Bangladesh expected to see 4.8% GDP growth in FY26 as investment slows, job creation stalls: WB report
Bold reforms and faster implementation needed to enhance domestic revenue mobilisation, address banking sector vulnerabilities, reduce energy subsidies, says Jean Pesme, World Bank division director for Bangladesh and Bhutan
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
Bangladesh's GDP growth is projected to reach 4.8% in FY26, from 4% in the previous fiscal year, and 6.3% in FY27, provided that critical economic reforms are effectively implemented, according to the World Bank's Bangladesh Development Update released today (7 October).
The report also notes that following disruptions in the first half of FY25, the economy rebounded in the second half, supported by strong exports, record remittances and an increase in foreign exchange reserves.
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The global lender's report says external pressures eased in FY25 as a market-based exchange rate was adopted, foreign exchange reserves stabilised, the current account deficit narrowed, and exports grew robustly.
Besides, inflation moderated on the back of tight monetary policy, lower import duties on essential foods and strong harvests, it adds. However, the fiscal deficit widened due to weak tax revenues and higher subsidies and interest payments, it says.
The economy has shown resilience, but this cannot be taken for granted
The World Bank cautioned that significant challenges remain: private investment growth has slowed sharply, job creation has stalled, and the banking sector remains vulnerable with persistently high levels of non-performing loans.
Additionally, revenue mobilisation continues to be weak, posing a risk to fiscal sustainability, it added.
The latest update states that the country is expected to maintain an upward growth trajectory in the medium term, but urgent reforms are critical to sustaining growth and job creation, especially for youth and women.
According to the report, poverty increased between 2023 and 2024, while labour force participation 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 economy has shown resilience, but this cannot be taken for granted," said Jean Pesme, World Bank division director for Bangladesh and Bhutan.
To ensure a strong growth path and more and better jobs, Bangladesh needs bold reforms and faster implementation to enhance domestic revenue mobilisation, address banking sector vulnerabilities, reduce energy subsidies, plan urbanisation and improve the investment climate, he added.
Over the past two decades, Bangladesh has witnessed significant shifts in the geography of employment, population growth and infrastructure development, with industrial jobs increasingly concentrated in Dhaka and Chattogram, the report notes.
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
It calls for an urgent rethinking of spatial development strategies, with a focus on reducing regional disparities as a way to support inclusive job creation nationwide.
South Asia outlook
The Bangladesh Development Update is a companion piece to the South Asia Development Update, a twice-yearly World Bank report, also launched today, that examines economic developments and prospects in the South Asia region and analyses policy challenges countries face.
The October 2025 edition, titled "Jobs, AI and Trade," notes that growth in South Asia is projected to remain robust at 6.6% this year but warns of a significant slowdown on the horizon.
The Washington-based institution said higher tariffs on Indian goods exported to the US will drag the South Asian growth rate in 2026, even as the current year remains shielded by government spending.
It added that growth in South Asia is expected to slow to 5.8% in 2026 from its projection of 6.6% for 2025.
The report explores how reforms to promote trade openness and AI adoption could help the region create jobs and catalyse growth.
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, said Johannes Zutt, World Bank vice president for South Asia.
He added that countries can boost productivity, spur private investment and create jobs for the region's rapidly expanding workforce by maximising the benefits of AI and lowering trade barriers, especially for intermediate goods.
Increasing trade openness and growing adoption of AI could be transformative for South Asia
The report also recommends harnessing the potential of AI to boost productivity and incomes.
South Asia's workforce has limited exposure to AI adoption due to the predominance of low-skill, agricultural and manual jobs, it notes, adding that, however, AI could still bring substantial productivity gains, especially in sectors where technology can complement human labour.
"Increasing trade openness and growing adoption of AI could be transformative for South Asia," said Franziska Ohnsorge, World Bank chief economist for South Asia.
"Policy measures to facilitate the reallocation of workers across firms, activities and locations can help channel resources to productive sectors and are critical for boosting investment and job creation in the region."
