Growth outlook cut to 4pc

Bangladesh’s economic recovery is expected to remain constrained in the current fiscal year as weak public finances, persistent banking-sector problems and energy shortages continue to weigh on investment and industrial activity, the Asian Development Bank (ADB) said on Wednesday.

The Manila-based lender cut its growth forecast for Bangladesh’s 2026-27 fiscal year to 4 per cent, from 4.5 per cent projected in July, while raising its inflation forecast to 9 per cent from 8.8 per cent.

The projections were published in the Asian Development Outlook September 2026, released on Wednesday.

ADB estimated that the economy grew by 3.7 per cent in FY26, suggesting a modest strengthening of activity in FY27 despite the downward revision to its earlier growth projection.

The lender said fiscal constraints would limit the government’s ability to use public investment to support the recovery.

Revenue shortfalls and delays in implementing development projects are expected to restrict the contribution of public investment, while private investment will remain constrained by financial-sector weaknesses and high borrowing costs.

“The economy is beginning to recover but remains vulnerable to both domestic constraints and external shocks,” ADB Country Director for Bangladesh Qingfeng Zhang said.

He stressed the need for faster reforms in macroeconomic management, the financial sector, energy security and the business environment to encourage private investment and create jobs.

Economic activity weakened in the final quarter of FY26 as supply-chain disruptions linked to the Middle East conflict affected production and trade.

ADB, however, expects the overall impact to remain limited.

It said stronger consumption and some improvement in investment, following the easing of political uncertainty after the general election, should support the recovery.

Fiscal constraints limit investment
The weak fiscal position is expected to restrict the government’s room to stimulate economic activity through development spending.

Revenue constraints and delays in project implementation could hold back public investment, while private investment faces a wider range of obstacles, including high borrowing costs, limited access to credit and weaknesses in the banking system.

High levels of non-performing loans and weak bank balance sheets are restricting the flow of funds to productive sectors. Banks are also favouring relatively safer government securities, reducing the availability of financing for businesses.

ADB said private investment would remain constrained by financial-sector weaknesses, unreliable energy supplies, subdued external demand and broader structural problems.

Logistics bottlenecks and lengthy regulatory and approval procedures are adding to the burden on businesses.
Industry remains under pressure
Industrial growth is projected at only 3.3 per cent in FY27, reflecting persistent energy shortages, higher production costs, weak external demand and uncertainty surrounding manufacturing and investment.

Agriculture also faces risks from adverse weather conditions and constraints on fertiliser availability.

The services sector is expected to perform relatively better, supported by remittance inflows and a gradual recovery in domestic economic activity. ADB forecasts services growth of 4.7 per cent this fiscal year.

Private consumption is expected to remain the main driver of growth, supported by remittances. However, persistently high inflation will continue to erode household purchasing power and limit the strength of consumption-led growth.

Exports are expected to recover gradually as demand in major overseas markets remains uncertain, while imports are projected to rise with higher demand for fuel and industrial inputs.

Inflation set to remain elevated
ADB estimated that average inflation eased to 8.7 per cent in FY26 from 10 per cent in FY25, but expects it to rise again to 9 per cent in FY27.

Energy shortages, higher production and transport costs, possible disruptions to shipping routes and the delayed effects of El Niño on food supplies are expected to keep inflationary pressures elevated.

The ADB’s broader regional outlook said the energy crisis in Asia had spread beyond crude oil to refined fuels and major shipping routes. It also warned that a potentially severe El Niño could pose additional risks to agricultural production and power systems.

For Bangladesh, higher international energy and freight costs could feed into domestic prices through more expensive imports. Recent fuel price increases are also pushing up transport and freight costs, adding to expenses for farmers, manufacturers and food distribution networks.

ADB said gradually easing monetary conditions and liquidity support could add to price pressures, although weak credit growth and subdued economic activity should contain demand-driven inflation.
Current account deficit to widen

Bangladesh’s current account deficit is projected to widen to 0.6 per cent of GDP in FY27, from an estimated 0.3 per cent in FY26, as imports are expected to grow faster than exports.

Remittance inflows, however, are expected to remain resilient despite continuing tensions in the Middle East.

Strong remittances and higher foreign exchange reserves should help support external stability, although ADB said maintaining that stability would depend on adequate financial inflows, exchange-rate flexibility and prudent macroeconomic management.

External risks cloud outlook
ADB sees significant downside risks to its Bangladesh outlook.
A prolonged Middle East conflict, another increase in global oil prices and further disruption to international shipping could raise import costs and intensify inflationary pressures.

Tighter trade restrictions and weaker growth in Bangladesh’s major export markets could also weigh on exports and industrial activity.

Domestic risks include continued pressure on the exchange rate, further stress in the banking sector, delays in fiscal reforms, lower-than-planned development spending and climate-related shocks.

The wider Asian economy is also facing heightened uncertainty. ADB said regional growth was holding up for now, but persistent disruption in energy markets and a potentially severe El Niño could create significant risks in the months ahead.