Ahead of the fiscal year 2026-27 (FY27) national budget, the government faces mounting fiscal pressure amid high inflation and low investment at a time when the global geopolitical situation remains volatile, said Prof Mustafizur Rahman, distinguished fellow at the Centre for Policy Dialogue (CPD).

In an interview with The Daily Star, he said the revenue sector requires immediate attention, while trade challenges and inefficiencies in the Annual Development Programme (ADP) must also be addressed.

FISCAL PRESSURES MOUNT

Bangladesh’s upcoming national budget will be one of the most challenging in recent years, as the government grapples with inflation, debt pressure, global uncertainty, and rising public expectations, he said.

The FY27 budget will need to address “multi-dimensional challenges” amid persistently high inflation, rising living costs, weak investment, and external vulnerabilities.

He said the government inherited significant economic difficulties that cannot be ignored while preparing the budget. At the same time, it must fulfil election pledges related to healthcare, education, social protection, and employment generation.

“The government is presenting the budget against the backdrop of a difficult global environment,” he said, referring to the ongoing Middle East conflict and its impact on energy prices, import costs, and macroeconomic stability.

Rahman said people expect relief after years of inflation that have eroded purchasing power and living standards, particularly among low-income groups.

“People now expect better public services and stronger social protection from the government,” he said.

To meet those expectations without excessive borrowing, the government must prioritise domestic resource mobilisation, he argued, adding that Bangladesh cannot continue relying heavily on bank borrowing and external lenders to finance expenditure.

THREE PRIORITIES FOR REVENUE

Rahman identified three immediate priorities for the revenue sector: reducing leakages, broadening the tax base, and finding innovative sources of revenue.

He said corruption, weak governance, and inefficiencies continue to undermine tax collection, depriving the government of resources needed for public spending.

Bangladesh must expand the tax net instead of repeatedly burdening the same taxpayers, he argued. Many individuals and businesses remain outside the system, while VAT collected from consumers often does not fully reach the treasury because of leakages and weak enforcement.

“I fully endorse the proposal that rates should remain relatively low but become more universal,” he said while discussing VAT and income tax reforms.

The economist also stressed the importance of technology-driven tax administration. He welcomed moves towards online VAT registration and digitalisation but warned that isolated systems would not be effective unless they are integrated and interoperable.

Drawing comparisons with India, he said tax authorities there can compare declared income with spending patterns through integrated databases. Bangladesh could adopt similar systems to strengthen compliance and reduce tax evasion.

Rahman also suggested gradually introducing new forms of taxation, including wealth and inheritance taxes, to address widening inequality. Fiscal policy, he said, should not only raise revenue but also reduce disparities in income, consumption, and assets.

REPRIORITISE SPENDING, IMPROVE IMPLEMENTATION

On the expenditure side, Rahman said the government would need to reprioritise spending to fulfil commitments related to education, healthcare, and social safety net programmes.

The ruling party has pledged to raise spending on health and education to 5 percent of GDP each and increase social protection expenditure to at least 3 percent of GDP.

Current spending remains far below those targets, meaning resources may need to be shifted from other sectors over time, he said, warning that such decisions would be politically sensitive.

He argued that infrastructure spending could be rationalised by reducing waste, corruption, delays, and cost overruns.

“If we can ensure good value for money, then infrastructure spending as a share of GDP can be reduced without compromising outcomes,” he said.

Rahman stressed that higher allocations alone would not improve public services without better implementation and governance.

He was particularly critical of inefficiencies in the ADP, saying public projects in Bangladesh frequently suffer from inflated costs, delays, and weak oversight. On average, project costs and implementation periods rise by 30 percent to 40 percent, he said.

He called for stronger feasibility studies, tighter monitoring, and greater accountability. Projects nearing completion should receive priority, while approval of new projects should be approached more cautiously given rising debt and fiscal pressure.

The economist also warned against expanding the ADP aggressively without improving institutional capacity, procurement systems, and implementation quality.

INFLATION, TRADE CHALLENGES REMAIN KEY CONCERNS

On inflation and monetary policy, Rahman said Bangladesh faces a difficult balancing act. While high interest rates are hurting investment and job creation, inflation remains too high to justify aggressive monetary easing.

However, he argued that inflation is not driven solely by monetary factors. Weak market management, high logistics costs, inefficiencies at ports and customs, and poor supply-chain governance are also contributing to rising prices.

“If the government can improve market management and reduce the overall cost of doing business, inflationary pressure can ease even without relying only on monetary policy,” he said.

Rahman also discussed Bangladesh’s external trade challenges as the country prepares to graduate from the least developed country (LDC) category.

He said export diversification, free trade agreements, and stronger compliance standards would become increasingly important in the coming years.

Bangladesh still depends heavily on a limited number of products and export markets despite years of discussion about diversification, he noted. Meanwhile, competitors such as India and Vietnam are moving aggressively to secure free trade agreements and attract foreign investment.

To remain competitive, Bangladesh must improve logistics, reduce lead times, strengthen labour and environmental standards, and create a more investment-friendly environment, he said.

He also urged the government to treat any extension of the LDC graduation transition period as an opportunity to accelerate reforms rather than delay them.

Bangladesh’s next national budget should focus on strengthening economic resilience rather than increasing spending, said Zahid Hussain, former lead economist at the World Bank’s Dhaka office.

He warned that weak fiscal buffers, high inflation, and serious vulnerabilities in the financial sector have left little room for a large or expansionary budget.

In an interview with The Daily Star, Hussain said the economy is facing prolonged external pressures stemming from elevated global fuel, fertiliser, and commodity prices, limiting Bangladesh’s ability to absorb further shocks.

“The economy is now facing a global trade shock,” he said, noting that import costs have risen sharply while access to essential goods has become increasingly difficult. Even if geopolitical tensions ease, prices are unlikely to return to pre-war levels anytime soon, he added.

Hussain explained that Bangladesh is paying more for imports but receiving less in return, resulting in a net income loss. “The key question is how we will absorb these losses,” he said.

He added that policy choices are increasingly constrained by limited fiscal space.

“Except for foreign exchange reserves, most buffers are nearly exhausted,” he said, noting that inflation remains above 9 percent and the banking sector is under severe stress.

He said the economy is now facing stagflation -- high inflation, low growth and weak shock absorption capacity -- while election promises and the new government’s budget plans are increasing pressure to raise spending.

“How do we balance these conflicting pressures?” he asked.

LIMITED SPACE FOR EXPANSIONARY BUDGET

Hussain said printing money is not a viable option because inflation is already high and could rise further.

“If inflation were very low, money financing might have been considered, but that is not the case,” he added.

He also said domestic borrowing is constrained as interest rates are already high, with businesses facing double-digit lending rates. Higher government borrowing would push rates up further and restrict private credit.

A large portion of the budget is already locked into mandatory spending.

IMF projections suggest interest payments could reach Tk 1.7 lakh crore in FY27. In FY26, salary expenditure is close to Tk 85,000 crore, while pension payments exceed Tk 35,000 crore.

“These are mandatory costs that are difficult to reduce,” he said, adding that many development projects are already in advanced stages and cutting them would waste past investment.

World Bank studies show that 70 to 80 percent of Bangladesh’s public spending is pre-committed, compared to 50 to 60 percent in other lower-middle-income countries and 40 to 50 percent in better-governed Asean economies.

With inflation eroding purchasing power and weak real wage growth, Hussain said tax revenue cannot rise sharply. Bangladesh typically struggles to collect even Tk 4.5 lakh crore.

Given the constraints, he said, “If we respect these constraints -- no money printing, limited domestic borrowing, large fixed expenditures, and rising interest costs -- then a realistic revenue target would be around Tk 5 lakh crore, with a deficit of about Tk 3 lakh crore.”

“That would put the maximum feasible budget size at roughly Tk 8 lakh crore.”

He warned that financing even this deficit would be challenging. Domestic borrowing needs could exceed safe limits unless external financing rises significantly.

Net external financing may need to reach Tk 1.1 lakh crore, while domestic borrowing of around Tk 1.9 lakh crore would still pressure financial stability.

“For this reason, the overall budget size would need to remain tighter,” he said.

He added that concessional financing from the World Bank, ADB, IMF, JICA and other development partners could allow a slightly larger budget without stressing domestic banks.

“Even so, under realistic assumptions, I do not see the government implementing a budget much beyond Tk 7.5 to Tk 8 lakh crore,” he said.

STRUCTURAL REFORMS OVER SPENDING PUSH

On the IMF programme, Hussain said challenges go beyond subsidy cuts or electricity price adjustments.

Key reforms in tax policy, exchange-rate management, banking sector restructuring, Bangladesh Bank governance, and separating the National Board of Revenue remain incomplete.

“I don’t think simply increasing electricity prices will bring the IMF programme back on track,” he said.

Hussain said Bangladesh no longer has the option to prioritise either inflation control or growth.

The problem, he said, is supply-side constraints rather than weak demand.

“If you don’t have diesel, LNG, or fertiliser, higher government spending will not increase growth,” he said. “Instead, it will mostly lead to higher prices or exchange rate pressure.”

He said the budget should prioritise resilience by protecting food security, energy security, healthcare, and social protection.

“You cannot cut spending on vaccinations, medicines, schools, or support for the poor and vulnerable,” he said.

However, he warned against broad subsidies that often benefit higher-income groups more than those in need.

Hussain said low tax collection is mainly due to a complex tax system and weak administration.

Multiple VAT and customs duty rates, he said, create corruption risks and revenue leakage.

“If the rate structure is simplified and the tax system is automated, revenue can increase without adding pressure on taxpayers,” he said.

He called for urgent reforms in energy, banking, ports, regulation and skills development.

Bangladesh has around 30,000 megawatts of installed power capacity, while peak summer demand is about 18,000 megawatts.

“The problem is not power generation capacity,” he said. “The real issues are fuel supply and limitations in the transmission grid.”

He also highlighted inefficiencies in ports, complex regulations, and weak vocational training.

“Bangladesh exports labour but imports skills,” he said.

Hussain said structural reforms, rather than higher spending, now offer the most practical path to improving investment, lowering costs, and stabilising the economy.

He said Bangladesh is still facing a global trade shock, with both import prices and volumes under pressure.

“Prices have increased, and even if you are willing to pay more, it is still difficult to get the required quantities, especially as global supply chains remain strained,” he said.

He concluded that Bangladesh needs a more productive economy driven by reforms, not a larger budget based on fragile borrowing.

“Without such reforms, the economy could remain stuck in repeated crisis management, while private investment confidence continues to weaken,” he said.

China and the United States agreed to continue implementing "all" agreements previously reached and to establish councils for trade and investment, Beijing's top diplomat said in a statement on Friday.

It comes after a two-day summit between Chinese President Xi Jinping and his US counterpart Donald Trump discussed a spate of thorny issues dividing the world's two largest economies from trade to the Middle East, as they met in Beijing where the US leader was feted with a temple tour and tea.
Trump touted "fantastic trade deals", announcing in interviews Chinese purchases of American soybeans and jets, but there have been no official announcements or details from either side.

After Trump's departure from China, Xi accepted an invitation from his US counterpart on Friday to visit the United States in autumn.

"The delegations of the two countries reached overall positive results, including continuing to implement all consensus reached in previous consultations (and) agreeing to establish a trade council and an investment council," Wang Yi said, according to a statement from the Chinese foreign ministry.

US Treasury Secretary Scott Bessent said in an interview with CNBC on Thursday the countries were in talks to establish a bilateral "board of trade" and "board of investment".

The two countries also agreed to "address each other's concerns regarding market access for agricultural products and promote expanding two-way trade within a framework of reciprocal tariff reductions", Wang said.

China and the US are in the middle of a year-long trade truce reached in October, where both sides agreed to slash tariffs on each other's goods that had exceeded 100 percent.

Eastern Bank PLC (EBL) posted a 28% year-on-year rise in consolidated net profit in the first quarter of 2026, driven by higher investment income and strong foreign exchange earnings, says a press release.

According to the bank's January-March financial statement, consolidated profit after tax rose to Tk199 crore from Tk155 crore in the same period last year.

Consolidated earnings per share increased to Tk1.24 from Tk0.97 a year earlier, while net asset value per share rose to Tk32.75 from Tk26.41.

EBL Managing Director Hassan O Rashid said the bank delivered resilient performance despite slower private sector credit growth.

"We continue to remain focused on maintaining strong asset quality, liquidity and capital strength while ensuring superior financial result for our shareholders." he added.

The bank's standalone non-performing loan ratio stood at 2.80%, almost unchanged from 2.79% a year earlier and well below the industry average.

EBL's standalone capital-to-risk weighted assets ratio was 16.71%, higher than the regulatory requirement of 12.5%.

By the end of March 2026, deposits grew 20% year-on-year to Tk56,207 crore, while standalone total assets rose to Tk76,961 crore.

The Bangladesh economy remained in a "fragile and uneven recovery phase" during the January–March quarter of FY2025–26, as persistent inflation, weak private investment, subdued industrial activity and external sector pressures continued to weigh on overall economic momentum, according to the Metropolitan Chamber of Commerce and Industry.

In its latest "Review of Economic Situation in Bangladesh" for Q3 of FY26, published yesterday (12 May), the business body said although the political and administrative instability that followed the transition period in late 2024 has eased considerably, the economy has yet to regain strong momentum.

"High living costs, cautious private sector sentiment and weak industrial expansion continued to weigh on overall economic performance," the report stated.

According to the review, economic growth during the January–March quarter remained modest due to slower export expansion, subdued private investment and the continuation of tight monetary policy aimed at containing inflation.

Restrictive credit conditions, elevated borrowing costs and high inflation continued to suppress domestic demand, business expansion and consumer spending during the quarter, the report said.

Despite the challenges, the chamber said strong remittance inflows continued to support the economy by stabilising foreign exchange reserves and partially offsetting the impact of a widening trade deficit.

Bangladesh's pharmaceutical industry may face major pressure after the country graduates from Least Developed Country (LDC) status, stakeholders warned.

They said many medicines currently produced under patent waiver facilities may no longer be manufactured without licences from international companies once those benefits end. This could raise production costs and push up medicine prices.

Experts said Bangladesh will struggle to remain competitive in international markets unless investment in research and development (R&D) increases.They also warned that next-generation medicines for cancer and other complex diseases could become unaffordable for ordinary people.
The issues were discussed today (13 May) at a workshop held at Pan Pacific Sonargaon Hotel in the capital. The inception workshop, titled "Strengthening Competitiveness and Innovation of the Pharmaceutical Industry for Sustainable Growth in the Context of LDC Graduation," was jointly organised by the Asian Development Bank (ADB) and the Health Economics Institute.

The keynote paper was presented by health economist Professor Dr Syed Abdul Hamid. He said Bangladesh is currently able to produce many generic medicines without licences from global companies, helping keep production costs low and prices affordable.

"The situation may change after LDC benefits expire," he said.

"Production of newly patented medicines would then require licences, compliance with international standards, and mandatory bioequivalence and biosimilar testing. Most local firms are not yet fully prepared for this, meaning tests may need to be conducted abroad, increasing costs," the professor added.

The Bangladesh Bank has reduced the penal interest rate on overdue loans to 0.5% from the previous 1.5%, offering borrowers additional relief in case of delayed repayments.

The central bank issued a circular in this regard today (13 May), instructing all scheduled banks to implement the decision with immediate effect.

Earlier, in a circular issued in May 2024, the central bank had fixed the penal interest rate at 1.5%.

According to the new circular, if a loan or instalment is classified as partially or fully overdue, banks will now be allowed to charge a maximum penal interest rate of 0.5% on the outstanding balance for continuous and demand loans, and on overdue instalments for term loans.

Bankers, however, criticised the move, saying higher penal interest rates are generally maintained to encourage borrowers to repay instalments on time.

They argued that reducing the penalty by 100 basis points could weaken repayment discipline and create additional pressure on banks.

Several bankers warned that the decision could further worsen the already rising volume of default loans in the banking sector.

A deputy managing director of a private commercial bank told The Business Standard that banks may respond by increasing regular lending rates.

"Currently, lending rates are around 14.5%. Due to the reduction in penal interest, some banks may raise rates to 15.5%, and ultimately the burden will fall on borrowers," he said.

A managing director of another private bank said the policy would put additional pressure on banks' profitability and could encourage habitual defaulters. "This kind of policy may encourage borrowers who already fail to repay loans regularly."

A senior official of a private bank said overdue loans already create operational and financial complications for banks, and the latest decision effectively lowers the cost of delayed repayment for borrowers.

He also noted that since 2024, Bangladesh has followed a three-month overdue classification timeline in line with international practices, although some business groups have demanded extending the period to six months.

"That would be completely inappropriate and could increase default loans further," he said.

The official added that banks will eventually have to fully comply with IFRS 9, which would make risk management stricter. "Good businesses do not seek these kinds of facilities. Responsible borrowers are already repaying banks on time."

Remittance disbursement through agent banking outlets in Bangladesh is growing because of their rising popularity as rural households find the service convenient.

During the January-March period of 2026, agent banking outlets handled Tk 8,959.8 crore in inward remittances, posting a 15 percent year-on-year increase. Banks disbursed Tk 7,814 crore in remittances in the first quarter of 2025.
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The amount of remittance disbursement, a key pillar for net-importing Bangladesh, accounted for 7.4 percent of the country’s total remittance inflows during January-March 2026.

However, remittance inflows through agent banking were overwhelmingly concentrated in rural areas, according to the latest Bangladesh Bank quarterly report on agent banking statistics published yesterday.

The report said that of the total remittances received through agent banking outlets during the quarter, Tk 8,133 crore, or more than 90 percent, went to rural areas, while urban areas received Tk 826.6 crore, which was less than one-tenth of the amount.

The BB said remittances received in rural areas through the agent banking channel were 9.8 times higher than those received in urban areas.

The central bank earlier said agents were contributing significantly to remittance disbursement since customers were able to receive doorstep banking services within the shortest possible time.

“Agent banking operations in remote areas remove the gap created by the insufficient presence of bank branches, thereby enhancing accessibility to financial services for marginalised communities,” said the BB’s latest report.

Agent banking provides an efficient and cost-effective alternative to traditional branch banking, enabling broader access to financial services and facilitating economic development.

The BB said 30 scheduled banks were operating agent banking services through 20,339 active outlets. On average, each outlet serves approximately 8,551 people in Bangladesh.

More than 85 percent of the outlets are located in rural areas, highlighting banks’ focus on extending formal financial services beyond urban centres.

As such, agent banking transactions remained heavily rural-centric.

During January-March 2026, agent banking outlets handled transactions worth Tk 1.43 lakh crore, mostly in rural areas, said the BB, which introduced agent banking in 2013 as an alternative delivery channel to expand banking services in remote and underserved regions.

The BB report said that at the end of March 2026, total deposits held through agent banking accounts stood at more than Tk 50,560 crore, marking an 18.6 percent increase from a year earlier. Rural areas accounted for Tk 41,695 crore of the deposits.

Deposit growth was higher in urban areas than in rural areas.

At the end of March 2026, total outstanding loans stood at Tk 11,906 crore, with urban areas accounting for 37 percent of the total outstanding amount.

The BB data showed that outstanding loans were nearly one-fourth of the total deposit balance at agent banking outlets.

The BB also highlighted growing female participation in agent banking activities.

The central bank said that in March 2026, the number of female-owned agents increased compared with March 2025, while deposit accounts owned by women increased noticeably.

“Both deposit and loan accounts for women increased,” said the report, adding that deposit accounts owned by women rose by 8 percent in March from a year earlier.

The Board of Directors of Bangladesh Bank (BB) has given primary approval to the liquidation of five Non-Bank Financial Institutions (NBFIs) that are struggling with massive loan defaults and an inability to repay depositors.
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The liquidation process for these institutions is expected to commence in July, according to sources privy to the decision made during a board meeting chaired by Governor Mostaqur Rahman on Tuesday.

The five institutions slated for liquidation are FAS Finance, Fareast Finance, Aviva Finance, People's Leasing and Financial Services, and International Leasing and Financial Services.

According to the central bank data, the non-performing loan (NPL) ratios of these institutions have reached critical levels, ranging from 93 per cent to nearly 100 per cent. Due to their prolonged failure to recover loans, they have been unable to honour withdrawal requests from depositors.

The central bank plans to shut down these entities under the Bank Resolution Act 2026. As part of the process, it will appoint one of its directors as an administrator for each institution, assisted by two additional officials. These institutions will eventually be declared defunct.

Central bank officials estimate that approximately Tk 50 billion will be required to return funds to individual depositors. The central bank reportedly moved forward with the liquidation decision after receiving positive assurances from the government regarding fund allocation in the upcoming national budget.

The Bank Resolution Act provides a framework for the merger, restructuring, or closure of financially distressed institutions and dictates how assets should be liquidated to pay off creditors.

The decision follows a lengthy review process. In May last year, the central bank issued show-cause notices to 20 NBFIs for high NPLs and failure to return deposits. Later, nine institutions with unsatisfactory recovery plans were earmarked for closure. That list was trimmed to six in January and finally to five, with Premier Leasing being excluded from the current final list.

The financial health of these entities, as of December last, paints a dire picture with FAS Finance having 99.99 per cent NPL ratio, International Leasing 99.44 per cent, Fareast Finance 98.50 per cent, People's Leasing 95 per cent and Aviva Finance 93.93 per cent NPL ratio.

Industry insiders attribute this collapse to years of systemic irregularities, corruption, and massive loan scams. Notably, disgraced businessman PK Halder is accused of embezzling at least Tk 35 billion from four institutions: People's Leasing, International Leasing, FAS Finance, and BIFC.

The finance ministry is struggling to manage the sharp rise in LNG subsidy costs after international gas prices more than doubled following the Iran war.

Subsidy demand for just the first two months after the conflict started equals to the Tk8,000 crore allocated for the whole fiscal year.

Finance Division officials said monthly subsidies for LNG imports have risen to between Tk4,100 crore and Tk4,200 crore since the war began. As invoices for spot market LNG must be paid within 15 to 17 days of delivery, subsidy payments have to be released quickly.

In April, Petrobangla's deficit from LNG imports stood at Tk4,220 crore. Against this, the ministry sought Tk4,200 crore in subsidies from the finance ministry. However, the finance ministry released Tk2,500 crore in April, which Petrobangla used to cover part of the import costs.

For May, the Energy and Mineral Resources Division wrote to the finance ministry on 7 May requesting another Tk3,500 crore in subsidies, citing plans to import 11 LNG cargoes during the month.

According to the letter, signed by Senior Assistant Secretary Rafiqul Islam, Bangladesh plans to import two cargoes under long-term contracts, one under a short-term contract, and eight from the spot market in May. Six cargoes are scheduled for the first half of the month and five for the second half.

The total cost of importing these 11 cargoes is estimated at Tk7,730 crore, while Petrobangla expects to earn Tk3,630 crore from sales. This would leave a deficit of Tk4,100 crore. Only Tk500 crore has been allocated for May subsidies, creating an additional funding need of Tk3,600 crore.

The Energy Division warned that failure to pay invoices on time would trigger late payment charges. It said delayed payments could also lead to extra premium charges on LNG purchases, increasing the deficit further.

The division has therefore requested the urgent release of Tk1,999 crore by 15 May and another Tk1,610 crore by 31 May in favour of Petrobangla to meet May's LNG subsidy requirements.

The Bangladesh Bank has issued the "CIBRR-1 Economic Development Sukuk", with total bids worth nearly 12.30 times the offered amount, reflecting strong investor demand for the latest government Islamic investment instrument.

According to a press release, the auction was held for the 8th Bangladesh Government Investment Sukuk, issued against the Rural Road Important Bridge Construction Project, with a face value of Tk5,900 crore and a tenure of 7 years. The Sukuk carries an annual lease return (rent rate) of 10.40%.

The central bank said a total of Tk72,597.94 crore in bids was submitted by a wide range of investors, including Islamic banks and financial institutions, Islamic banking branches and windows of conventional banks, individual investors, and provident funds. As the bids exceeded the issued amount by around 12.30 times, allocation was made on a proportional basis among investors.

For the first time, the Sukuk auction was conducted using the Bangladesh Bank's in-house digital platform, the Shariah Securities Module (SSM).

The central bank said the Sukuk issuance is enabling the government to channel liquidity from Shariah-based banks and financial institutions into development projects, while also creating alternative investment avenues for Islamic financial institutions.

It further noted that the instrument provides individual investors in the country with opportunities to invest in Shariah-compliant securities.

Banks and financial institutions will be able to use the Sukuk as part of their Statutory Liquidity Reserve (SLR), while Islamic banking branches and windows of conventional banks can use holdings of the Sukuk as collateral to access the Islamic Banks Liquidity Facility (IBLF) from Bangladesh Bank.

From 14 May 2026, Shariah-based banks, financial institutions, Islamic insurance companies, conventional banks and insurers, Islamic banking branches and windows, as well as individual investors, will be able to buy and sell the Sukuk in the secondary market, the central bank said.

In total, Tk441.62 crore worth of Sukuk was allocated against 1,011 successful bids from individual investors, provident funds, mutual funds and deposit insurance-related categories.

The Bangladesh Bank said the 8th government investment Sukuk is expected to play a positive role in improving rural infrastructure and socio-economic conditions in the project area through the development of bridges and rural roads.

United States (US) Ambassador to Bangladesh Brent T. Christensen has discussed expanding energy cooperation with leading American energy companies, reaffirming Washington's commitment to supporting Bangladesh's growing energy and infrastructure needs.

The envoy met Javier La Rosa, President of Chevron, to discuss ongoing cooperation in Bangladesh's energy sector, the US embassy in Dhaka said today (13 May).

The embassy said Chevron currently supplies nearly 60 percent of Bangladesh's natural gas, helping power homes, industries and economic activities across the country.

The US ambassador also held talks with Steven Kobos, president and chief executive officer of Excelerate Energy, on meeting Bangladesh's growing energy demand through American innovation and expanded LNG and energy infrastructure.

The discussions focused on delivering cleaner and more reliable energy to households and businesses, the embassy said.

The envoy recently led a delegation of 25 Bangladeshi business leaders to the SelectUSA Investment Summit in Washington, D.C.

Meanwhile, Assistant US Trade Representative Brendan Lynch recently visited Bangladesh and held meetings with government officials, business leaders, companies and labour organisations.

The two sides discussed ways to strengthen bilateral trade and investment ties through implementation of the US-Bangladesh agreement on reciprocal trade aimed at improving market access, removing investment barriers and expanding commercial opportunities.

United Finance PLC has reported a strong start to the 2026 financial year, with its net profit after tax surging by 31% during the first quarter of the year ending 31 March.

According to the company's financial results released today (13 May), the non-bank financial institution earned a net profit of Tk0.75 crore in the January-March period, up from the corresponding period of the previous year. This growth was largely attributed to improved operational efficiency and a steady expansion across its core business segments.

The significant bottom-line growth pushed the company's earnings per share (EPS) to Tk0.04 for the three months, compared to Tk0.03 in the first quarter of 2025. The company's net asset value (NAV) per share also saw a modest improvement, rising to Tk17.94 from Tk17.90 recorded at the end of the previous year.

Contacted, Mohammed Abul Ahsan, acting managing director of the firm, said that the results reflect the positive momentum built across the organisation.

He noted that the 31% surge in net profit, combined with healthy growth in both the loan portfolio and deposit base, reaffirms the strength of the company's diversified business model.

Ahsan added that the firm remains focused on delivering sustainable returns to its shareholders while maintaining excellence in customer service.

For generations, Bangladeshis began their mornings at wet markets, checking hilsa by the gills, poking gourds for tenderness and haggling over banana blossoms before heading home with heavy bags.

But rapid urbanisation and changing lifestyles have altered that routine. Few city dwellers now have time for early market trips, and many are no longer confident about selecting fresh fish.

Around 25 years ago, the country’s first superstores arrived to serve urban shoppers.

Over the years, modern retail followed a similar model across different chains, focusing on quality products, fresh groceries and convenience. With this recipe, the sector’s share of the wider market has remained at about 3 percent, or Tk 20,000 crore, over the past two and a half decades.

However, following a sales boost during the pandemic and the recent withdrawal of the additional value-added tax (VAT) on superstore purchases, more local and foreign firms are competing for a share of the retail segment with an estimated growth of 20 percent annually.

Unlike earlier models, many new entrants are adopting different approaches. For instance, Fresh Super Mart, a new brand from Meghna Group of Industries, has been opening stores at metro rail stations in Dhaka.

Like modern cities such as Tokyo and London, Fresh Mart says it is following footfall patterns rather than opening outlets only in residential neighbourhoods.

Currently, there are 30 major superstore brands in the country, according to the Bangladesh Supermarket Owners Association.

The sector basically started in the major cities, but franchise models from ACI’s Shwapno and Pran Group’s Daily Shopping have pushed it into some upazila towns.

Many urban consumers now buy monthly groceries, including rice, vegetables, fish, meat and household goods, from superstores. However, most still combine supermarket visits with traditional wet market shopping, especially for fresh produce.

Roksana Afroz, a resident of Dhaka’s Badda area, said she mainly buys products that are easier to find in superstores than in local shops. “In grocery stores, there is usually a limited variety of packaged goods and the brands are limited to a few specific ones. However, super shops make a wider range of products easily available.”

“Since I do not have to pay extra VAT, I can buy products at the same price, and sometimes even get discounts. In some cases, certain vegetables are also cheaper than in the market, and there is no hassle of bargaining,” she added.

She also said imported goods offer added assurance in superstores. “Additionally, for imported products, the importer’s seal ensures confidence and allows for safe purchases.”

Shahjahan Ali, a resident of Mirpur in Dhaka, said he uses both superstores and kitchen markets depending on need. He said superstores offer more stable pricing.

As an example, he said edible oil prices recently increased by Tk 10 to Tk 20 per litre in the open market without notice, while superstores continued selling at earlier rates.

He added that superstores save time as most essentials are available under one roof. However, he still prefers traditional markets for vegetables and leafy greens.

PROMISE OF CONVENIENCE, QUALITY AT THE CENTRE

The country’s first retail chain, Agora, was established in 2001 by Rahimafrooz Superstores Ltd. Its tagline was “Quality you can trust”.

A year later, Gemcon Group launched Meena Bazar, promising freshness to everyday life.

Shwapno, now the market leader with 902 outlets and a 53 percent share of modern retail, was launched by ACI in 2008. Its slogan is “best shopping with your hard-earned money”.

Pran introduced Daily Shopping in 2014, focusing on convenience. Since then, the sector has expanded steadily, with new outlets opening regularly.

During the pandemic, supermarket sales received an additional boost as online delivery services gained popularity.

Sabbir Hasan Nasir, managing director of Shwapno, said most consumers in Bangladesh prefer to shop close to home. Therefore, the company follows a neighbourhood-based model through multiple retail formats.

Nasir said Shwapno has expanded from 37 outlets in 2012 to 902 outlets at present, with rapid growth after the Covid pandemic.

Pran’s Daily Shopping began in January 2014 with just seven outlets and 30 employees in Dhaka. Initial investment stood at about Tk 1 crore, said Firoj Alam, general manager of Daily Shopping.

The chain has now expanded to 112 outlets and plans to open about 35 more.

Alam said the growth shows changing consumer habits. The company now employs about 1,000 people, with total investment rising to around Tk 90 crore.

He said superstore usage has increased from less than 1 percent of the population to about 3 percent, and could rise to 6 percent as incomes grow and habits change.

Pricing transparency is one of the key reasons customers choose superstores, according to Alam.

“Another advantage is customers enjoying greater freedom. In traditional wet markets, vendors select products for buyers, but in superstores, customers can personally choose and inspect the products they want,” he said.

He added that the removal of the 5 percent value added tax on superstore purchases has made organised retail more competitive and accessible.

Shameem Ahmed Jaigirder, chief operating officer at Meena Bazar, said they wanted to build a direct and sustainable link between small farmers and consumers.

“We still want to empower farmers by ensuring fair value for their produce while delivering fresher and safer products to customers. Our ‘Back to Root’ initiative shows our long-term commitment to strengthening local agriculture and building a more transparent food supply chain,” he said.

GROWING MARKET DRAWS FOREIGN INVESTMENT

As modern retail gains popularity, foreign firms are taking notice, either through joint ventures with local brands or by opening outlets directly.

This year, Shwapno has signed a partnership with Japan’s Mitsui & Co Ltd. The partnership is meant for reducing financing costs and improving services.

Separately, Indonesian retail giant Alfamart entered Bangladesh in October 2025. In a joint venture with Kazi Farms Group, it launched a chain of compact superstores targeting urban and semi-urban consumers.

Japan’s Mitsubishi Corporation is one of Alfamart’s existing shareholders. The first phase of the project involves foreign investment of $50 million, followed by a further $70 million in a second phase.

“So far, we have opened one store in Gulshan and another in Uttara,” said Kazi Zahin Hasan, director of Kazi Farms Group.

Firoj Alam of Daily Shopping said rising competition from local and international brands is a positive development. “We see this competition positively because it prevents monopolies, encourages service improvement, and gives customers better choices in terms of quality and pricing,” he said.

MEGHNA NOW OPENING STORES BY RAIL TRACKS

As competition intensifies, retailers are rethinking how and where they operate. Instead of waiting for shoppers, many are moving closer to high-footfall urban spaces.

Under an agreement with the Dhaka Mass Transit Company Limited, Meghna Group Industries (MGI) will run nine Fresh Super Mart outlets at metro stations for five years from January 2026.

The locations include Motijheel, Bangladesh Secretariat, Dhaka University, Mirpur 10, Mirpur 11, Pallabi, Uttara Centre and Uttara North stations.

Tanveer Ahmed Mostofa, director of Meghna Group Industries, said the stores will offer a modern retail environment focused on daily essentials, including dairy, frozen foods, groceries, household items, health and beauty products, café items, ready-to-eat food and over-the-counter pharmacy goods.

He said metro stations have become key retail points due to heavy commuter traffic. “Thousands of commuters pass through daily, often needing quick purchases.”

Mostofa said that MGI wants to build a neighbourhood-style retail experience rather than large destination supermarkets.

“We are not building a destination superstore. We are creating a network of small-format stores suited to how the city moves today; quick breakfast and coffee on the way in, essentials on the way home, and a familiar face at the counter,” he said.

The group already runs four outlets at Tejgaon, Meghnaghat and the Meghna Industrial Zone, with another planned at its Gulshan office.

Meghna data shows outlets at Dhaka University and Mirpur 10 are showing promising sales.

Md Deen Islam, in-charge of the Dhaka University metro station outlet, said the store carries about 30 product categories and has seen consistent sales since opening.

He said there are two peak periods each day. The first runs from 8am to 12pm, driven by office workers, students and commuters. The second runs from 4pm to 8pm, as people return home.

Islam added that the outlet has developed a base of repeat customers, particularly for snacks, desserts and ready-to-eat items. “A significant portion of our customer base, nearly 40 percent, consists of Dhaka University students, which reflects the strong connection between the outlet and the campus community,” he said.

Fitch Ratings has revised its outlook on Bangladesh to “negative” from “stable”, citing rising external financing pressures and macroeconomic vulnerabilities linked to exposure to the Middle East conflict.

The global ratings agency kept Bangladesh’s long-term foreign-currency issuer default rating (IDR), which measures the ability to service foreign-currency-denominated debt over time, unchanged at B+.

“The Middle East conflict creates significant downside risks, particularly through the supply and cost of energy imports and remittances,” Fitch said in a statement yesterday.

Nearly half of the country’s remittances come from the Middle East, while crude oil and petroleum products together account for almost 15 percent of imports, worth about $10 billion in 2025.

“Strong remittances so far in financial year 2026 provide near-term support to external finances; however, uncertainty regarding the conflict’s duration poses substantial downside risks,” said Fitch, an American-British credit rating agency.

In July 2025, S&P Global, another member of the “Big Three” global credit rating agencies, said Bangladesh’s long-term outlook was stable and kept the country’s foreign and local currency sovereign credit ratings at B+.

Fitch, which kept its outlook on Bangladesh stable in May last year, said in the latest statement that limited progress in reforms to address weaknesses in the policy framework, public finances and financial sector, along with continued weak institutional governance, would gradually erode the economy’s capacity to absorb shocks.

“The ratings reflect moderate government debt and access to concessional external financing, balanced against a still relatively weak external liquidity position, governance standards lower than those of peers, significant financial sector challenges, and lagging structural metrics compared with peers,” Fitch said.

It said Bangladesh has relatively low external buffers, with foreign exchange reserves standing at $29.5 billion in March 2026, equivalent to about four months of external payments.

The agency cautioned that wider current account deficits, stronger domestic demand for foreign currency or reduced external financing due to uncertainty around the IMF programme could renew pressure on the currency and reserves.

“Reform outlook uncertain,” it said, citing rising uncertainty over the new government’s willingness to push through changes.

Fitch said Bangladesh’s low government revenue-to-GDP ratio remains a key fiscal weakness, falling to 7.9 percent in fiscal year 2024-25 from 8.3 percent a year earlier.

Revenue collection is constrained by large tax exemptions, weak tax administration and poor compliance, contributing to wider fiscal deficits. The agency projected a budget deficit of 3.6 percent of GDP by 2027.

“Inflationary pressures are high, due partly to a shortage of essential commodities,” Fitch said, adding that price rises in petroleum and liquefied petroleum gas could fuel inflation further.

The agency expected that overall inflation would remain around 9 percent in fiscal year 2027.

Bangladesh economy is projected to grow by 3.7 percent in FY26 and 3.5 percent in FY27.

“Prolonged high energy prices and rising global uncertainty could further weaken growth. Ready-made garment exports are declining due to redirected orders following reciprocal tariffs, weaker global demand, and higher domestic production costs.”

Fitch said banking sector vulnerabilities remain elevated, particularly among state-owned banks, and warned that the non-performing loans ratio could rise once regulatory forbearance measures are withdrawn, creating contingent liability risks.

“This remains a source of contingent liability if credit stress intensifies.”

The agency expects Bangladesh’s public debt to stabilise at about 38 percent of GDP over the medium term. However, it mentioned that risks remain from potential liabilities in the banking sector, debt of state-owned enterprises and higher borrowing costs.

Fitch also noted that the interest-revenue ratio has been rising and reached about 29 percent, more than double the median of 14 percent as of the end of 2025, adding further pressure on public finances.

Bangladesh’s pharmaceutical industry could face major challenges after graduation from least developed country (LDC) status due to weak research capacity, reliance on imported raw materials, and the possible loss of patent waivers, which could raise medicine prices, according to experts.

“Recent studies have raised concerns about Bangladesh’s pharmaceutical sector ahead of the post-LDC graduation period, particularly its weak research and development capacity,” said Syed Abdul Hamid, professor at the Institute of Health Economics at the University of Dhaka.

He made the remarks yesterday while presenting the keynote at a workshop titled “Strengthening pharmaceutical industry competitiveness and innovation for sustainable growth in the context of LDC graduation”.

The workshop was jointly organised by the Institute of Health Economics, the health ministry and the Asian Development Bank (ADB) at the Pan Pacific Sonargaon Dhaka.

Citing a Centre for Policy Dialogue study, he said that “only 3.4 percent of total investment in the sector goes to research and development,” adding that many firms are more interested in buying patent rights after the TRIPS waiver expires than investing in innovation.

Hamid warned that “medicine prices, especially for patented drugs, could rise sharply once Bangladesh loses the waiver benefits,” as local manufacturers would no longer be able to reverse-engineer patented medicines without licences.

He also said that demand for advanced medicines for cancer, respiratory illnesses and other complex diseases would further intensify the challenge.

He further noted the sector’s heavy dependence on imported active pharmaceutical ingredients (APIs), stressing the need for stronger research and development, closer industry–academia collaboration, implementation of the API Industrial Park, and regulatory reforms.

Rashed Al Mahmud Titumir, finance and planning adviser to the prime minister, said the pharmaceutical industry is “at a critical stage” as the country prepares for LDC graduation and works towards becoming a $1 trillion economy by 2034.

He said the wider economy is facing pressure from high inflation, depreciation of the taka against the US dollar, and a worsening business environment that has slowed production and investment.

“The old model will not work anymore,” he warned, calling for an investment-led growth strategy focused on diversification, productivity and competitiveness.

He also criticised what he called years of “regulatory capture” in the pharmaceutical sector, alleging that powerful business interests have distorted competition and weakened institutions.

“The industry must be a price taker, not a price maker,” he said, stressing the need for an independent regulator and stronger oversight.

Titumir also questioned why global agencies such as the World Health Organization and Unicef still do not procure medicines from Bangladesh. He said the country must strengthen regulatory standards and the Directorate General of Drug Administration to expand access to global markets.

INVESTMENT, STANDARDS AND GROWTH PROSPECTS

Blaire Ng, investment specialist at the ADB, said Bangladesh’s pharmaceutical industry still faces “major challenges”, particularly in research and development, dependence on imported APIs, and compliance with international manufacturing standards.

She said the key question is how Bangladesh can use its existing strengths to ensure sustainable growth after LDC graduation, adding that the country is well-positioned to benefit from global efforts to diversify pharmaceutical supply chains.

She described the sector as one of Bangladesh’s strongest areas for export diversification and industrial upgrading.

“The lesson for Bangladesh is that a crisis can become a critical moment for domestic transformation and stronger research and development capacity,” she said.

She added that the ADB is ready to support Bangladesh through policy reforms, infrastructure development, regulatory support, technical assistance and financing for pharmaceutical projects and companies.

Akhira Matsunaga, officer-in-charge of the ADB, said Bangladesh’s pharmaceutical industry has strong potential to deepen its integration with regional and global markets.

He said continued investment will be crucial during and after LDC graduation, helping Bangladesh benefit from opportunities in industry upgrading, innovation, technology transfer, investment expansion, and production of higher-value pharmaceutical products.

“There is strong potential for Bangladesh’s pharmaceutical sector to develop further into a competitive regional and global industry, while also contributing to broader economic diversification and resilience,” he said.

Sheikh Momena Momi, additional secretary of the WH Wing at the Health Services Division, said she hoped the assessment would help identify needed reforms, improve investment readiness, and strengthen the pharmaceutical sector’s capacity for innovation.

“With coordinated efforts and continued collaboration, Bangladesh’s pharmaceutical industry can strengthen its position in regional and global markets,” she said.

Md Enamul Haque, director general of the Health Economics Unit at the ministry, said Bangladesh spent nearly Tk 39,000 crore on medicines in 2020, which accounted for almost half of total healthcare spending.

He said the highest expenditure was on medicines for musculoskeletal, cardiovascular, and gastrointestinal diseases, and noted that irrational drug use and self-medication remain major concerns.

He warned that medicine costs could rise further after Bangladesh graduates from LDC status, increasing pressure on households that already face high out-of-pocket healthcare expenses.

Most listed banks posted higher profits year-on-year in the first quarter this year, buoyed by higher gains from investments in government securities.

While interest income grew during the period, interest payments to depositors and lenders also jumped due to higher deposit rates, squeezing net interest income. In such a situation, higher gains from T-bonds and T-bills offset the decline in net interest income and boosted lenders' profits.

As of Wednesday, some 23 banks had published financial data for January-March (the first quarter) this year, out of 36 listed banks (five banks are under a merger process).

Of them, 12 reported year-on-year profit growth, five saw their profits decline, three endured an increase in losses and the results of another remained almost flat, while Islami Bank entered the red again in the March quarter, according to the unaudited financial statements of the lenders.

The top performers include BRAC Bank, City Bank, Dutch-Bangla Bank, Uttara Bank, Jamuna Bank, Midland Bank, Mutual Trust Bank, NRB Bank, Shahjalal Islami Bank, Southeast Bank and United Commercial Bank. They posted growth ranging from 6.5 per cent to 194 per cent.

Among them, BRAC Bank posted the highest profit of Tk 6.96 billion, followed by Dutch-Bangla Bank with Tk 2.61 billion, City Bank with Tk 2.41 billion, Prime Bank with Tk 2.08 billion, Eastern Bank with Tk 1.99 billion and Southeast Bank with Tk 1.32 billion in the January-March quarter this year.

BRAC Bank's consolidated profit jumped 44 per cent year-on-year in January-March this year, buoyed by substantial earnings from investments and contributions from subsidiaries.

The leading bank's net interest income grew 21 per cent year-on-year to Tk 4.98 billion while investment income jumped 36 per cent, leading to impressive profit growth.

Dutch-Bangla Bank's profit climbed a whopping 195 per cent despite a 3 per cent year-on-year growth in net interest income. Its investment income grew 41 per cent, helping it achieve higher profits year-on-year.

City Bank's net profit more than doubled year-on-year to Tk 2.41 billion in the March quarter, driven by growth across core income streams.

"While I am happy with such a strong increase in profit, I am equally concerned about the sharp slowdown in credit growth in the first quarter," said City Bank Managing Director and Chief Executive Officer Mashrur Arefin in a statement.

"The direction in which credit growth in our sector is heading is, quite frankly, a matter of great concern," he said.

Improved asset quality helped optimise provisioning levels, further supporting City Bank's bottom line.

City Bank's income from loans rose 14 per cent year-on-year to Tk 1.30 billion, while investment income grew more sharply, climbing from Tk 6.03 billion to Tk 10.14 billion and accounting for 32 per cent of total operating income.

Eastern Bank reported a 28 per cent year-on-year growth in earnings in the March quarter, supported by strong investment income, higher foreign exchange earnings and lower provisioning.

"We continue to remain focused on maintaining strong asset quality, liquidity and capital strength while ensuring superior financial results for our shareholders," said Hassan O. Rashid, managing director of EBL, in a statement.

With private-sector credit demand slowing, EBL channelled a larger share of its funds into government securities rather than loans. It maintained strong asset quality, with its non-performing loan (NPL) ratio standing at 2.8 per cent on a standalone basis as of March this year, almost unchanged from 2.79 per cent a year ago and significantly below the industry average.

Akramul Alam, head of research at Royal Capital, said the well-performing banks have always been able to keep operating costs down and mobilise funds at relatively low costs, riding on their excellent market reputation.

The trusted banks also witnessed deposit migration as clients of weak banks transferred their funds to well-governed banks, he said.

As private-sector credit demand remained weak amid persistent economic uncertainties, banks with high liquidity preferred to invest their excess funds in risk-free government securities and reaped handsome returns.

"Banks with low bad loans could invest more in Treasury bonds. These returns were risk-free and fully secured, requiring no provisions, which supported their profit growth," Mr Alam added.

During the same period, some banks suffered due to poor asset quality and substantial bad loans, forcing them to set aside huge amounts of provisions.

The bad loans that the banks had tucked away by taking advantage of the political clout of the Awami League-led regime have come to light since the 2024 political changeover.

"If a bank has a high volume of bad loans, it cannot earn interest income from them. Moreover, it has to keep provisions against the loans from profits, hitting the bottom line," Alam explained.

For example, National Bank's financial woes deepened as the bank's losses increased by a massive 410 per cent year-on-year to Tk 11.33 billion in the first quarter ended March this year.

AB Bank's losses escalated 223 per cent year-on-year to Tk 8.25 billion while IFIC Bank's losses soared 72 per cent year-on-year to Tk 8.61 billion in January-March this year.

Islami Bank entered into fresh losses of Tk 2.88 billion in January-March, against profits of Tk 298 million in the same quarter last year, due to higher provisioning requirements and a negative net interest margin.

Bangladesh Bank has reduced the maximum penal interest rate on overdue loans and loan instalments to 0.5 percent from 1.5 percent to support investment and boost productivity amid ongoing global economic challenges.

The central bank issued a circular on this decision yesterday.

Under the revised instruction, if a loan or instalment remains fully or partially overdue for a certain period, banks will be allowed to charge a maximum penal interest of 0.5 percent for the duration of the overdue period.

For running and demand loans, the penal interest may be applied to the entire outstanding amount. For term loans, it will apply only to the overdue instalment. Earlier, banks were allowed to charge up to 1.5 percent penal interest on overdue loans and instalments.

The central bank said the decision was taken in view of the current global economic situation and to encourage investment and improve productivity.

All other instructions will remain unchanged, the circular added. All other instructions will remain unchanged, the circular added. Actions already taken under the previous circular will also remain valid.

The directive came into immediate effect and was issued under Section 29(2)(c) of the Bank Companies Act, 1991.

The government yesterday fixed the price of rawhide to be generated during the upcoming Eid-ul-Azha, with the price of salted cowhide in Dhaka increased by Tk 2 per square foot (sqft) from last year.

The price of salted cowhide in Dhaka have been set at Tk 62 to Tk 67 per square foot, up from last year’s Tk 60 to Tk 65.

Outside Dhaka, the price of cowhide has been fixed at Tk 57 to Tk 62 per square foot, compared to last year’s Tk 55 to Tk 60, according to a statement from the Commerce Ministry.

Commerce Minister Khandakar Abdul Muktadir announced the new rates at a press conference at his secretariat office in Dhaka following a meeting of the committee formed to ensure proper management of Qurbani-related matters.

The prices have increased by Tk 2 per square foot (sqft) compared to last year
The price of salted goat skin has been set at Tk 25 to Tk 30 per square foot, while she-goat skin will cost Tk 22 to Tk 25 per square foot.

The minister also said the government will provide salt worth Tk 17.60 crore free of cost for preserving hides.

Leather preservation activities will be carried out across the country by traders, mosques and madrasas.

He added that the government is working to ensure that no hides are wasted during the upcoming Eid festival.

District and upazila administrations will provide training to representatives of mosques and madrasas so they can properly preserve the hides of sacrificial animals.

Global oil supply will not meet total ‌demand this year as the Iran war wreaks havoc on Middle East oil production, the International Energy Agency said in its monthly oil market report on Wednesday.

The US and Israel’s war with Iran, subsequent damage to Iran and its Gulf neighbours’ oil infrastructure and the effective closure of the Strait of Hormuz ​have caused the largest oil supply crisis in history, sending oil prices skyrocketing.

“Our latest supply and demand estimates imply that the market will remain severely undersupplied through the end of 3Q26, even assuming the conflict ends by early June,” the Paris-based agency said, adding that the second-quarter deficit will be as stark as ​6 million bpd.

The IEA’s base-case forecast is for a gradual resumption of traffic through the strait from the third quarter onwards, it ​said, which could see the market return to a “modest surplus” by the fourth quarter, allowing depleted stocks to begin to rebuild.

Supply losses led to a ‌246 million barrel drawdown in global oil inventories in March and April, the IEA said, which could increase price volatility ahead of the peak summer demand period.

The 32-member IEA coordinated the largest-ever release of 400 million barrels of oil from strategic reserves in March in a bid to calm markets. It said around 164 million barrels of that total has already been released.

Overall global oil supply will fall by around ​3.9 million barrels per day ​across 2026 due to the ⁠war, the agency said, slashing its previous forecast, which had projected a 1.5 million bpd drop.

DEMAND ALSO UNDER PRESSURE FROM WAR

The IEA now sees demand falling by 420,000 bpd this year, compared to a ​previous forecast of an 80,000 bpd drop.

Consumption is also under pressure due to the war as ​price spikes lead ⁠to demand destruction and slower economic growth, it said.

Oil prices were little changed on Wednesday, with Brent futures trading at $106.93 at 0805 GMT, down 84 cents from the previous close and 1 cent higher than their level at 0759 GMT before the report was published.

The IEA said ⁠it will ​publish its first supply and demand forecasts for 2027 in its June report - ​a delay from April caused by the war - while its 2026 annual oil report will be delayed from June 17 with no new date yet set for its ​release.

Later on Wednesday, rival forecaster OPEC will publish its own monthly oil market report.