ADB trims Bangladesh's growth forecast to 5% for FY26, warns of trade and banking risks

Highlights: 

• ADB projects Bangladesh's economy to grow by 5% in FY26
• Inflation expected to average 8%, compared to 10% last year
• Investor confidence could improve with Feb polls, finance sector reforms
• US tariffs on Bangladeshi exports, banking sector vulnerabilities pose risks

The Asian Development Bank (ADB) has trimmed its growth outlook for Bangladesh, forecasting the economy to expand by 5% in the current fiscal 2025-26, slightly down from its April projection of 5.1%.

While inflation is expected to ease – averaging 8% this fiscal year compared to 10% a year earlier – the lender pointed out that the country's recovery is gaining ground but has yet to firm up.

In its Asian Development Outlook (ADO) September 2025 report released today (30 September), the ADB warned that uncertainty over the impact of the US tariffs on Bangladesh's international trade and elevated banking sector vulnerabilities, achieving higher growth will require improving the business environment to boost competitiveness and attract investment, as well as securing reliable energy supplies.

The lender also mentioned, "Investor confidence should improve with general elections scheduled for February 2026 and ongoing finance sector reform to strengthen the stability, transparency, and efficiency of the finance system."

It also said, "Despite recent monetary tightening, higher election-related spending and unsterilized liquidity support to weak banks may raise inflation and pressures in the foreign exchange market while weakening governance reform."

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"Future growth will depend on improving the business environment to boost competitiveness and attract investment, and on ensuring reliable energy supplies," said Hoe Yun Jeong, ADB country director for Bangladesh. He cautioned that vulnerabilities in the banking sector and new US tariffs on Bangladesh's trade could weigh further on growth. "Maintaining prudent macroeconomic policies and accelerating structural reforms are critical to strengthening resilience," he added.

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Consumption will remain the main driver of growth this year, buoyed by steady remittance inflows and election-related spending. But tighter fiscal and monetary policies, along with investor caution, are likely to constrain private investment, reads the report.

Export prospects also face pressure from a 20% tariff on Bangladeshi goods in the United States and growing competition in European markets, which may force exporters to lower prices.

On the supply side, services are expected to expand as household purchasing power improves, while agriculture is likely to normalise with favourable weather and government policy support. Industrial activity, however, may slow this fiscal year as higher tariffs and external uncertainties weigh on production.