Growth stalls at 3.4pc

Bangladesh’s economic recovery remains fragile, with weak banks, energy shortages, poor revenue collection and subdued investment leaving the country with limited room to absorb further shocks, according to the World Bank.

The lender has projected Bangladesh’s GDP growth at 3.4 per cent in FY27, unchanged from FY26 and well below the 5.6 per cent average recorded over the past decade.

Growth could recover to 3.9 per cent in FY28 if energy pressures ease and reforms accelerate, but the World Bank warned that banking vulnerabilities, energy constraints, a weak business environment and limited fiscal space would continue to weigh on the economy.

The projection places Bangladesh among the weakest performers in South Asia. India is expected to grow by more than 7 per cent in FY27, while Bhutan is projected to expand by 6.7 per cent.

Sri Lanka’s growth is forecast at 4.2 per cent in 2027, Pakistan at 3.8 per cent and Nepal at 3.7 per cent. Afghanistan, covered separately with Pakistan, is projected to grow by 3.3 per cent.

The broader South Asian economy remains considerably more resilient.

The region, comprising Bangladesh, Bhutan, India, Maldives, Nepal and Sri Lanka, is forecast to grow by 6.9 per cent in 2026 and 6.7 per cent in 2027, remaining the world’s fastest-growing region despite elevated energy prices.

The World Bank said strong consumption and investment were supporting the regional outlook.

For Bangladesh, however, the immediate concern is the financial sector. The systemwide non-performing loan (NPL) ratio rose to 33.2 per cent in June 2026 from 20.2 per cent in December 2024, while the capital adequacy ratio fell to negative 2.6 per cent in December 2025, far below the regulatory minimum of 10 per cent.

NPLs were particularly high among Islamic banks and state-owned commercial banks, at 58.9 per cent and 43.2 per cent respectively.

Bangladesh Bank had provided Tk760 billion ($6.2 billion) in uncollateralised liquidity support to weak banks by June.

The World Bank warned that continued regulatory forbearance and repeated liquidity support could delay balance-sheet repair and undermine confidence.

The strain is already affecting private investment. Private-sector credit growth fell to a 33-year low of 4.5 per cent in June 2026, while gross fixed capital investment contracted by 0.5 per cent in FY26 following a 2.5 per cent decline in FY25.

The lender said decisive, time-bound action on bank restructuring and NPL resolution was urgently needed.

Energy shortages are another major constraint. Domestic gas production has declined as dependence on imported LNG has increased, with imports now meeting about one-third of gas demand.

Fuel and gas shortages have disrupted industrial production, while transmission and distribution bottlenecks have restricted the effective use of power-generation capacity.

Industrial growth is projected at only 2 per cent in FY27 as gas shortages constrain factories and power generation.

Fiscal weakness further limits the government’s ability to respond. Revenue collection was estimated at only 8.3 per cent of GDP in FY26, while the fiscal deficit is projected to widen from 3.9 per cent of GDP in FY26 to 4.8 per cent in FY27 and 4.9 per cent in FY28. Public debt is expected to reach 45.2 per cent of GDP by FY28.

At the household level, inflation and weak wage growth are eroding purchasing power. Average inflation fell to 8.7 per cent in FY26 from 10 per cent in FY25 but is projected at 8.6 per cent in FY27.

National poverty rose to 22.5 per cent in FY26 from 18.7 per cent in 2022 and is projected to reach 22.8 per cent in FY27. About 21 lakh additional people fell below the international poverty line in FY26.

Bangladesh’s export competitiveness is also under pressure. Overall exports contracted by 0.2 per cent in FY26, while RMG exports to the EU fell 3.3 per cent.

Apparel imports from Bangladesh in the US market declined 5.3 per cent in January-June 2026, while imports from Vietnam, Indonesia and Cambodia increased.

Buyers are increasingly prioritising flexibility, compliance, supply-chain transparency and resilience rather than low production costs.

The social safety net remains another weakness. About half of the poorest households remain outside social protection programmes, while nearly 62 million people live just above the poverty line.

The country spends about 3.5 per cent of GDP on energy and fertiliser subsidies and social protection, but targeting remains weak. The richest urban quintile receives nearly half of electricity subsidy spending.

World Bank division director for Bangladesh and Bhutan Jean Pesme called for “fast and bold reforms” to restore inclusive growth driven by private investment, saying faster reforms were essential to protect the poor and create more and better jobs.

The lender identified three immediate priorities: restoring financial-sector stability, strengthening energy security and governance, and raising domestic revenue to create fiscal space for productive investment.

It also noted that loan restructuring remained off track, regulatory forbearance continued, and the separation of tax policymaking from administration had yet to become operational.

The World Bank cautioned that Bangladesh has “less room than before to absorb shocks” while its structural weaknesses remain unresolved.

Without faster reforms, the economy risks prolonged weak growth, subdued investment and slower poverty reduction.