News & Media

• Elections provide a roadmap, but stability is fragile: The decision of the Interim Government on holding the 13th parliamentary election in February 2026 has provided clarity to Bangladesh’s governance trajectory and was welcomed by domestic and international stakeholders. However, political tensions remain elevated, with the ongoing trial of former Prime Minister Sheikh Hasina and the banned political party, Awami League, sparking protests. While consensus is being reached through the National Consensus Commission on endorsing a 10-year executive term limit, divisions persist over constitutional reforms, bicameral legislature design, and electoral systems. A credible and peaceful election will be essential to restore investor confidence and anchor long-term political stability.
• Fiscal consolidation prioritizes stability over equity:. The FY25–26 national budget reflects contractionary public finance, with a 13.2% cut to the Annual Development Programme and the fiscal deficit capped at 3.62% of GDP. While aimed at stabilization, major cuts in sectoral allocations highlight underinvestment in key social sectors: health is allocated just 5.3% of the total budget, while social protection (↓16%), climate resilience (↓58%), gender equity (↓4%), and SMEs (↓24.7%) face significant reductions. This fragmented approach risks undermining pro-poor growth, resilience, and inclusive systems transformation at a time when public demand for social investment is rising.
• Investment retreat compounds social vulnerabilities: Bangladesh saw its fourth consecutive year of declining FDI inflows in 2024, falling by 13.2% to US$1.3 billion, with a net capital outflow of US$ 7 million. Weak investment is already visible in the labour market: unemployment rose to 2.7 million in early 2025, and World Bank projections suggest that an additional 3 million people may fall into extreme poverty this year, pushing the poverty rate from 7.7% to 9.3%. Persistent labor-market weaknesses and an economic slowdown underscore the urgency of restoring confidence to reverse the investment decline.
• Gains in macroeconomic stabilization remain fragile: IMF-supported reforms advanced in Q1 2025, with disbursements tied to progress on exchange-rate flexibility, tax mobilization, and banking-sector reforms. Inflation began to ease but remained high, reserves steadied between US$25–26 billion, and readymade garments (RMG) exports reached US$10.4 billion in the first quarter, cushioning external pressures. Yet these gains remain fragile: sustaining stability will depend on consistent reform implementation amid political uncertainty and external shocks, particularly from energy imports and climate disruptions.

• Mounting regional tensions shifted political discourse towards external threats and national security: The India–Pakistan military confrontation in April – marked by retaliatory measures and the suspension of key agreements such as the Indus Waters Treaty – along with ongoing unrest in Balochistan, has shifted Pakistan’s focus toward national security and stability, further sidelining domestic political debate and justifying greater securitization and centralized control through the remainder of 2025.
• With PTI’s political marginalization, ruling authority consolidates power: The PTI remains politically weakened due to leadership imprisonment, judicial setbacks (e.g., loss of reserved seats), and limited space for mobilization. Meanwhile, the ruling PML-N and its coalition partners have tightened their grip on power with institutional backing and a weakened opposition landscape, a trend expected to continue unchallenged in the latter half of 2025.
• IMF backing, FDI and remittances fuel short term optimism amid structural weaknesses: IMF support and external financing have stabilized Pakistan’s macroeconomic indicators. Reserves have improved, inflation has eased, and remittances and FDI – particularly from China – have increased. However, IMF-aligned austerity measures in the FY26 budget have slashed social sector spending. Combined with weak agriculture, low exports, and limited reforms, these factors pose risks to sustained recovery in the second half of 2025.
• USAID cuts and US tariffs risk external dependence and trade fragility: The suspension of USAID funding and uncertainty around US tariffs may disrupt critical development programs and threaten Pakistan’s largest export market. However Pakistan is pursuing key strategies to diversify its bilateral partnerships and sectors despite exposure to geopolitical shocks that may undercut recovery prospects. Negotiations in the second half of 2025 have already yielded reduced tariffs and new agreements, creating opportunities to stabilize external balances and support Pakistan’s economic recovery.

Pakistan’s political trajectory through the rest of 2025 is likely to be defined by an entrenched securitization of governance, as external threats and internal unrest provide cover for the ruling coalition and military establishment to tighten control. With PTI effectively neutralized, the absence of meaningful opposition raises concerns about democratic backsliding, unchecked authority, and the erosion of inclusive governance. Moreover, while IMF-backed support, growing remittances, and selective FDI inflows have provided short-term macroeconomic relief, structural weaknesses continue to pressure livelihoods. Through the end of 2025, Pakistan’s trajectory remains vulnerable to political shocks, climate-driven crises, and uneven recovery momentum.