POBNEWS24, DHAKA, Oct 6, 2026— Since 2023, Bangladesh’s economic growth has been facing slowdown as persistent structural constraints—including deepening energy sector, financial sector vulnerability, and weak domestic revenue mobilization—along with global uncertainties weigh on investment and economic activity, says the World Bank in its new update, released today.
The latest Bangladesh Development Update projects 3.4% growth in FY26 and FY27. The report highlights that investment activities softened, exports lost momentum, and inflation remained elevated, reducing household purchasing power and raising business costs. Financial sector weaknesses continued to affect credit intermediation and investor confidence, while limited fiscal space constrained public investment. Despite these challenges, the external sector showed resilience, supported by strong remittance inflows and improving foreign exchange reserves. GDP growth is expected to improve to 3.9% in FY28, if supported by a gradual easing of energy supply, and acceleration in the government’s reform drive.
“To avert economic downturn and return to an inclusive growth path, driven by private investment, fast and bold reforms are needed in banking sector, domestic revenue mobilization, and energy sector,” said Jean Pesme, World Bank Division Director for Bangladesh and Bhutan. “The country needs to respond with urgency and speed up the reforms essential for protecting the poor and creating more and better jobs. The time to act is now.”
In FY26, poverty and inequality increased, with about 2.1 million more people living in poverty than last year. Job creation has stalled and women have lost jobs. Banking sector vulnerabilities intensified. The non-performing loan ratio increased to 33.2% in June 2026 from 30.6% in December 2025. Revenue collection at 8.3 percent of GDP remains among the lowest in the world, constraining public spending where needed. The fiscal deficit widened to 3.9 percent of GDP in FY26 from 3.5 in FY25.
Social protection, energy and agricultural subsidies help protect the poor and vulnerable. However, about half of the poorest households remain outside of any social protection programs. The poverty impact of these programs would be materially improved with better targeting; a more responsive social protection program can ensure that limited public resources reach poor and vulnerable households more effectively. Implementation and scale-up of the government’s Dynamic Social Registry—an integrated system that is intended to enable evidence-based targeting and continuous enrollment of beneficiaries—will be critical to address targeting and coverage gaps. Analysis suggests that consolidating multiple food subsidies and combining the Family Card with better targeting of existing cash programs could lift an additional 2.85 million people out of poverty.
The Bangladesh Development Update is a companion piece to the South Asia Economic Update, the World Bank Group’s regional report that examines economic prospects and policy priorities across South Asia, also released today.
South Asia’s growth is expected to increase to 6.9% this year, with strong domestic demand keeping the region resilient to global shocks. The report projects growth to slow to 6.7% in 2027 as headwinds mount.
“South Asia has demonstrated remarkable resilience in a challenging global environment. But the region needs to invest in new drivers of growth to sustain momentum and create more jobs,” said Johannes Zutt, World Bank Vice President for South Asia. “To seize the opportunity provided by rapidly-growing AI global value chains, countries should invest in the skills, infrastructure, and enabling environment that allow workers and businesses to harness AI’s potential.”
The report explores how the strategic use of AI can build new sources of growth. Adoption of AI in South Asia is rising but it remains well behind that in advanced economies. Despite this gap, AI adoption is accelerating and firms are using AI to find new market opportunities. Governments are increasingly using AI to improve frontline public service functions such as AI-based weather forecasts delivered to smallholder farmers in India and AI-assisted retinal screening in Bangladesh.
“The adoption of AI has the potential to transform South Asia’s development trajectory by boosting labor productivity, expanding export opportunities, and improving public service delivery,” said Franziska Ohnsorge, World Bank Group Chief Economist for Asia. “But to reap these benefits, governments need to address the foundational gaps that hold back adoption.”
