Staff Reporter :
The World Bank has emphasised that comprehensive economic and fiscal reforms are essential for Bangladesh to sustain growth amid mounting global headwinds.
Amid growing uncertainty in the global economy, growth prospects across South Asia have dimmed, and Bangladesh is no exception. According to the World Bank’s biannual update, a sharp decline in export performance and subdued investment levels have slowed the country’s economy in FY24. However, the medium-term outlook remains optimistic, contingent on the implementation of critical reforms.
The newly released Bangladesh Development Update, which focuses on recent economic trends and the medium-term outlook, places special emphasis on maintaining stability in the financial sector. The report notes that real GDP growth declined from 5.8 percent in FY23 to 4.2 percent in FY24, with the slowdown continuing into FY25. Ongoing challenges include sluggish investment, high inflation, and vulnerabilities within the financial system.
Public investment is also expected to contract as the government reduces capital expenditures in FY25. Although the fiscal deficit is projected to remain below 5% of GDP over the medium term, capital spending is likely to increase only gradually. Inflation is expected to stay elevated in the short term.
“Over the last decade, multiple shocks have eroded the region’s ability to respond to a challenging global environment,” said Martin Raiser, World Bank Vice President for South Asia. “To boost resilience and stimulate growth and job creation, South Asia must prioritize trade liberalization, modernization of agriculture, and private sector dynamism.”
Gayle Martin, the World Bank’s Interim Country Director for Bangladesh, stressed, “Bangladesh must undertake urgent and bold reforms to strengthen its financial system, improve trade facilitation, and boost domestic revenue generation.”
The update projects that real GDP will gradually recover over the medium term, assuming key reforms are implemented. Inflation is also expected to ease, driven by tighter monetary policy, fiscal discipline, and the relaxation of import controls on essential food items. However, ongoing trade uncertainties may continue to put pressure on the external sector.
“The outlook remains fragile due to risks such as persistent inflation, subdued demand in key export markets, trade disruptions, and deepening vulnerabilities in the financial sector,” said Dhruv Sharma, Senior Economist at the World Bank and co-author of the report.
This update was released alongside the South Asia Development Update, a biannual report assessing economic trends and challenges across the region. The April 2025 edition, titled Taxing Times, forecasts regional growth to slow to 5.8% in 2025—0.4 percentage points lower than the previous projection—before rebounding to 6.1% in 2026. The report warns that this outlook is subject to significant risks from a volatile global environment and domestic constraints, such as limited fiscal space.
A special chapter in the report explores domestic resource mobilization, noting that despite relatively high tax rates, South Asian countries still collect less tax revenue than the average for emerging and developing economies. The report recommends reforms in tax policy and administration to increase revenues and enhance resilience during uncertain times.
Alarmingly, the World Bank also warned that up to 3 million more people in Bangladesh could fall into extreme poverty by 2025. The extreme poverty rate is projected to rise from 7.7% to 9.3%.
This projection is included in the latest Bangladesh Development Update, which also anticipates ongoing labor market challenges. Vulnerable groups—particularly those already near the poverty line—may experience a decline in real income levels.
The economic slowdown is hitting the poorest the hardest and is exacerbating existing inequalities. Alongside the rise in extreme poverty, the national poverty rate is also expected to increase—from 20.5% in 2024 to 22.9% in 2025.
With Bangladesh’s population nearing 170 million, according to the 2022 census, the report estimates that by the end of 2025, approximately 15.8 million people will be living in extreme poverty, while around 39 million will fall below the national poverty threshold.
