After its independence from Pakistan, Bangladesh followed a socialist economy by nationalising all industries, proving to be a critical blunder undertaken by the Awami League government. Some of the same factors that had made East Bengal a prosperous region became disadvantages during the nineteenth and twentieth centuries. As life expectancy increased, the limitations of land and the annual floods increasingly became constraints on economic growth. Traditional agricultural methods became obstacles to the modernisation of agriculture. Geography severely limited the development and maintenance of a modern transportation and communications system.
The partition of British India and the emergence of India and Pakistan in 1947 severely disrupted the economic system. The united government of Pakistan expanded the cultivated area and some irrigation facilities, but the rural population generally became poorer between 1947 and 1971 because improvements did not keep pace with rural population increase. Pakistan's five-year plans opted for a development strategy based on industrialisation, but the major share of the development budget went to West Pakistan, that is, contemporary Pakistan. The lack of natural resources meant that East Pakistan was heavily dependent on imports, creating a balance of payments problem. Without a substantial industrialisation programme or adequate agrarian expansion, the economy of East Pakistan steadily declined. Blame was placed by various observers, but especially those in East Pakistan, on the West Pakistani leaders who not only dominated the government but also most of the fledgling industries in East Pakistan.
Since Bangladesh followed a socialist economy by nationalising all industries after its independence, it underwent a slow growth of producing experienced entrepreneurs, managers, administrators, engineers, and technicians. There were critical shortages of essential food grains and other staples because of wartime disruptions. External markets for jute had been lost because of the instability of supply and the increasing popularity of synthetic substitutes. Foreign exchange resources were minuscule, and the banking and monetary systems were unreliable. Although Bangladesh had a large work force, the vast reserves of under trained and underpaid workers were largely illiterate, unskilled, and underemployed. Commercially exploitable industrial resources, except for natural gas, were lacking. Inflation, especially for essential consumer goods, ran between 300 and 400 percent. The war of independence had crippled the transportation system. Hundreds of road and railroad bridges had been destroyed or damaged, and rolling stock was inadequate and in poor repair. The new country was still recovering from a severe cyclone that hit the area in 1970 and caused 250,000 deaths. India came forward immediately with critically measured economic assistance in the first months after Bangladesh achieved independence from Pakistan. Between December 1971 and January 1972, India committed US$232 million in aid to Bangladesh from the politico-economic aid India received from the US and USSR. Official amount of disbursement yet undisclosed.
After 1975, Bangladeshi leaders began to turn their attention to developing new industrial capacity and rehabilitating its economy. The static economic model adopted by these early leaders, however—including the nationalisation of much of the industrial sector—resulted in inefficiency and economic stagnation. Beginning in late 1975, the government gradually gave greater scope to private sector participation in the economy, a pattern that has continued. Many state-owned enterprises have been privatised, like banking, telecommunication, aviation, media, and jute. Inefficiency in the public sector has been rising however at a gradual pace; external resistance to developing the country's richest natural resources is mounting; and power sectors including infrastructure have all contributed to slowing economic growth.
In the mid-1980s, there were encouraging signs of progress. Economic policies aimed at encouraging private enterprise and investment, privatising public industries, reinstating budgetary discipline, and liberalising the import regime were accelerated. From 1991 to 1993, the government successfully followed an enhanced structural adjustment facility (ESAF) with the International Monetary Fund (IMF) but failed to follow through on reforms in large part because of preoccupation with the government's domestic political troubles. In the late 1990s the government's economic policies became more entrenched, and some gains were lost, which was highlighted by a precipitous drop in foreign direct investment in 2000 and 2001. In June 2003 the IMF approved 3-year, $490-million plan as part of the Poverty Reduction and Growth Facility (PRGF) for Bangladesh that aimed to support the government's economic reform programme up to 2006. Seventy million dollars was made available immediately. In the same vein the World Bank approved $536 million in interest-free loans. The economy saw continuous real GDP growth of at least 5% since 2003. In 2010, Government of India extended a line of credit worth $1 billion to counterbalance China's close relationship with Bangladesh.
Bangladesh historically has run a large trade deficit, financed largely through aid receipts and remittances from workers overseas. Foreign reserves dropped markedly in 2001 but stabilised in the US$3 to US$4 billion range (or about 3 months' import cover). In January 2007, reserves stood at $3.74 billion, and then increased to $5.8 billion by January 2008, in November 2009 it surpassed $10.0 billion, and as of April 2011 it surpassed the US$12 billion according to the Bank of Bangladesh, the central bank. The dependence on foreign aid and imports has also decreased gradually since the early 1990s. According to Bangladesh bank the reserve is $30 billion in August 2016.
In last decade, poverty dropped by around one third with significant improvement in human development index, literacy, life expectancy and per capita food consumption. With economy growing close to 6% per year, more than 15 million people have moved out of poverty since 1992.