Urgent Reforms Urged to Boost Growth and Create Jobs in Bangladesh

Representational image. Photo: Collected

Bangladesh faces mounting economic challenges, with growth slowing and poverty rising for the third consecutive year, according to the World Bank. Persistent inflation, banking sector weaknesses, low revenue mobilisation, and subdued private investment are being worsened by the ongoing conflict in the Middle East.

The latest Bangladesh Development Update projects growth to slow to 3.9% in FY26. The conflict could further drive inflation, reduce fiscal space due to higher energy subsidies, weaken the current account, and lower remittances.

The report warns that with thin foreign exchange buffers, tight fiscal and monetary conditions, and a fragile banking sector, Bangladesh has limited capacity to absorb prolonged shocks, particularly for its most vulnerable citizens.

Private sector growth remains lagging. The World Bank notes that sustained political stability after the 2026 elections and rapid structural reforms could support a stronger recovery. Urgent reforms are needed to restore macroeconomic stability, boost revenues, strengthen the financial sector, and improve the business environment to create jobs and ensure inclusive growth.

Inflation remained high at 8.5% in FY26, with wages of low-income workers failing to keep pace. Poverty rose to 21.4% in 2025 from 18.7% in 2022, adding 1.4 million more poor people. Financial sector vulnerabilities persist, with non-performing loans at 30.6% in December 2025 and capital adequacy below regulatory minimums in several banks.

External sector pressures eased in FY25 and early FY26, aided by strong remittances and a more flexible exchange rate, but exports and foreign investment remain vulnerable. Tax-to-GDP ratio fell below 7% in FY25, constraining investment in priority sectors.

Most small and medium enterprises face high regulatory costs, unreliable infrastructure, and limited access to finance. Targeted deregulation, stronger competition policies, and improved electricity reliability are essential to boost private-sector-led growth.

The World Bank report emphasises that improving the business environment is central to sustaining growth and absorbing a rapidly expanding workforce. Unlocking private investment and jobs will require reducing regulatory uncertainty, easing constraints to firm growth, and fostering a competitive market.

The Bangladesh Development Update complements the South Asia Economic Update, which projects regional growth slowing to 6.3% in 2026 before rebounding to 6.9% in 2027. Despite the slowdown, South Asia is expected to outpace other emerging and developing economies.

World Bank officials stressed that bold reforms in public infrastructure, trade facilitation, business environment, and private capital mobilisation are critical for sustaining growth, creating jobs, and increasing resilience to shocks. Well-calibrated industrial policies, such as industrial parks, skills development, market access support, and improved export standards, could also help address specific market failures.