The World Bank has revised its forecast for Bangladesh’s economic growth, projecting a 3.9 per cent increase for the 2025-26 fiscal year, a significant drop from its previous estimate of 4.6 per cent before the outbreak of the Iran-Israel war.
The latest Bangladesh Development Update, released on Wednesday, also adjusted expectations for poverty alleviation, forecasting that only 0.5 million people will escape poverty in FY26, a sharp decline from the earlier projection of 1.7 million, had the geopolitical crisis not occurred.
The persistent inflation, stagnant wage growth, and economic slowdown have pushed 5.9 million Bangladeshis below the poverty line in the past three fiscal years. The national poverty rate has increased to 21.4 per cent in 2025 from 18.7 per cent in 2022.
Jean Pesme, World Bank Division Director for Bangladesh and Bhutan, stressed that “resilience has underpinned Bangladesh’s growth story, but without decisive structural reforms, especially in revenue mobilisation, the financial sector, and the business environment, this resilience cannot last.”
He called for bold and immediate reforms to restore inclusive growth and improve employment opportunities.
Inflation remains a pressing concern, standing at 8.5 per cent for FY26, with food inflation peaking at 9.3 per cent in February 2026.
The price increases have eroded the purchasing power of low-income workers, worsening poverty levels.
The banking sector is under considerable strain, with the non-performing loan (NPL) ratio reaching 30.6 per cent in December 2025.
Many state-owned and Islamic banks are struggling with capital adequacy falling below regulatory thresholds, highlighting the urgent need for sector reforms.
Dhruv Sharma, Senior Economist at the World Bank, emphasised that improving the business environment is vital for sustaining growth and absorbing the growing workforce.
He added that reducing regulatory uncertainty, offering targeted deregulation, and fostering competition are key to unlocking private investment and creating jobs.
External pressures continue to weigh on the economy, with Bangladesh’s trade deficit widening, weak export growth, and lower remittance inflows, exacerbated by the geopolitical crisis.
While the adoption of a more flexible exchange rate regime has stabilised the taka, the country faces a growing current account deficit due to rising energy prices and weak exports.
The report highlights the urgent need for structural reforms in tax policy, financial sector stability, and business environment improvements.
Bangladesh’s tax-to-GDP ratio fell below 7 per cent in FY25, the lowest in 15 years, restricting the government’s ability to invest in critical sectors such as infrastructure and education.
The World Bank recommends comprehensive tax policy adjustments, financial sector stabilisation, and improvements to the business environment to support job creation and long-term growth.
It also calls for reducing regulatory burdens on small and medium enterprises (SMEs), enhancing electricity reliability, and strengthening competition policies.
While large export-oriented sectors like ready-made garments have been key growth drivers, SMEs continue to struggle with high regulatory costs, unreliable infrastructure, and limited access to finance, hindering private sector potential and job creation.
The labour market faces significant challenges, with job creation failing to match the growth of the working-age population. Between 2016 and 2024, the economy added 8.7 million jobs, but the working-age population grew by 14 million, creating an employment gap. Most new jobs have been concentrated in agriculture, reversing earlier trends of industrialisation.
The report also points to a sharp decline in women’s labour force participation, which fell from 42.8 per cent in 2022 to 38.4 per cent in 2024.
The labour market issues, combined with weak wage growth, have hindered poverty reduction efforts and left households vulnerable to future economic shocks, including those stemming from the Middle East conflict.
The conflict has contributed to rising inflation and limited job creation, straining the already fragile economy.
As Bangladesh navigates these challenges, the World Bank stresses the importance of immediate structural reforms, particularly in tax policy, banking sector stability, and fostering a more business-friendly environment.
The government must act swiftly to address these vulnerabilities and ensure that growth remains inclusive and sustainable despite global and domestic pressures, the World Bank stressed.
Without these critical reforms, Bangladesh faces the risk of prolonged economic struggles and a further deterioration of poverty levels, it added.
