World Bank on Wednesday warned that Bangladesh’s economy is facing mounting challenges, including slowing growth, rising poverty, persistent inflation and a stressed banking sector, compounded by global uncertainties.
In its latest Bangladesh Development Update released on Wednesday, the World Bank projected economic growth to slow to 3.9% in FY2025-26, marking a third consecutive year of deceleration alongside increasing poverty levels.
The report said ongoing conflict in the Middle East could further strain the economy through higher inflation, increased energy subsidy burdens, and pressure on the current account driven by costlier imports, weaker exports and declining remittances.
With thin foreign exchange buffers, tight fiscal and monetary conditions, and a fragile banking sector, Bangladesh has limited capacity to absorb a prolonged shock and to mitigate its impact on its people, notably the most vulnerable, it said.
However, sustained political stability after the 2026 elections and rapid progress on structural reforms can support a stronger recovery.
The report underscores the need for urgent policy and institutional reforms to restore macroeconomic stability, boost revenues, strengthen the financial sector, and improve the business environment so the country can create jobs and stay on the path to inclusive growth.
World Bank Division Director for Bangladesh and Bhutan Jean Pesme said resilience has underpinned Bangladesh’s growth story.
“But, without decisive structural reforms, especially in revenue mobilisation, the financial sector and the business environment, this resilience cannot last. Bold and immediate reforms will be essential to returning to a more resilient and inclusive growth path and creating more and better-paid jobs.”
Inflation remained high at 8.5% in FY26, with both food and nonfood inflation elevated. Wages of low-income workers have not kept up with prices, reducing their purchasing power.
The national poverty rate increased to 21.4% in 2025 from 18.7% in 2022, adding 1.4 million more poor people in 2025.
Prior to the conflict in Middle East, about 1.7 million people were projected to get out of poverty this year, but due to conflict, now only 0.5 million people can exit poverty.
Financial sector vulnerabilities remain high. The non-performing loan ratio stood at 30.6% in December 2025.
Capital adequacy fell in aggregate below the regulatory minimum, leaving several banks with limited loss-absorbing capacity, and highlighting the need for prompt and decisive action, the WB report says.
External sector pressures eased in FY25 and the first half of FY26, supported by strong remittances.
The adoption of a more flexible exchange rate regime in mid-2025 helped stabilise Taka and rebuild foreign exchange reserves.
However, exports remain vulnerable to external shocks, and foreign direct investment remains low. In FY25, Bangladesh’s tax-to-GDP ratio fell below 7% for the first time in 15 years, limiting the country’s ability to invest in priority sectors.
While a small group of large, export-oriented firms, such as the ready-made garments sector have driven growth, most small and medium enterprises face high regulatory costs, unreliable infrastructure, and limited access to finance.
Targeted smart deregulation, stronger competition policy, competitive neutrality for state-owned enterprises, streamlined trade policies, and improved electricity reliability are critical to private-sector led growth and jobs creation.
“Improving the business environment is central to sustaining growth and absorbing a rapidly expanding workforce,” said Dhruv Sharma, Senior Economist and lead author of the report.
“Reducing regulatory uncertainty, offering targeted deregulation, strengthening competition, and easing constraints to firm growth will help unlock private investment and jobs.”
The Bangladesh Development Update is a companion piece to the South Asia Economic Update, the World Bank Group’s regional report that examines economic prospects and policy priorities across South Asia, was also released.
South Asia’s growth is expected to slow to 6.3% in 2026 from 7% in 2025 due to disruptions to global energy markets. Growth is projected to recover to 6.9% in 2027.
Despite the near-term slowdown, South Asia continues to grow faster than other emerging-market and developing economies.