. While symbolic of progress, the transition will strip Bangladesh of concessional financing and preferential market access. Without strategic planning, this milestone could deepen economic vulnerabilities, particularly in sectors like garments that rely heavily on trade advantages.

Restoring confidence requires immediate and coordinated action. Politically, the government must prioritise stability through an inclusive electoral process, underpinned by clear timelines and transparency. Addressing grievances over social and community-based tensions is equally critical. Swift action against targeted violence and equitable policies can help rebuild trust among marginalised communities. Economically, Bangladesh must focus on diversifying its export base and enhancing productivity in existing sectors. Strengthening remittance inflows, optimising import policies, and prioritising energy sector reforms will be essential to bolstering foreign exchange reserves.

Additionally, leveraging international partnerships, particularly with development institutions, can help navigate short-term liquidity challenges while fostering long-term resilience. Bangladesh has shown this in the past, transforming from a war-torn state to an emerging powerhouse. However, resilience alone will not suffice in the face of challenges. Proactive governance, strategic economic planning, and a commitment to inclusivity must converge to restore stability and secure sustainable growth. The stakes are high, but Bangladesh must rise above adversity. If it does not, it won’t be long before its people begin to wonder if they were better off under Sheikh Hasina