ADB cuts Bangladesh’s GDP growth forecast to 4%, warns inflation will hit 9% in FY27
The latest forecast is also well below the government’s 6.5% GDP growth target for the current fiscal year.
Highlights:
- ADB cut Bangladesh's FY2027 growth forecast to 4% from 4.5%
- ADB raised FY2027 inflation forecast to 9% from 8.8%
- Weak banking, energy shortages, borrowing costs constrain investment
- Current-account deficit may widen to 0.6% of GDP
- ADB urged faster reforms in finance, energy, and business
Bangladesh's economy is set for a slower recovery than previously expected, with banking-sector stress, unreliable energy supply, and other structural bottlenecks continuing to hold back investment and growth, according to the Asian Development Bank (ADB).
The Manila-based lender has further cut its FY2026-27 growth forecast for Bangladesh to 4%, down from 4.5% projected in July and 4.7% in April.
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The latest forecast is also well below the government's 6.5% GDP growth target for the current fiscal year.
The Manila-based lender also estimated that Bangladesh's economy grew by 3.7% in FY2026, which ended on 30 June.
In its Asian Development Outlook (ADO) September 2026, released today (23 September), the ADB said high non-performing loans, weak bank balance sheets, banks' preference for safer government securities, and high borrowing costs are limiting private-sector access to credit.
At the same time, unreliable energy supply, logistics constraints, and lengthy regulatory and approval procedures are holding back investment demand and limiting the economy's response to monetary easing and fiscal support.
The ADB expects industrial growth to remain particularly weak at 3.3% in FY27, as energy shortages, higher production costs, weak external demand, and persistent uncertainty weigh on manufacturing and private investment.
Services, however, are projected to grow by 4.7%, supported by remittances and a modest improvement in domestic activity.
Agriculture is also expected to support growth despite risks from weather-related shocks and limited fertiliser availability, while private consumption, backed by remittances, is expected to remain the main growth driver as high inflation erodes household purchasing power.
On the demand side, consumption will remain the main source of growth, while investment is expected to stay subdued and net exports continue to weigh on the economy.
Higher inflation predicted
Meanwhile, the inflation outlook has worsened.
The ADB further raised its FY27 average inflation forecast to 9%, from 8.8% in July and 8.5% in April.
The government's inflation target was set at 7.5%.
The lender attributed the higher inflation outlook to the lagged effects of a stronger El Niño, continued energy shortages, elevated production and transport costs, possible shipping disruptions, and gradually less restrictive monetary policy.
"Demand-driven inflationary pressures should be tamped down by weak credit growth and subdued economic activity," the ADB said.
Bangladesh Bank has already started easing monetary conditions, cutting the repo rate to 9.5% from 10% in August while expanding refinancing and other liquidity-support measures.
But the ADB said banking-sector stress and weak monetary-policy transmission would limit the impact of easier liquidity on private credit and investment.
External risks
The outlook also faces significant external risks.
"A prolonged Middle East conflict, higher oil prices, shipping disruption, tighter trade restrictions, or weaker growth in major markets could raise inflation and further dampen exports, remittances, and manufacturing," the ADB warned.
"Persistent exchange rate pressures, tight external financing, or weaker financial inflows could constrain imports of productive inputs and reserve accumulation," it said.
It also said, "Domestically, a further deterioration in bank balance sheets already burdened with high nonperforming loans, limited effectiveness of credit support measures, delayed fiscal reforms, or continued shortfalls in development spending could weaken growth."
"Climate-related shocks could disrupt agriculture and food supply, keeping inflation elevated," it added.
Strong remittance inflows, improved foreign exchange reserves, and continued external support provide buffers, but these remain limited and need to be reinforced through sustained reforms, the ADB further noted.
The ADB said it stands ready to support Bangladesh in translating those reforms into tangible results for its people.
"Bangladesh's economy is beginning to recover, but the recovery remains vulnerable to external shocks and domestic constraints," ADB Country Director Qingfeng Zhang said in a press release.
"This is an important moment to accelerate reforms in macroeconomic management, the financial sector, energy security, and the business environment. These reforms will be essential to unlock private investment, create quality jobs, and place Bangladesh on a stronger, more inclusive, and resilient growth path," Zhang added.
Current-account deficit to widen
According to ADB, the country's current-account deficit is projected to widen to 0.6% of GDP in FY2027 from an estimated 0.3% in FY2026, as import growth outpaces exports.
Remittance inflows are expected to remain resilient despite continuing tensions in the Middle East, while strong remittances and higher foreign-exchange reserves will support external stability.
However, maintaining that stability will depend on adequate financial inflows, exchange-rate flexibility and prudent macroeconomic management.
