Index trend
Previous Quarterly Editions
Expropriation Risk: 64 63 63 64 ► Political Violence Risk: 49 50 50 51 ► Terrorism Risk: 40 40 46 65 ▲ Exchange Transfer and Trade Sanction Risk: 55 63 63 55 ▼ Sovereign Default Risk: 65 65 65 56 ▼
Overall Risk Temperature: 60 (Significant) TREND ►
Special topic: Political polarization
With democracy eroded, attacks on the opposition increasing and the election’s legitimacy in question, Bangladesh can be seen as departing from the political requirements of adhering to the current global rules-based order.
The U.S. government was emboldened in its view that sanctions it had imposed on “rogue” officers of Bangladesh’s Rapid Action Battalion and police in 2021 reduced attacks by these groups on Bangladesh’s opposition and thus in June 2023 announced visa restrictions on Bangladeshi officials. This led to some efforts by Bangladesh’s government (seeking to preserve trade) to appease Washington.
Yet U.S. and U.K. apprehensions led to an open spat, with Bangladesh’s government reportedly suspecting Washington of attempting regime change in Bangladesh via supporting forces inside that country that were attempting to undermine Bangladesh’s government and democracy. London and Washington nonetheless criticized the January elections openly as being in their view unfair and unfree. This is something that international agencies, including the United Nations, also said.
Even so, this context has not adversely affected Bangladesh’s participation in the global order’s economic aspects.
As a small country with balance-of-payments difficulties currently under International Monetary Fund (IMF) watch, and being dependent on exports and foreign inward investment, Bangladesh will avoid any measures that upset global trade and investment rules. Nor is there any U.S. plan to impose tariffs on Bangladesh’s garment exports, as feared by some.
Rather, Washington says it will continue working with Bangladesh on promoting a “free and open Indo-Pacific.” This forbearance is largely because of Bangladesh’s strategic location and importance; China has been quick to congratulate the ruling party, the Awami League, on its electoral victory, as has Russia, while India has chosen to back the new government rather than criticize it.
Months after an interim government under Chief Adviser Muhammad Yunus took charge in Bangladesh, following protests that led to the overthrow of an authoritarian regime helmed by Prime Minister Sheikh Hasina and her Awami League party, political stability seems elusive. The latent polarization of the polity under the Hasina regime has now burst forth, with revenge attacks against functionaries and supporters of the earlier government and violence against minorities.
Hard-line Islamists had been reined in by the Hasina government, brutally in some cases, but now have substantial freedom to pursue their agenda. Signaling the government’s stance, the ban on the Jamaat-e-Islami was lifted. What followed was a wave of violence leading in February 2025 to the ransacking and demolition of the house of Sheikh Mujibur Rahman who led Bangladesh’s fight for independence. In March, Islamic hard-liners belonging to the banned organization Hizb ut-Tahrir publicly demonstrated, demanding the institution of an Islamic state based on religious law.
There have also been reprisals against the police personnel seen as having implemented oppression under the Hasina government. They have been forced to retreat and hide, leaving a near void in the enforcement space. This has emboldened the Islamist forces seeking to settle scores violently, often at the expense of innocent civilians. More than 100 have reportedly lost their lives in mob violence since the interim government took over.
The links between the Islamist forces and the Bangladesh nationalist party (BNP) raise concerns that early elections could favor the fundamentalists. This may explain the interim administration's delaying of elections, hoping that the less radical but disorganized student group (Students Against Discrimination), which led the protests against job reservations for the descendants of freedom fighters, can strengthen their new National Citizens Party and counter the Islamists. The BNP, sensing that this could jeopardize their chance to win the election and form the next government, has begun protests to push for early elections.
All this has combined with protests against the deteriorating economic situation by garment workers, school teachers, rickshaw pullers and others. Bangladesh is clearly in a state of turmoil.
The Indian government's protection of deposed leader Hasina in exile, along with her incitement of supporters in Bangladesh, has caused relations between the Bangladeshi and Indian governments to hit a new low. The pro-Hindutva political party leading India’s central government is viewed as anti-Muslim, which has led to attacks against Hindu minorities in Bangladesh, triggering protests in India. Regime change has thus led to the intensification of both internal and external polarization in Bangladesh.
Expropriation Risk 64 (Significant) TREND ► With the new government opting to stay with the country’s IMF loan and the associated conditionalities, it is unlikely to resort to measures such as expropriation of foreign investor assets. In fact, the country is in need of additional foreign exchange financing and would therefore likely work to appease foreign investors.
Political Violence Risk 51 (Medium) TREND ►
Reprisals against politicians, activists, police and defense personnel, government officials and members of the judiciary seen as close to the Awami League seem to dominate the agenda of the support base that installed the interim administration. That environment is exploited by Islamist hard-liners, leading to communal tension and mob violence. The interim administration’s promise to transform the governance system and the Election Commission, and rewrite the Constitution, has made little headway. It is also unable to enforce civic discipline. Overt and covert violence, including against non-Muslim minorities, is likely to continue.
Meanwhile, rising inflation and worsening economic conditions have intensified social strife, especially among workers in the all-important garment industry, flagged for extremely poor working conditions. This merges with strife stemming from political confrontation.
Terrorism Risk 65 (Medium high) TREND ▲
With the lifting of the ban on the Jamaat-e-Islami and the surfacing of the banned group Hizb ut-Tahrir, Islamist forces have reportedly engaged in widespread violence. These forces are likely to want revenge against those who violently suppressed them under the previous regime. For now, the reaction against such activities is weak, but further ahead it could escalate to a conflict resembling a civil war.
Meanwhile, it is unclear what the attitude of the new administration to the Rohingya located in camps would be. Gang wars have increased, nurtured by inhumane living conditions resulting from the collapse of international aid. That too could take a terrorist turn.
Exchange Transfer and Trade Sanctions Risk 55 (Significant) TREND ▼
Regime change and subsequent instability, along with worker unrest in the all-important garment industry, have not only disrupted production but also adversely affected foreign exchange earnings. The result has been significant currency depreciation and inflation.
Meanwhile, Bangladesh faces the prospect of being graduated out of its Least Developed Country status next year, losing access to preferential trade benefit, aid and concessional finance. That would aggravate the foreign exchange crunch.
Despite the depreciation of the Bangladeshi taka, foreign exchange is proving hard to come by. Staying afloat with the support of the minimal assistance it gets from an IMF program, the future of which is uncertain, following the collapse of exports because of the recent political turmoil, the government is starved of international liquidity. This may force the government to impose measures to manage its foreign exchange resources, including import controls or trade sanctions.
Even though the Bangladeshi taka has lost value, the country is still struggling to get enough foreign currency. It is staying afloat thanks to a small IMF program, but that support may not last. Political unrest has caused exports to drop sharply, leaving the government short of international liquidity. This may force it to impose import controls.
Falling reserves and difficulties in accessing support from India may force the government to place restrictions on repatriation of capital and profits of foreign investors and creditors. Such measures would not be ideologically motivated and would be repealed as soon as Bangladesh was able to access foreign funds.
Sovereign Default Risk 56 ( Significant) TREND ▼
The desperate foreign exchange situation implies that the foreign currency needed to service external debt accumulated in the past is scarce. That makes sovereign default an imminent possibility. All credit rating agencies have downgraded Bangladeshi foreign debt.