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Bangladesh needs urgent reforms in the banking, energy and domestic revenue sectors to reverse its economic slowdown, restore growth and create more and better jobs, the World Bank said in its latest Bangladesh Development Update released on Tuesday.
The report projects Bangladesh’s economic growth at 3.4% in both FY26 and FY27, with growth expected to improve to 3.9% in FY28 if energy supply gradually eases and the government accelerates its reform agenda.
The World Bank said persistent structural constraints, including vulnerabilities in the financial sector, weaknesses in energy supply and low domestic revenue mobilisation, along with global uncertainties, have weighed on investment and economic activity since 2023.
Investment activity has weakened, exports have lost momentum and inflation has remained elevated, reducing household purchasing power and increasing business costs. Financial sector weaknesses have continued to hamper credit intermediation and investor confidence, while limited fiscal space has constrained public investment.
Despite these challenges, the external sector has remained resilient, supported by strong remittance inflows and improving foreign exchange reserves.
“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 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,” he said.
The report said poverty and inequality increased in FY26, with about 2.1 million more people falling into poverty than a year earlier. Job creation stalled, while women lost jobs.
Banking sector vulnerabilities also intensified, with the non-performing loan ratio rising to 33.2% in June 2026 from 30.6% in December 2025.
Revenue collection remained at just 8.3% of GDP, among the lowest levels in the world, limiting the government’s ability to increase public spending where it is most needed.
The fiscal deficit widened to 3.9% of GDP in FY26 from 3.5% in FY25.
The World Bank said social protection, energy and agricultural subsidies continue to help protect poor and vulnerable households. However, about half of the poorest households remain outside social protection programmes.
Better targeting could significantly improve the poverty-reducing impact of these programmes by ensuring that limited public resources reach those most in need.
The report said implementation and expansion of the government’s Dynamic Social Registry, an integrated system designed to support evidence-based targeting and continuous enrolment of beneficiaries, would be critical to addressing gaps in coverage and targeting.
Its analysis suggests that consolidating multiple food subsidies and combining the Family Card with better targeting of existing cash programmes could lift an additional 2.85 million people out of poverty.
The Bangladesh Development Update was released alongside the South Asia Economic Update, the World Bank Group’s regional report examining economic prospects and policy priorities across South Asia.
South Asia’s growth is expected to reach 6.9% this year, supported by strong domestic demand that has helped the region remain resilient to global shocks. Growth is projected to slow to 6.7% in 2027 as external headwinds intensify.
“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,” he said.
The regional report also examines how strategic use of artificial intelligence could create new sources of growth. AI adoption in South Asia is increasing but remains well below levels seen in advanced economies.
Despite the gap, adoption is accelerating, with firms using AI to identify new market opportunities. Governments are also increasingly using AI to improve frontline public services, including AI-based weather forecasts for 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 labour 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,” she said.