Bangladesh 2026: Yunus, the tariff wall, and the road to a vote

The Yunus interim and the political clock #

Sheikh Hasina resigned and left Bangladesh for India on 5 August 2024 after three weeks of demonstrations that began on the public sector job quota issue and ended with security forces firing on crowds in Dhaka, Narayanganj, and Chattogram. The Office of the United Nations High Commissioner for Human Rights, in a fact finding report published in February 2025, estimated up to 1,400 people killed between 15 July and 5 August. Three days after Hasina's exit, Muhammad Yunus, the Nobel laureate microfinance economist long at odds with the Awami League, was sworn in as Chief Adviser of an interim government under a doctrine of necessity reading of the constitution.

The advisory council Yunus assembled is small and technocratic. About 22 advisers carry portfolios spanning law, finance, foreign affairs, energy, planning, and education, with figures such as Salehuddin Ahmed at Finance and Commerce, Asif Nazrul on law, and Wahiduddin Mahmud at Planning. Six reform commissions established in October 2024 cover the constitution, electoral system, judiciary, police, public administration, and anti corruption. Their interim outputs were folded into a July Charter that frames the political settlement, with the constitutional commission proposing a bicameral legislature, a two term cap on the prime minister, and a permanent caretaker mechanism.

The election path remains the single most consequential variable. Yunus has said publicly that a national poll is feasible by December 2025 or in the first quarter of 2026 if voter rolls and reform consensus are in place. The Bangladesh Nationalist Party, the largest organized contender, has pushed for an earlier date. Jamaat-e-Islami and the new student led Jatiya Nagorik Party prefer time to organize. The Awami League is sidelined: the Office of the Attorney General announced on 12 May 2025 that party activities are banned pending resolution of cases at the International Crimes Tribunal, where Hasina is being tried in absentia.

Macro stabilization under the IMF program #

The Yunus government inherited a balance of payments under stress and an inflation print stuck above target. Bangladesh Bank, under Governor Ahsan H. Mansur, a former senior IMF staff member appointed in August 2024, replaced the prior monetary targeting framework with an interest rate corridor and lifted the policy repo rate in steps to 10 percent. The standing lending facility is at 11.5 percent and the standing deposit facility at 8.5 percent. Headline CPI averaged 9.7 percent in March 2025 per the Bangladesh Bureau of Statistics, with food inflation running roughly 150 basis points above non-food.

On the external side, Bangladesh Bank moved from a hard managed peg around BDT 110 per US dollar in early 2024 to a crawling band that allowed the taka to depreciate to about BDT 122 by mid-2025. Gross reserves on the BPM6 measure stood near USD 19.8 billion in early 2025, with net reserves at about USD 14.9 billion after IMF and other liabilities. Remittance flows recovered to roughly USD 27 billion as the kerb premium narrowed below 2 percent at most readings in 2026.

The IMF Extended Fund Facility approved on 30 January 2023 at SDR 2.5 billion, about USD 3.3 billion, was paired with a Resilience and Sustainability Facility and supplemental support for a combined package near USD 4.7 billion over seven years. The fourth review was approved by the Executive Board in the first quarter of 2025 and an augmentation under the interim government has been discussed but not yet finalized. Conditionality has shifted toward the exchange rate band, banking sector recognition under the Bank Company Amendment Act 2024, revenue mobilization through a new Income Tax Act and VAT base broadening, and energy sector cost recovery.

RMG and the reciprocal tariff shock #

Ready-made garments remain the macro anchor. RMG exports reached USD 38 billion in FY2024 per BGMEA reconciled with Bangladesh Bank balance of payments data, roughly 84 percent of total goods exports. Knitwear (HS 61) holds a slight edge over woven (HS 62), the European Union absorbs the largest share, and the United States is the second largest single market. Top buyer relationships with H&M, Inditex, Levi Strauss, Walmart, Uniqlo, and Marks and Spencer continued through the political transition without contract level disruption.

On 2 April 2025 the Trump administration announced a reciprocal tariff schedule that placed a 35 percent rate on Bangladeshi imports. On 9 April the administration paused country specific reciprocal rates for 90 days and applied a 10 percent baseline. The Bangladesh Garment Manufacturers and Exporters Association estimated the negotiation window order book at risk near USD 2.5 billion, concentrated in spring and summer 2026 programs at US mass market retailers. The interim government dispatched the commerce adviser to Washington with a package combining tariff line concessions on US exports such as cotton, soybeans, LNG, and aircraft, plus labor compliance and procurement commitments.

Layered on top of the reciprocal tariff is the LDC graduation timer. Bangladesh graduates from least developed country status on 24 November 2026 per the United Nations Committee for Development Policy decision. Everything But Arms duty-free access into the European Union expires after a three year transition through 2029, and similar preference programs in the United Kingdom, Canada, Japan, and Australia step down on related schedules. The European market currently absorbs roughly 50 percent of RMG shipments at zero duty for HS 61 and HS 62, against most favored nation rates of 9.6 to 12 percent that will reassert post transition.

Adani Power, energy stress, and the India file #

Energy is the binding macro headache. The contract with Adani Power for 1,496 megawatts from the Godda plant in Jharkhand, signed in 2017 and operational from 2023, accounted for roughly 9 percent of grid power in 2024 at a tariff that the interim government and outside reviewers have judged unfavorable relative to comparable imports. Bangladesh Power Development Board arrears to Adani at the time of the political transition exceeded USD 800 million. A partial settlement worth about USD 850 million was negotiated in the first quarter of 2025, with payments routed through the IMF supported reserves operations and a broader review of the tariff structure underway.

The Adani file is a proxy for the larger India relationship. Hasina's residence in India, repeated extradition requests by Dhaka under the bilateral treaty, and India's reluctance to engage the interim government at the senior political level have cooled trade facilitation, border management cooperation, and the cross border power and connectivity agenda. The Akhaura to Agartala rail link inaugurated in 2023 is operating below planned utilization and land port traffic at Petrapole and Benapole has slowed. Yunus visited Beijing in late March 2025 for a state visit that produced commitments on the Teesta River Comprehensive Management and Restoration Project and continued progress on the Payra port expansion. Prime Minister Modi has not yet hosted Yunus in Delhi, and the bilateral remains in a holding pattern pending elections.

Banking, fiscal, and the cost of the cleanup #

The interim government inherited a banking system whose published non performing loan ratio understated the problem by a wide margin. Under revised classification rules in the Bank Company Amendment Act 2024, system wide gross NPLs reached above 20 percent by end 2025, the highest print on record. The amendment tightened related party lending limits, gave Bangladesh Bank explicit authority to remove directors of weak banks, and introduced a special resolution regime. S Alam Group, with documented control over six private banks including Islami Bank Bangladesh, First Security Islami, Social Islami, Union, Global Islami, and Bangladesh Commerce, is the single largest exposure. Bangladesh Bank reconstituted all six boards within ninety days of the political transition, froze related party accounts, and engaged international forensic accounting support.

On the fiscal side the FY2026 budget targets a deficit near 5.2 percent of GDP, against a revenue ratio of about 7.4 percent of GDP, among the lowest in South Asia. The IMF program path requires a move toward 9 percent by FY2027, supported by a new Income Tax Act, VAT base broadening, and the withdrawal of zero rated supplies. The Centre for Policy Dialogue and the World Bank have flagged the recapitalization need at USD 8 to 12 billion over three years, roughly 1.5 to 2.5 percent of FY2026 GDP, with the four large state owned commercial banks and the S Alam linked Islamic banks accounting for the bulk.

What buyers and lenders should do in 2026 #

For original equipment manufacturers and apparel buyers the central question is the durability of Bangladeshi cost competitiveness under a 10 percent US baseline that may revert to 35 percent after the negotiation window. Vietnam, India, Cambodia, and Pakistan are the substitution candidates. The defensible position is to lock in vertical knit programs at clean factories with documented compliance, hold the Bangladeshi share at current levels for spring and summer 2026, and accelerate dual sourcing capacity in Vietnam and India for fall and winter 2026 if the negotiation slips. The price elasticity of US retail demand for basic knit apparel is high enough that a 25 percentage point tariff differential will move volumes within two seasons.

For sovereign creditors and ratings analysts the actionable variables are the election date, the FY2027 budget envelope, the disclosed scope of S Alam asset recovery, and the trajectory of net reserves. A clean election by mid 2026 followed by a BNP led government that retains the IMF program and ratifies the reform commission outputs is the base case. The downside path combines a delayed election, banking recognition that requires direct monetization, and a renewed FX squeeze that pushes net reserves below USD 12 billion. For multinationals with Bangladesh exposure the operational priority is supply chain resilience through the political calendar: pre election logistics buffers in March to June 2026, contingency contracts with Vietnamese and Indian factories, and a forced labor compliance audit that anticipates US Customs and Border Protection scrutiny under UFLPA.

For donors and development finance institutions the leverage point is the reform package. World Bank, Asian Development Bank, and Japan International Cooperation Agency program lending tied to revenue mobilization, banking resolution, and energy cost recovery is the most efficient form of support during the interim. The political transition is real, the reform window is open, and the IMF program creates a credible enforcement mechanism. The risk is that an elected government in 2026 inherits a stabilized macro file and unwinds the harder reforms before the LDC graduation transition is complete.

Sources #

• Bangladesh Bank monetary policy and statistics
• Bangladesh Bureau of Statistics CPI and national accounts
• Bangladesh Election Commission
• IMF Bangladesh country page and EFF reviews
• World Bank Bangladesh Development Update
• United Nations Office of the High Commissioner for Human Rights, Bangladesh report February 2025
• Bangladesh Garment Manufacturers and Exporters Association
• Office of the United States Trade Representative reciprocal tariff announcements
• Reuters Dhaka coverage
• The Daily Star coverage
• Prothom Alo English coverage