Bangladesh’s economic growth fell to 3.4% in fiscal year 2025-26, driven by lower private investment and exports, banking-sector weaknesses, and gas and electricity shortages, according to the World Bank’s October 2026 Bangladesh Development Update.
The report, titled “Make Subsidies and Social Protection Work Better for the Poor”, was formally released on Tuesday. It said poverty and income inequality have increased as high inflation and shrinking employment opportunities continue to strain households.
The World Bank projected that growth could remain close to 3.4% in FY2026-27, well below Bangladesh’s average growth rate of 5.6% over the past decade.
Real GDP growth stood at 5.8% in FY2022-23 before falling to 4.2% and 3.5% in the following two fiscal years, respectively. Growth dropped to 2.2% in the third quarter of the last fiscal year, the lowest level since the Covid-19 pandemic.
Capital investment contraction was identified as the main reason for the slowdown. Private investment declined by 0.5%, while public investment fell by 0.7% in the last fiscal year. Real exports of goods and services also dropped by 4.8%.
Slow implementation of the Annual Development Programme, reassessment of major infrastructure projects and limited implementation capacity contributed to lower development spending, the report said.
The World Bank identified banking-sector fragility as one of the most serious risks facing Bangladesh’s economy.
Non-performing loans in the banking sector rose to 33.2% by the end of June 2026. The rate reached 58.9% in Islamic banks and 43.2% in state-owned commercial banks.
Banks’ overall capital adequacy ratio fell to negative 2.6% in December 2025, compared with the international minimum requirement of 10%.
Credit growth to individuals and the private sector fell to 4.5% in June this year, the lowest level in 33 years. Government borrowing from banks, however, grew by 30.4% during the same period.
The World Bank said excessive government borrowing from banks was crowding out private-sector access to credit and reducing investment.
Bangladesh’s national poverty rate rose for a fourth consecutive year to around 22.5% in FY2025-26. The World Bank’s modelling estimated that about 2.1 million people fell below the international poverty line over the past year.
Average inflation declined to 8.7%, but the cost of living remained high because of higher electricity and fuel prices and weaknesses in supply systems. Real wages of low-income workers turned negative in August, sharply reducing their purchasing power.
Government social-protection allocations are not reaching the genuinely poor, while many well-off households are receiving benefits, the report said.
Industrial-sector growth dropped to just 2% because of the energy crisis. Industrial production contracted by 0.3% in the third quarter of the last fiscal year, marking the sector’s first contraction since the pandemic.
Gas and electricity shortages forced several factories to reduce production capacity, cut working hours or lay off workers. Job losses in industry and services have also pushed many women out of the labour market.
Remittances remained a positive trend despite broader economic pressures. Remittance inflows rose by 17.3% to a record $35.6 billion in FY2025-26.
Net foreign direct investment, however, declined by 15% to $1.5 billion, while new equity investment fell by 70.3%.
The World Bank urged immediate reforms in three areas: banking, energy and revenue collection.
For the banking sector, the World Bank recommended completing asset-quality reviews quickly, identifying weak banks, ensuring bank owners bear losses, and gradually withdrawing regulatory forbearance.
For the energy sector, it recommended strengthening domestic gas exploration and LNG infrastructure, while maintaining transparent and competitive bidding for electricity purchases.
For the revenue sector, the World Bank called for separating tax policy from tax administration, preventing tax evasion and reducing broad tax exemptions.