Highlights:
- Bangladesh needs to identify binding economic constraints to achieve its $1 trillion goal
- Banking sector weaknesses and energy shortages emerge as major growth constraints
- Private sector credit growth hit a record low of 4.47% in June
- Nearly a third of bank loans were classified as non-performing in June
- Economist urges independent growth diagnostic to prioritise reforms and accelerate investment
Bangladesh wants to become a trillion-dollar economy by 2034. Since the government made this goal its economic centrepiece, the commentary in our leading newspapers has settled into a familiar shape. Tame inflation. Clean up the banks. Fix the energy supply. Diversify exports beyond garments. Raise skills, bring more women into work, attract foreign investors, collect more revenue. Every item on that list holds.
The government’s own five-year strategic framework goes further, with detailed targets: a $742.57 billion economy by 2030, foreign direct investment at 2.5% of GDP, and 10 million new jobs.
These lists are right. The trouble is that a government with thin administrative capacity and finite political capital cannot push on all of them at once. Anyone who has sat in Dhaka traffic knows the problem. When one intersection is jammed, widening every other road changes very little. Clear that one junction and the whole city starts moving.
One fix that unlocks many
Twenty years ago, I sat in Harvard Kennedy School classrooms where Ricardo Hausmann, founder of Harvard’s Growth Lab and a former Venezuelan planning minister, and Dani Rodrik, one of the world’s leading development economists, walked us through the research on why some countries grow rich while others stay poor. Geography surprised me most: how coastlines, navigable rivers and mountain ranges shape a nation’s growth path for generations.
But the idea that stayed with me was the binding constraint. It felt familiar. As a software engineer in a past life, I had seen programs with eight or ten bugs where one or two small fixes made most of the others disappear. Later, as a strategy consultant after my MBA, I saw the same pattern. Every company struggled across HR, IT, operations, supply chain, marketing and finance. Good strategy meant finding the few things that steadied the business today and built engines for future growth, then putting the organisation’s energy there.
Hausmann, Rodrik and Andrés Velasco, who later served as Chile’s finance minister, formalised this for whole economies in their 2005 paper on growth diagnostics. Their argument was simple: because governments have limited administrative and political capacity, they should spend that capacity on the few constraints that actually bind, rather than chasing every target at once. The method starts with one question. Is private investment low because returns are low, because investors cannot keep what they earn, or because finance is too scarce or costly? Each branch is then tested against evidence, such as what firms pay to work around a problem and whether investment jumps when it eases.
We have run this test before
Bangladesh has been through this exercise. In 2014, the USAID and the DFID applied the framework here. On finance, the study found falling real interest rates and a growing, more competitive banking sector, and concluded that credit was not holding growth back. It cleared the wider macroeconomy too. Across that study and the others reviewed alongside it, electricity was the constraint most consistently flagged.
Twelve years later, the two areas that study cleared, finance and the wider macroeconomy, look like the prime suspects. Private sector credit growth fell to 4.47% in June 2026, the lowest on record, and nearly a third of all bank loans are non-performing. The World Bank expects the economy to grow just 3.4% this fiscal year. The binding constraint has moved. A diagnosis has a shelf life, and a country that stops checking ends up fixing last decade’s problem.
Banks or power
Two candidates stand out today. The first is the banking system. With non-performing loans at 32.78% in June, banks are rationing credit, and the Bangladesh Bank itself links weak lending to rising bad loans. The second is energy. Businesses report that gas and fuel shortages are choking output, and a factory that cannot run its machines has no reason to borrow.
One detail in the data is telling. The Bangladesh Bank cut its policy rate from 10% to 9.5% in July, and credit growth barely moved, sitting at 4.75% in August. That points either to banks too damaged to lend or to firms seeing too little return to borrow. The two diagnoses lead to very different fixes: resolving failed banks and recapitalising the rest, or securing gas supply and pricing it honestly. A proper diagnostic is built to tell them apart.
Foreign investment promotion, on the other hand, does not belong on the shortlist. Courting foreign capital is sensible. But foreign investors face the same broken credit and the same gas shortages as local firms, and they watch closely what local businesses do. When domestic credit growth sits at a record low and local owners are shelving their expansion plans, no roadshow will bring capital in at scale. Clear the constraint holding back domestic investment, and foreign money tends to follow.
Where the averages hide it
Even the 2014 verdict on finance deserved a second look. Its own survey data showed that only 7% of large firms named finance as their main obstacle, against 20% of small firms. A third-party review argued the study had treated finance mostly as a question of interest rates, and urged follow-up work on long-term lending, small business credit and women’s access.
Over a decade of my own work with small enterprises and women’s financial inclusion points the same way. A constraint can look slack in the national averages while it binds tightly on the firms most likely to create jobs. Any new diagnostic should break its findings down by firm size and gender, or it will repeat the same blind spot.
A diagnostic, not another list
The five-year strategic framework already sequences its own work: stabilise in the first year, rebuild systems and institutions through year three, then accelerate growth. That middle phase is where the real choices get made, and it is where a diagnostic belongs. The government should commission an independent growth diagnostic now, staffed by Bangladeshi and international experts, with its evidence published in full. It should be refreshed every two years, because the constraint will move again.
Dozens of reforms done adequately will not get Bangladesh to a trillion dollars. Finding the one or two things holding everything else back, and fixing them properly before moving on, might.
Pial Islam is Managing Partner at pi STRATEGY, a strategy and innovation advisory firm. He can be reached at [email protected]
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