BD needs urgent reforms to restore macro stability, growth : WB
Bangladesh’s economy faces significant challenges with slowing growth and rising poverty for three consecutive years, persistent inflation, stressed banking sector, weak revenue mobilization, and subdued private investment, which is further compounded by the headwinds from the conflict in the Middle East, said the World Bank in its new update, released on Wednesday.
The latest Bangladesh Development Update projects growth to slow to 3.9per cent in FY26.
A protracted conflict in the Middle East could have significant implications for Bangladesh, including higher inflation, reduced fiscal space from rising energy subsidies, and a weaker current account due to higher import costs, weaker exports, and lower remittances, said a press release.
With thin foreign exchange buffers, tight fiscal and monetary conditions, and a fragile banking sector, Bangladesh has limited capacity to absorb a prolonged shock and to mitigate its impact on its people, notably the most vulnerable.
However, sustained political stability after the 2026 elections and rapid progress on structural reforms can support a stronger recovery.
The report underscores the need for urgent policy and institutional reforms to restore macroeconomic stability, boost revenues, strengthen the financial sector, and improve the business environment so the country can create jobs and stay on the path to inclusive growth.
“Resilience has underpinned Bangladesh’s growth story. But, without decisive structural reforms, especially in revenue mobilization, the financial sector and the business environment, this resilience cannot last,” said Jean Pesme, World Bank Division Director for Bangladesh and Bhutan.
“Bold and immediate reforms will be essential to returning to a more resilient and inclusive growth path and creating more and better-paid jobs,” he expressed.
Inflation remained high at 8.5per cent in FY26, with both food and nonfood inflation elevated. Wages of low-income workers have not kept up with prices, reducing their purchasing power.
The national poverty rate increased to 21.4per cent in 2025 from 18.7per cent in 2022, adding 1.4 million more poor people in 2025. Prior to the conflict in Middle East, about 1.7 million people were projected to get out of poverty this year, but due to conflict, now only 0.5 million people can exit poverty.
Financial sector vulnerabilities remain high. The non-performing loan ratio stood at 30.6per cent in December 2025.
Capital adequacy fell in aggregate below the regulatory minimum, leaving several banks with limited loss-absorbing capacity, and highlighting the need for prompt and decisive action, according to the press release.
The Bangladesh Development Update is a companion piece to the South Asia Economic Update, the World Bank Group’s regional report that examines economic prospects and policy priorities across South Asia, also released yesterday.
South Asia’s growth is expected to slow to 6.3per cent in 2026-from 7per cent in 2025-due to disruptions in global energy markets. Growth is projected to recover to 6.9per cent in 2027.
Despite the near-term slowdown, South Asia continues to grow faster than other emerging-market and developing economies.
