Growth slows, poverty rises in Bangladesh: WB
Bangladesh’s economy is under mounting pressure as slowing growth, persistent inflation, rising poverty and financial sector fragility continue to weaken overall stability, according to the latest Bangladesh Development Update 2026 (till April) released by the World Bank (WB).
The report says the newly elected government, which assumed office in February 2026, inherited an economy facing “pronounced macroeconomic stress” with limited policy space to respond to both domestic and external shocks.
Growth has slowed sharply for three consecutive years, while inflation remains stubbornly high and the banking sector faces serious vulnerabilities.
The World Bank said Bangladesh’s real GDP growth fell to 3.5 percent in FY2025, the weakest performance since the Covid-19 pandemic and the third consecutive annual slowdown.
The slowdown was mainly driven by a 3.6 percent contraction in private investment—the first negative growth in private investment in 35 years—amid political uncertainty, high borrowing costs and banking sector weaknesses.
Public investment also remained modest, while exports rebounded and private consumption stayed relatively resilient due to strong remittance inflows.
For FY2026, the World Bank has revised down its growth forecast to 3.9 percent from an earlier projection of 4.6 percent, citing the combined effects of the Middle East conflict and persistent domestic macroeconomic challenges.
It warned that prolonged global instability could further weaken exports, reduce remittance inflows and increase import costs, especially for fuel and energy.
Inflation continues to remain a major concern.
Average inflation stood at 8.5 percent during July-February FY2026, while headline inflation rose to 9.1 percent in February this year.
High food and energy prices, import costs, supply-chain inefficiencies and election-related spending have kept both food and non-food inflation elevated.
The report notes that real wages for low-income workers have remained below inflation since May 2021, significantly reducing purchasing power and worsening household welfare.
Poverty has also worsened. National poverty is projected to have risen for a third consecutive year—from 18.7 percent in 2022 to 21.4 percent in 2025.
At the international poverty line of US$3 a day, around 1.4 million additional people are estimated to have fallen into poverty during the same period.
The World Bank warns that the ongoing Middle East conflict could push another 1.2 million people below the poverty line, offsetting much of the expected recovery in 2026.
The labour market remains weak, with job creation failing to keep pace with the growing working-age population.
Since 2016, Bangladesh added only 8.7 million jobs against a 14 million increase in the working-age population, with most new jobs concentrated in low-productivity agriculture rather than manufacturing or services.
The financial sector poses another major risk. The report says the banking system’s non-performing loan (NPL) ratio peaked at 35.7 percent in September 2025 before easing slightly to 30.6 percent in December.
Capital adequacy also fell far below the required minimum, leaving banks with limited capacity to absorb losses.
Bangladesh Bank has kept the policy rate at 10 percent to contain inflation, but private sector credit growth remains weak due to high NPLs, weak investor confidence and increased government borrowing from banks, which is crowding out private investment.
On the fiscal front, revenue collection remains weak. The tax-to-GDP ratio fell below 7 percent for the first time in 15 years, while subsidies and current expenditure continued to rise, squeezing development spending.
Public debt rose to 39.5 percent of GDP in FY2025 and is projected to exceed 45 percent by FY2028.
The World Bank stressed that restoring macroeconomic stability will require stronger domestic revenue mobilisation, tighter monetary discipline, banking sector reforms and improved investor confidence.
It also called for structural reforms to improve the business environment, increase private investment and create productive jobs outside agriculture.
