The rapid expansion of Bangladesh’s informal economy, particularly in urban centres like Dhaka, is reshaping the country’s economic landscape.
Battery-powered rickshaws now dominate the streets, while mobile vendors briskly sell fruits, vegetables, and household essentials.
Street food stalls—offering delicacies like fuchka, muri, and pitha—have become a ubiquitous presence at nearly every street corner.
Yet, these businesses operate without trade licences or bank accounts, keeping them outside the government’s fiscal net and limiting potential tax revenues.
Over the past few years, the number of individuals engaged in such informal occupations has surged.
Economists categorise this segment as the ‘informal sector’—a rapidly expanding yet largely unregulated portion of the economy.
The latest Economic Census 2024 highlights a sharp rise in household-based economic activities, including cottage industries and makeshift street businesses.
According to the findings, the number of enterprises and entrepreneurs within this sector has grown by 78% over the past 11 years.
Data from the Bangladesh Bureau of Statistics (BBS) indicate that the country now hosts over 50 lakh informal businesses, alongside 1.16 lakh e-commerce and online enterprises.
The census further reveals that the workforce expands by 20 lakh individuals annually, with a substantial portion migrating abroad while another 5 lakh enter the informal sector.
Experts attribute this shift to a dearth of quality employment opportunities in the formal sector.
With limited openings in government offices and key industries such as banking, pharmaceuticals, garments, and telecommunications, the informal sector has become a default employment avenue.
Economic analysts caution that an expanding informal sector signals structural weaknesses in the economy.
While it absorbs a growing labour force, it lacks the stability, security, and labour rights associated with formal employment.
Moreover, Bangladesh’s tax-to-GDP ratio remains among the lowest globally, a direct consequence of the informal sector’s proliferation.
Without proper documentation and tax compliance, informal businesses contribute little to state revenues, limiting the fiscal capacity for public investment and social welfare.
Former lead economist at the World Bank’s Dhaka office, Zahid Hussain, notes that this trend has been evident since 2016.
“Despite official statistics showcasing economic growth, particularly double-digit expansion in the industrial sector, employment and production have not increased proportionally. Revenue collection as a share of GDP has declined, suggesting that taxable economic activities are not growing at the required pace. Currently, 85% of employment is generated within the informal sector,” he said.
A 2021 study by the Centre for Policy Dialogue (CPD) underscores the extent of revenue loss due to the informal economy.
In 2010, Bangladesh’s tax shortfall from informal enterprises was estimated at BDT 22,200 crore.
By 2021, this figure had quadrupled to BDT 84,223 crore. Economists label this a ‘shadow economy’—one that is difficult to quantify and nearly impossible to tax.
CPD Distinguished Fellow Mustafizur Rahman underscores the dual challenge posed by the informal sector.
“First, its growth reflects a structural weakness in our economy. Ideally, as a country progresses socioeconomically, its formal sector should expand, ensuring labour rights and economic stability. However, in Bangladesh, we see the opposite trend,” he explained.
“Second, with 85% of the workforce engaged in informal employment, opportunities for skill development, income security, and sustainable economic growth remain limited.”
The Economic Census 2024 further reveals a decline in the industrial sector’s share of economic enterprises. In 2013, manufacturing accounted for 11.54% of businesses; by 2024, this figure had dwindled to 8.77%.
Conversely, the service sector now dominates, comprising over 91% of enterprises—a rise from 88.46% in 2013. While retail, online commerce, and small-scale trade fall within this category, industrial production—traditionally a key driver of economic expansion—remains stagnant.
Economists emphasise that sustainable growth necessitates a stronger formal sector.
Institutional employment opportunities, if expanded, would enhance productivity, bolster government revenues, and provide long-term financial security for workers.
Experts urge policymakers to integrate the informal workforce into the formal economy through regulatory reforms, access to credit, and labour rights protection. Only then, they argue, can Bangladesh achieve a more resilient and equitable economic future.