Economic growth is projected to slow to 3.9% in the 2025-26 fiscal year, as persistent macroeconomic pressures weigh on the country, according to the latest Bangladesh Development Update released by the World Bank on Wednesday.
The report highlights a combination of challenges, including high inflation, a stressed banking sector, weak revenue mobilisation, and subdued private investment, all compounded by external shocks such as the ongoing conflict in the Middle East.
A prolonged conflict abroad could further intensify inflation, increase fiscal burdens through higher energy subsidies, and weaken the current account by raising import costs, reducing exports, and lowering remittances.
With limited foreign exchange buffers and tight fiscal and monetary conditions, Bangladesh has little room to absorb sustained external shocks, particularly affecting its most vulnerable populations.
Inflation is projected at 8.5% in FY26, eroding purchasing power as wage growth lags behind rising prices.
Poverty is also on the rise: the national rate climbed to 21.4% in 2025 from 18.7% in 2022, pushing an additional 14 lakh people into poverty. The World Bank noted that while 17 lakh people were expected to escape poverty this year, that figure has now dropped to just 5 lakh due to global uncertainties.
The financial sector remains under strain. Non-performing loans reached 30.6% in December 2025, and overall banking capital adequacy fell below regulatory requirements, leaving several banks vulnerable.
Although external sector pressures eased somewhat in FY25 and early FY26 due to strong remittance inflows and a more flexible exchange rate introduced in mid-2025, export performance remains vulnerable, and foreign direct investment continues to lag.
The country’s tax-to-GDP ratio fell below 7% in FY25 for the first time in 15 years, limiting fiscal capacity for development spending.
Despite these challenges, the World Bank said Bangladesh could achieve a stronger recovery with political stability following the 2026 elections and accelerated structural reforms.
The report calls for urgent measures to restore macroeconomic stability, strengthen the financial sector, boost revenue collection, and improve the business environment.
“Resilience has underpinned Bangladesh’s growth story. But without decisive structural reforms – especially in revenue mobilisation, the financial sector, and the business climate – this resilience cannot last,” said Jean Pesme, director of World Bank Division for Bangladesh and Bhutan.
The report also emphasised the need to support private sector-led growth.
While large export-oriented industries, particularly ready-made garments, continue to drive the economy, most small and medium enterprises face high regulatory costs, infrastructure constraints, and limited access to finance.
“Improving the business environment is central to sustaining growth and absorbing a rapidly expanding workforce,” said Dhruv Sharma, lead author of the report.
Regionally, South Asia’s growth is expected to slow to 6.3% in 2026 from 7% in 2025 due to global energy market disruptions, before rebounding to 6.9% in 2027.
Despite the slowdown, the region is projected to remain the fastest-growing among emerging and developing economies.
Johannes Zutt, World Bank vice president for South Asia, said countries in the region must implement critical reforms to sustain growth, create jobs, and build resilience against shocks.
The report also noted that while industrial policy is being widely adopted across South Asia, its outcomes have been mixed, reflecting constraints in implementation capacity and fiscal space.
Bd-pratidin English/ ANI
