Bangladesh Faces Two More Years of 3.4% Growth, World Bank Warns

Dhaka — Bangladesh's recovery is likely to stay weak for at least two more years unless the government moves faster on banking, energy and revenue reforms, the World Bank said in its October Bangladesh Development Update.

The report, released in Dhaka on 6 October and titled "Make Subsidies and Social Protection Work Better for the Poor," projects real GDP growth of 3.4% in both FY26 and FY27. That is well below the country's recent 10-year average of about 5.6%. Growth could rise only modestly, to 3.9% in FY28, and only if power and gas supply eases and the reform drive accelerates.

"To avert economic downturn and return to an inclusive growth path, driven by private investment, fast and bold reforms are needed in the banking sector, domestic revenue mobilisation, and the energy sector," said Jean Pesme, the World Bank's division director for Bangladesh and Bhutan. "The time to act is now."

The slowdown has been building since 2023. The Bank says private investment fell about 0.5% and public investment about 0.7% in FY26, while real exports of goods and services dropped 4.8%. Gas and electricity shortages have disrupted factories, credit has been harder to obtain, and high inflation has cut household purchasing power and raised business costs. Average inflation eased from 10% in FY25 to 8.7% in FY26, but point-to-point inflation was still 8.3% in August.

The banking system is the clearest risk. The system-wide non-performing loan ratio rose to 33.2% in June 2026 from 30.6% in December 2025, and from 20.2% in December 2024. Local coverage of the report also cites a capital adequacy ratio of negative 2.6%, against a regulatory minimum of 10%. Those figures, the Bank says, are weakening credit intermediation and investor confidence.

Fiscal room is equally tight. Domestic revenue was an estimated 8.3% of GDP in FY26, among the lowest rates in the world. The fiscal deficit widened to 3.9% of GDP from 3.5% in FY25, and the Bank expects it to widen further, to 4.8% in FY27 and 4.9% in FY28. Interest payments already absorb about 2.6% of GDP.

Poverty has risen with the slowdown. About 2.1 million more people were living in poverty in FY26 than a year earlier. Job creation has stalled, and women have lost jobs. Roughly half of the poorest households remain outside any social protection programme. The Bank argues that better targeting — including scaling up the government's Dynamic Social Registry, consolidating food subsidies, and combining the Family Card with better-aimed cash support — could lift an additional 2.85 million people out of poverty.

The external accounts are the brighter spot. Strong remittances and a rebuilding of foreign-exchange reserves have kept the external sector resilient even as merchandise exports stayed soft and imports rose. That buffer, the report says, is not a substitute for fixing banks, energy supply and tax collection.

The Bangladesh update was released alongside the World Bank's South Asia Economic Update, which expects regional growth of 6.9% this year before a slight slowdown to 6.7% in 2027. Bangladesh is the clear laggard in that picture. The Bank's message is that the gap will not close on its own: without faster repairs to the financial system, the power sector and public revenue, growth stays near 3.4% and job creation stays stalled.