WB projects Bangladesh’s GDP to grow by 4.8% in FY26
It warns political unrest could weigh on investment
Highlights:
- Bangladesh's GDP growth projected to rise to 4.8% in FY26, 6.3% in FY27, says WB report
- Economic rebound in second half of FY25 driven by exports, remittances and higher reserves
- But fiscal deficit widened amid weak tax revenue, higher subsidies and interest payments
- Private investment slows, job creation stalls and banking sector remains fragile
- WB urges focus on revenue reforms, banking stability, energy subsidy cuts and urban planning
The World Bank projects that Bangladesh's economy would maintain an upward growth, while both inflation and poverty would fall in the current and next fiscal years, but warns that intense political unrest surrounding the elections and post-election period could reduce investment more than expected.
In its Bangladesh Development Update released today (7 October), the global lender projects Bangladesh's gross domestic product (GDP) growth to rise to 4.8% in the 2025-26 fiscal year from 4% in FY25 before moving up further to 6.3% in FY27, with inflation easing to 5.5% and national poverty to 18.1%.
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The latest official data shows point-to-point inflation marked a slight rise, reaching 8.36% in September – remaining elevated for three consecutive years. A more stable exchange rate and contained international commodity prices would help reduce imported inflation, the World Bank states in its latest update.
"FY25 saw the national poverty rate climb to 21.2%, from 20.5% in FY24, reflecting the combined impact of slower growth, high inflation and deteriorating labour market conditions," the World Bank states.
The economy has shown resilience, but this cannot be taken for granted
Following disruptions in the first half of FY25, Bangladesh's economy rebounded in the second half of the year, supported by strong exports, record remittances, and an increase in foreign exchange reserves, it says.
But this resilience "cannot be taken for granted," alarms Jean Pesme, World Bank Division Director for Bangladesh and Bhutan, suggesting that Bangladesh needs to enhance domestic revenue mobilization, reduce banking sector vulnerabilities, plan better urbanisation and improve the investment climate to ensure a strong growth path and more and better jobs.
Exports are projected to remain robust in the short to medium term, but Bangladesh needs to start preparing urgently to face the challenges regarding its upcoming graduation from LDC status, it suggests.
The report also notes that investment is expected to improve relative to FY25 but remain subdued, reflecting election-related political uncertainty and ongoing vulnerabilities in the banking sector. Export growth should stay robust despite global tariff uncertainty.
From FY27, growth is expected to accelerate with investment rebounds. The current account balance is likely to revert to a deficit as imports normalize; nevertheless, the external balance should remain supportive of a gradual build-up of foreign exchange reserves.
But capital expenditure is expected to increase from FY27 as the new government advances its development program, says the report. Subsidy payments as a share of GDP are expected to decline gradually with reforms, but together with interest payments, will continue to account for a significant share of current expenditure.
South Asia has enormous economic potential and is still the fastest-growing region in the world, but countries need to proactively address risks to growth
Public debt is projected to rise gradually to about 41.7 percent of GDP by FY27. Labour market conditions are projected to improve modestly in FY26, with household labour income rising by almost 3%. Inequality is expected to narrow slightly to a Gini index of 33.2, says the report.
When poverty increased between 2023 and 2024, labour force participation also fell from 60.9 to 58.9%, with women disproportionately affected. Of the three million additional working-age people outside the labour force, 2.4 million were women, the report states.
With industrial jobs increasingly concentrated in the two largest cities – Dhaka and Chattogram, the report calls for an urgent rethinking of spatial development strategies with a focus on reducing regional disparities as a way of supporting inclusive job creation nationwide.
While slippage in reform implementation on domestic resource mobilisation, rising subsidy costs, and inefficiencies in public spending could worsen the fiscal position, the country's external sector is exposed to heightened uncertainty in global trade, and post-LDC graduation uncertainties, the report points out.
Industrial growth is expected to be supported by resilient external demand for RMG, but non-RMG industries are likely to remain constrained by political uncertainty and elevated costs of doing business. Uncertainty regarding energy supply may also weigh on industrial output, it predicts.
Jean Pesme said that ensuring sustainable growth and economic resilience are key policy priorities for Bangladesh.
Emphasis should be placed on recapitalising banks, improving governance, and implementing effective crisis management to restore confidence in the financial system. In addition, deepening banking reforms and developing capital markets are important to mobilise long-term private finance and support investment.
Increasing trade openness and growing adoption of AI could be transformative for South Asia
He also said that the World Bank emphasised the importance of leveraging global trade and technology opportunities, improving digital infrastructure, and maintaining macroeconomic stability to sustain growth and enhance Bangladesh's competitiveness.
The Bangladesh Development Update comes along with the bank's South Asia Development Update that forecasts the region's growth to be robust at 6.6% this year.
Given the region's low ranking in openness to international trade and limited exposure to AI, the bank's regional vice-president Johannes Zutt says in a statement, "Countries can boost productivity, spur private investment, and create jobs for the region's rapidly expanding workforce by maximizing the benefits of AI and lowering trade barriers, especially for intermediate goods."
Keynote on Bangladesh Development Update was presented by Nazmus Sadat Khan, senior economist of the World Bank. Franziska Ohnsorge, chief economist, South Asia, the World Bank, presented the keynote on South Asia Development Update.
LDC graduation challenges
LDC graduation expected in 2026 will end decades of duty-free, quota-free access and special WTO flexibilities, making Bangladesh less competitive in exports. While the EU's Everything but Arms scheme will continue for a three-year transition until 2029, it will require compliance with 32 international labour, human rights, environment, and governance conventions.
To manage graduation successfully, Bangladesh must diversify exports, reduce trade barriers, improve logistics, pursue strategic free trade agreements, the report suggests.
LDC Graduation Preparation: To maintain market access post-graduation, Bangladesh is pursuing export diversification, GSP+ status, ESG and carbon compliance, and free trade agreements amid a fragmented global trade landscape.
These measures are designed to guide Bangladesh through its transition, strengthening its economic resilience and long-term growth prospects, the World Bank update says.
Debt risk raised to moderate
Bangladesh's debt distress risk has increased from 'low' to 'moderate', says the June 2025 World Bank-IMF Debt Sustainability Analysis. Public debt rose slightly to 38.1% of GDP in FY25, with domestic debt at 60.4% and external debt at 39.4%, largely owed to the World Bank, ADB, Japan, Russia, and China.
State-owned enterprises remain a concern, with sovereign guarantees of Tk1,190.8 billion (2.1% of GDP) and 42 of 101 SOEs classified as high or very high risk.
Banking sector faces rising risks
The World Bank report says liquidity in the banking system remained tight, broad money growth slowed to 7%, and private sector credit growth declined, partly due to higher government borrowing and precautionary withdrawals.
The banking sector revealed rising vulnerabilities after stricter regulatory disclosures. Non-performing loans (NPLs) surged to 24.1%, far above regional averages, and the capital adequacy ratio fell to 6.3%, below the 10% minimum. Weak banks, especially private Islamic and state-owned commercial banks, faced liquidity pressures, declining profitability, and asset quality shortfalls of $14.2 billion.
In response, the Bangladesh Bank provided Tk523.7 billion ($4.3 billion) in emergency liquidity, reduced the cash reserve ratio, and guaranteed Tk111 billion under a credit support scheme. Structural reforms are underway, including bank resolution tools under the new Bank Resolution Ordinance, stronger governance, improved transparency, asset quality reviews, and preparation of amendments for central bank independence and corporate governance of state-owned banks.
The Bangladesh Bank aims to stabilise the sector, restore bank viability, and strengthen financial safety nets while maintaining monetary discipline, the report adds.
