Bangladesh’s Growth Slows as Rising Poverty and Banking Risks Put Reforms in Focus

The Bangladesh report accompanies the World Bank Group’s South Asia Economic Update, which forecasts regional growth of 6.9% in 2026, supported by strong domestic demand that helps cushion global shocks.

Bangladesh's economic slowdown is putting growing pressure on households and businesses, with the World Bank projecting growth of 3.4% in both FY26 and FY27 as energy problems, banking weaknesses and low government revenue restrict investment. The latest Bangladesh Development Update traces the slowdown to 2023, describing an economy struggling with persistent structural constraints and global uncertainty. Growth could recover to 3.9% in FY28, with that improvement depending on an easing of energy supply pressures and a faster government reform drive.

Slower investment and rising prices squeeze households

Investment activity has softened, exports have lost momentum, and elevated inflation is reducing household purchasing power and increasing business costs. Weaknesses in the financial sector are disrupting the flow of credit and damaging investor confidence, with limited room in the government's budget restricting public investment. Strong remittance inflows and improving foreign exchange reserves have helped the external sector remain resilient, providing some support at a time when domestic economic activity is under strain.

The human cost of the slowdown is becoming more visible, with poverty and inequality increasing in FY26 and about 2.1 million more people living in poverty than a year earlier. Job creation has stalled, and women have lost jobs, adding to the pressure on families already struggling with higher prices. Banking vulnerabilities have intensified, with the non-performing loan ratio rising from 30.6% in December 2025 to 33.2% in June 2026, highlighting the scale of the financial problems that need attention.

Banking reforms and better welfare coverage become urgent

Government revenue collection remains among the lowest in the world at 8.3% of GDP, limiting the money available for public spending where it is needed most, and the fiscal deficit widened from 3.5% of GDP in FY25 to 3.9% in FY26. Jean Pesme, the World Bank's Division Director for Bangladesh and Bhutan, called for fast, bold reforms in banking, domestic revenue collection and energy to prevent a downturn and restore inclusive growth driven by private investment. He stressed the urgency of protecting poor households and creating more and better jobs.

Social protection programmes and energy and agricultural subsidies help vulnerable people, with about half of the poorest households still receiving no social protection support. Better targeting could make limited public funds reach households more effectively, making the implementation and expansion of the government's Dynamic Social Registry critical to closing coverage gaps. The integrated registry is designed to support evidence-based targeting and continuous enrolment, and the report's analysis suggests that consolidating food subsidies and combining the Family Card with better-targeted existing cash programmes could lift an additional 2.85 million people out of poverty.

South Asia looks to AI for new growth and jobs

The Bangladesh report accompanies the World Bank Group's South Asia Economic Update, which forecasts regional growth of 6.9% in 2026, supported by strong domestic demand that helps cushion global shocks. Growth is projected to slow to 6.7% in 2027 as economic pressures mount. Johannes Zutt, the World Bank's Vice President for South Asia, said sustaining momentum and creating jobs would require investment in new growth drivers, including the skills, infrastructure and business conditions needed for workers and firms to participate in rapidly expanding global AI value chains.

AI adoption across South Asia is accelerating from levels well below those in advanced economies, with businesses using the technology to identify new market opportunities and governments applying it to frontline public services. Examples include AI-based weather forecasts for smallholder farmers in India and AI-assisted retinal screening in Bangladesh. Franziska Ohnsorge, the World Bank Group's Chief Economist for Asia, highlighted AI's potential to improve labour productivity, expand exports and strengthen public service delivery, stressing that governments must address the foundational gaps preventing wider adoption.