WB trims Bangladesh GDP outlook to 3.3pc

Staff Reporter :

The World Bank (WB) has revised down its economic growth forecast for Bangladesh to 3.3 percent for the current fiscal year, a notable reduction from its earlier projection of 4 percent.

The Washington-based institution cited ongoing political unrest and subdued investment as key factors behind the downgrade, marking it as the lowest forecast issued so far for the country’s economy.

In its latest South Asia Development Update, the World Bank anticipates a modest recovery in the fiscal year 2025-26, projecting growth at 4.9 percent. However, this estimate also reflects lower investor confidence and continued macroeconomic pressures.

The report warns that inflation is expected to remain elevated, with the 12-month average inflation rate in Bangladesh projected to reach 10 percent in FY25.

The revised outlook follows a similar move by the International Monetary Fund (IMF), which on Tuesday released its World Economic Outlook. The IMF forecasts Bangladesh’s GDP growth at 3.76 percent for the current fiscal year (July 2024 – June 2025), a slight decrease from its December 2024 projection of 3.8 percent and a significant drop from its October 2024 estimate of 4.5 percent.

The World Bank update also highlights weakening growth prospects across South Asia amid increasing global economic uncertainty. The report, titled Taxing Times, projects regional growth to slow to 5.8 percent in 2025-0.4 percentage points below the October 2024 projection-before a modest rise to 6.1 percent in 2026.

These projections remain subject to significant risks stemming from global volatility and domestic vulnerabilities, including limited fiscal space.

“Multiple shocks over the past decade have left South Asian countries with limited buffers to withstand an increasingly challenging global environment,” said Martin Raiser, World Bank Vice President for South Asia.

“The region needs targeted reforms to strengthen economic resilience and unlock faster growth and job creation. Now is the time to open to trade, modernise agricultural sectors, and boost private sector dynamism.”

A key recommendation of the report is the need for South Asian countries to strengthen domestic revenue mobilisation.

Although tax rates in the region tend to be higher than those in many other developing economies, actual revenue collection remains weak. Between 2019 and 2023, government revenues in South Asia averaged 18 percent of GDP, well below the 24 percent average observed in other developing economies.

Significant revenue shortfalls were noted, particularly in consumption taxes, as well as in corporate and personal income taxes.

Tax revenues are estimated to be between 1 and 7 percentage points of GDP below their potential, largely due to widespread informality and the dominance of the agricultural sector.

However, even after accounting for these factors, substantial gaps remain, indicating the need for more effective tax policy and administration.

“Low revenues are at the root of South Asia’s fiscal fragility and could threaten macroeconomic stability, especially in times of elevated uncertainty,” said Franziska Ohnsorge, Chief Economist for South Asia at the World Bank.

“South Asian tax rates are relatively high, but collection is weak, placing a heavy burden on compliant taxpayers and limiting the funds available to governments for essential services.”

To address these challenges, the report recommends a series of reforms, including the elimination of tax loopholes, simplification and unification of tax codes, tighter enforcement, and enhanced compliance mechanisms. It also advocates the use of digital technologies to improve taxpayer identification and streamline revenue collection.

Additionally, the introduction of pollution pricing is suggested as a means to both improve environmental outcomes and raise public revenues.