Published: 12:00 AM, 22 April 2026
From Power Failures to Budget Shortfalls: Bangladesh's Energy Shortage Has Turned into Economic Crisis
Dr. Mohammed A Rab
In today’s Bangladesh, power failures are no longer merely a matter of discomfort but a symptom of deeper structural dysfunction within the country’s economy. According to the Asian Development Bank, power outages cost Bangladesh an estimated 1–2% of GDP annually, losses borne disproportionately by the manufacturers, farmers, and small businesses that form the backbone of the economy.
Wandering around Dhaka during a power outage, you can hear the noise of diesel generators. Entering any garment factory in the country, you can meet managers who express concern about their inability to meet the deadlines set by their clients. Finally, when you go into rural areas, you can find out how many residents of these regions are forced to adjust their lives to ensure access to electricity. While these issues seem separate and unrelated, they constitute a systemic problem affecting both the power industry and Bangladesh’s economy.
On the surface, the problem seems straightforward: Bangladesh lacks a sufficient energy supply. However, the situation in Bangladesh is more complex and warrants closer examination. Despite having considerable installed energy generation capacity, the country still experiences power shortages, mainly because of the nature of energy production and management.
Over the last decade, Bangladesh has increased its reliance on energy imports, especially liquefied natural gas and oil. This approach to energy generation worked well when international fuel prices were stable. However, the energy market has become highly volatile. Global shocks cause rapid price fluctuations, forcing countries to pay more and leaving them almost powerless to counteract unfavorable developments.
This is where the crisis shifts from energy-related to economic. Bangladesh pays for energy imports in US dollars, leaving the country vulnerable to fluctuations in foreign exchange reserves. Any decline in foreign exchange reserves reduces energy imports, leading to power shortages and, consequently, a slowdown in economic activity and growth.
Another important feature of Bangladesh’s power crisis, which remains underexplored, is the presence of power purchase agreements (PPAs). These agreements require regular payments to independent power producers based on the total volume of energy generated, regardless of actual consumption. This approach forces Bangladesh to pay more for energy and makes it harder to cover the cost of energy imports. As a result, the country faces a compounding fiscal strain: paying for electricity it cannot fully use while struggling to afford the fuel it needs.
The scenario described creates a vicious cycle: the government spends more on energy, which increases budgetary pressures, raises inflation, and ultimately deteriorates living standards, reduces employment, and undermines economic growth prospects.
Therefore, what steps could Bangladesh take to improve the existing situation?
First, the government needs to renegotiate the existing PPA contracts, which may be politically challenging. However, continued adherence to the current arrangements will only worsen the country's fiscal position.
Second, it should increase investment in renewable energy. While developing large-scale solar projects, Bangladesh can focus on rooftop solar plants in urban areas and solar irrigation systems in rural regions.
Third, it should restructure its energy pricing. Currently, energy subsidies cover all households, but their high cost reduces the policy's overall effectiveness. To address this issue, Bangladesh can introduce targeted energy subsidies that will cover only low-income households.
Fourth, the country needs to improve its electricity network infrastructure to reduce transmission losses and lower operational costs. This step is crucial for ensuring reliable electricity access and improving energy management.
Finally, Bangladesh must adopt a long-term, strategic approach to energy planning to reduce its vulnerability to volatile global fuel markets. This means moving beyond short-term fixes and building a diversified energy mix that balances domestic resources, renewable energy, and stable import arrangements. Overreliance on imported fuels such as LNG and oil exposes the economy to price shocks and foreign-currency pressures, making stability difficult to sustain.
In this context, regional energy cooperation offers a practical, forward-looking solution. Importing hydropower from neighboring countries such as Nepal and Bhutan can provide a reliable, cost-stable electricity supply. Unlike fossil fuels, hydropower is not subject to frequent price swings once infrastructure is in place, making it a more predictable option for long-term planning. Establishing cross-border transmission networks and securing long-term power purchase agreements can help Bangladesh access this resource efficiently.
While such initiatives require strong regional coordination and upfront investment, they can significantly enhance energy security and reduce economic risk over time. Diversifying energy sources in this way is not merely a policy choice - it is a necessary step toward building a more resilient and self-reliant economy.
All the proposed actions require significant effort and resources to implement effectively, but they are likely to help Bangladesh overcome the current energy crisis and stabilize its economy.
The key point is that energy is a fundamental pillar of industrial development and economic growth. Thus, the lack of reliable electricity access adversely affects economic activities and hinders further development.
Therefore, Bangladesh faces an important choice at this stage: it can ignore the ongoing crisis, treating it as merely an episode, or address the problem and develop effective strategies to chart a course toward lasting energy security and economic resilience.
Dr. Mohammed A Rab is based in the
United States of America. Views expressed
in the article are the writer’s personal opinions.
