Private sector growth lags behind economic expansion: World Bank

Despite strong overall GDP growth averaging 6.0% between FY16 and FY25, Bangladesh's private sector performance at the firm level has not kept pace, according to the latest World Bank analysis. 

The latest Bangladesh Development Update report, published today (8 April), highlights a "productivity paradox," where aggregate growth has not translated into widespread innovation or productivity gains across businesses.

According to the report, revenue per worker in manufacturing and services is only about one-third of the South Asian benchmark. Productivity growth in services, the largest employer in the economy, has remained stagnant since 2016, highlighting persistent inefficiencies.

The report states that only 8% of formal firms were established in the past five years in Bangladesh, compared to 32% in China and 40% in Vietnam. This points to a shrinking pipeline of new enterprises and limits opportunities for economic diversification and innovation.

The report said private investment has fallen since 2013, particularly among smaller firms. Foreign direct investment remains below 1% of GDP and is concentrated in utilities rather than sectors like manufacturing or market services, where technology spillovers could drive productivity and job creation.

The economy has grown, but most gains have accrued to a small group of firms, leaving the broader private sector largely stagnant, the report notes. 

The findings underscore the need for targeted reforms to foster innovation, support small and medium enterprises, and attract investment in high-productivity sectors to create more inclusive growth.