When Growth Overheats: Bangladesh’s Struggle with Climate and Industrial Shocks

Written by Khadeza Zaman, MSc Economic History

Bangladesh faces growing pressure to stabilise its development model following months of economic and political instability. Under the interim government led by Nobel Laureate Muhammad Yunus, rising temperatures, erratic monsoon patterns, and industrial accidents revealed the fragile foundations of Bangladeshi growth. Should these disruptions be viewed as isolated crises or symptoms of deeper structural problems? This article suggests the interim government can translate short-term turbulence into long-term reform and build a more climate-resilient and sustainable economy. 

The fragile foundations of Bangladeshi development

Since its independence from Pakistan in 1971, Bangladesh pursues an export-led growth strategy centred around the Readymade Garment industry. The sector employs four million people and generates 80% of the country’s export earnings ① (exports account for 27% of Bangladeshi GDP ②). Manufacturing remains concentrated in low-cost textiles and apparel, leaving the economy highly exposed to global demand shocks and supply-chain disruptions. Although literacy and health indicators suggest improvements since the 1990s, investments in higher education, research, and technology still lag international standards. Underinvestment constrains the development of emerging sectors, among which pharmaceuticals, light engineering, and digital services, preventing broader transformations of the industrial structure.

The Rana Plaza factory collapse in 2013, which killed 1134 ③ workers, revealed systemic weaknesses in workplace safety and labour oversight. In the following years, a series of reforms improved auditing and compliance standards for major export firms. However, the implementation of these measures has been uneven, and many smaller factories and subcontractors continue to operate without adequate supervision or enforcement.

Adding up, the geographic location of Bangladesh exacerbates their economic and institutional weaknesses. Situated in the Ganges-Brahmaputra-Meghna delta, the country experiences some of the world’s most extreme monsoon seasons alongside steadily rising temperatures. Flooding frequently disrupts transport routes and factory operations, while prolonged heat waves reduce labour productivity and strain public health. These overlapping pressures have weakened Bangladesh’s low-cost, labour-intensive growth model. Limited diversification makes recovery slower and more uneven, as rural losses spill into cities and intensify pressure on jobs, housing, and infrastructure. The same low-cost, labour-intensive model that once powered Bangladesh’s rise is now struggling to adapt to harsher climate conditions and shifting global markets. 

Rising Temperatures and Economic Strain

The effects of rising heat and unstable weather are no longer abstract concerns. They are now measurable forces shaping Bangladesh’s productivity, exports, and overall economic stability. In September 2025, the World Bank estimated that heat exposure cost Bangladesh 1.78 billion US dollars ④ in lost productivity last year, equivalent to around 0.5 per cent of GDP ④ . The report warned that ‘extreme heat is lowering working hours, weakening health, and threatening livelihoods across South Asia’. In industrial hubs such as Gazipur and Narayanganj, higher temperatures have already shortened factory shifts and increased the frequency of heat-related illnesses among workers. Power outages during peak heat months further disrupt production and supply chains.

Moreover, the World Bank’s South Asia Development Update (October 2025) ⑤ projects that, without adaptation, heat stress alone could reduce regional GDP by an additional one per cent by 2030 ⑤. Extreme weather now amplifies existing structural weaknesses in infrastructure and resource management. Floods and power shortages regularly halt production, while unpredictable rainfall constrains rural incomes and limits domestic demand. The result is an economy increasingly constrained by its physical environment. Sustaining long-term growth will therefore require stronger adaptation strategies that modernise energy systems, improve drainage, and integrate climate resilience into urban and industrial planning. Without decisive reform, environmental stress will continue to expose the fragility of Bangladesh’s growth model. 

Industrial Fragility and Systemic Risk

The airport fire at Dhaka’s Hazrat Shahjalal International Airport ⑥ on 19th October 2025 suggest logistical and safety issues continue disrupting Bangladesh’s export system. The blaze destroyed consignments bound for Europe and North America, exposing the country’s dependence on a single logistics hub. Inamul Haq Khan, senior vice-president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA) ⑥, noted that ‘high-value goods and urgent air shipments have been destroyed, and losing them means our members may miss out on future opportunities’. Despite a decade of post-Rana Plaza reforms, weaknesses in industrial infrastructure remain vulnerable. Safety enforcement is inconsistent, emergency procedures are limited, and congestion around Dhaka continues to slow production. As global buyers place greater emphasis on supply-chain reliability, these gaps create growing risks for Bangladesh’s competitiveness in international markets.

In an industry where reliability and speed are crucial, logistical failures lead to cancelled contracts and loss of investor confidence. Producers in Vietnam and Cambodia have strengthened their position through efficiency and compliance, highlighting how Bangladesh’s industrial vulnerabilities could translate into long-term disadvantages if left unaddressed. Industrial expansion has outpaced the systems needed to support and regulate it. Power shortages, transport delays, and limited warehouse capacity regularly interrupt production, while high land prices in Dhaka discourage the spread of manufacturing to other regions. This concentration magnifies the effect of every disruption, whether environmental or industrial. Strengthening regulations, upgrading logistics networks, and encouraging regional diversification will be essential to maintain export growth and reduce systemic risk.

Governance under the Yunus Government

The interim government led by Muhammad Yunus faces the challenge of stabilising an economy that remains structurally fragile despite encouraging growth figures. The World Bank’s 2025 update projects GDP growth of 4.8 per cent in 2026 ⑦, up from 4% in 2025, but warns the outlook relies heavily on administrative reform and regulatory coordination. Fiscal pressure and political uncertainty limit the government’s ability to sustain infrastructure investment. Delays in public spending and uncertainty over project financing have slowed energy, transport, and industrial corridor projects that are critical for long-term competitiveness.

Inconsistent regulation and overlapping bureaucratic mandates discourage private investment and create uncertainty for domestic and foreign firms. These constraints have tangible economic consequences. Congested ports, unreliable electricity, and slow customs procedures raise operating costs for exporters and reduce Bangladesh’s appeal as a manufacturing hub. If these inefficiencies persist, the country risks losing market share to competitors such as Vietnam and Indonesia, where productivity and compliance standards have advanced more rapidly. Institutional limitations continue to weaken the state’s ability to anticipate and manage both industrial and environmental shocks. Coordination between ministries remains fragmented, and local authorities often lack the financial resources and technical capacity to enforce building codes, monitor workplace safety, or implement environmental regulations. This fragmented governance structure encourages a reactive approach in which intervention follows a crisis rather than preventing it.

The result is growing fiscal pressure, as each industrial accident or climate-related disaster diverts public funds toward reconstruction instead of long-term investment in resilience. This cycle of temporary recovery without structural improvement leaves the economy exposed to repeated disruptions and rising public costs. To reverse this pattern, the government must link industrial and climate policy with institutional reform. Expanding inspection capacity, improving transparency in procurement, and digitising public-expenditure tracking would strengthen accountability and reduce corruption.

Decentralising logistics beyond Dhaka could relieve pressure on the capital’s infrastructure while encouraging regional investment and job creation. Upgrading transport corridors and modernising the power grid would improve productivity and ensure more reliable energy access for exporters. International partners such as the World Bank and Asian Development Bank have pledged over $1.16 billion ⑧ in financing for climate-resilient infrastructure, including US $1.16 billion from the World Bank and a $400 million loan ⑨ from the ADB.

The effectiveness of these programmes will depend on domestic coordination and policy continuity. Without streamlined decision-making and stronger oversight, implementation delays could limit the impact of foreign assistance. Over time, developing human capital through higher education and vocational training will also be essential. Emerging sectors such as pharmaceuticals, agritech, and digital services offer opportunities for diversification, but their success will depend on whether Bangladesh can create an environment that supports innovation and skilled employment. Over the next two years, Bangladesh’s economic trajectory will depend on how effectively the government can translate reform into action. Strengthening institutions, improving transparency, and aligning climate adaptation with industrial strategy will be essential to move from short-term stabilisation toward sustained resilience. The success or failure of these efforts will determine whether this period becomes a foundation for renewal or a continuation of the structural weaknesses that have long limited the country’s development. 

Conclusion

Bangladesh’s next phase of development will be judged not by how fast it grows but by how effectively it can endure and adapt to disruption. The pace of expansion has brought prosperity but also revealed the limits of institutions that have not evolved at the same speed. The challenge now is to turn growth into durability through credible governance, transparent policymaking, and investment that strengthens the economy against future shocks. Long-term prosperity depends on institutions that protect rather than overextend the economy. This requires policies that anticipate risk, diversify production, and invest in innovation that prepares the country for a harsher environment and more competitive markets. Growth must now be measured not only in output but in resilience, in the ability to recover quickly and continue forward when conditions change. If Bangladesh can transform urgency into direction, it has the potential to turn its story of overheated growth into one of endurance and renewal. Its future will not be defined by how brightly it rises in moments of expansion, but by its capacity to remain steady when the heat of progress returns. 

Sources

① Ruma Paul and Fatima Tuj Johora, « After US tariffs, jobs hang by a thread in Bangladesh's garments sector », Reuters, 9 July 2025.

② « Trade (% of GDP) - Bangladesh », World Bank Group, 2024.

③ Faisal Mahmud, « Ten years of Rana Plaza: How safe is Bangladesh garment industry?», Al Jazeera, 24 April 2023.

④ Ruma Paul, « Rising heat cost Bangladesh $1.8 billion last year, says World Bank », Reuters, 16 September 2025.

⑤ South Asia Development Update October 2025, World Bank Group, October 2025. 

⑥ Ruma Paul, « Fire at airport cargo complex disrupts Bangladesh’s garment exports », Reuters, 19 October 2025.

⑦ « Bangladesh’s economy to grow 4.8% this fiscal year: World Bank », The Daily Star, 7 October 2025.

⑧  Bangladesh Receives $1.16 Billion World Bank Financing for Inclusive and Climate-Resilient Development, World Bank Group, 19 December 2024.

⑨  ADB Lends $400 Million to Support Climate Priorities in Bangladesh, Asian Development Bank, 8 December 2023.