World Bank Projects GDP Growth at 3.4%: Will Bangladesh’s Trillion-Dollar Economy Dream Remain Elusive?

❐ Staff Reporter

---

The World Bank has further lowered its GDP growth forecast for Bangladesh. The organization’s new estimate says the country’s economic growth could drop to 3.4 percent in the 2026-27 fiscal year, which begins on July 1.

The World Bank has cited stagnation in investment as one of the main reasons for this downward growth forecast.

The forecast is lower than the rate at which growth slowed down due to the COVID-19 pandemic. Bangladesh’s GDP growth in the 2019-20 fiscal year was 3.45 percent, the country’s lowest ever.

Economists believe that if this situation continues, the BNP government’s dream of becoming a trillion-dollar economy by 2034 will be further delayed.

Whereas Sheikh Hasina’s Awami League government had announced in 2023 that Bangladesh would achieve the glory of a trillion-dollar economy by 2025; but after the political upheaval of 2024 and the economic downturn, the BNP government has postponed this target to 2034. The World Bank report does not consider this journey to be easy.

Because the organization does not think that the situation will improve in the next fiscal year either. Even if the government can take a proper action plan, according to the World Bank’s forecast, Bangladesh’s growth may stand at only 3.9 percent in the 2027-28 fiscal year.

However, economists’ projections say that to reach a trillion-dollar economy by 2034, GDP growth will have to increase to 8-9 percent continuously. However, analysts do not believe that this is possible to implement given the overall situation of the country’s economy.

The forecast was made in the October edition of the ‘Bangladesh Development Update’ released on Tuesday. The information was shared at a press conference organized at the World Bank’s Dhaka office to mark the release of the report titled ‘Make Subsidies and Social Protection Work Better for the Poor’.

Explaining the forecast cut, the report said that investment remains sluggish and export earnings growth has slowed.

Meanwhile, inflation remains high, reducing people’s purchasing power. The cost of doing business is also increasing. The combined impact of these pressures has lowered Bangladesh’s GDP growth forecast.

Earlier, the World Bank’s ‘Global Economic Prospects’ report published on June 16 said that Bangladesh’s GDP growth could be 4.6 percent in the 2026-27 fiscal year due to the impact of the war between the United States, Israel and Iran. Even earlier, the January 14 report had forecast growth of 6.1 percent.

On the other hand, the BNP government has set a GDP growth target of 6.5 percent for the 2026-27 fiscal year. This target is 3.1 percentage points higher than the ADB’s latest forecast.

The Bangladesh Bureau of Statistics (BBS) released the provisional GDP estimate for the outgoing fiscal year 2025-26 on June 10. It said that Bangladesh’s economy grew by 4.14 percent in the last fiscal year compared to the fiscal year 2024-25.

Even though the three months of July, August, and September of the current fiscal year have passed, the ADB has not yet released the final GDP estimates for the 2025-26 fiscal year.

In the last fiscal year’s budget, the interim government had set a GDP growth target of 5.5 percent.

Sheikh Hasina’s government had set a growth target of 6.75 percent for the 2024-25 fiscal year. Later, after the movement-violence and political changes, the country’s economy suffered a major blow. Production was disrupted. Hundreds of factories were closed due to political reasons. Later, the interim government reduced that target to 5.25 percent. Although the growth rate in the end was 3.49 percent.

Bangladesh’s GDP growth in the 2023-24 fiscal year was 4.22 percent. In the 2008-09 fiscal year, the growth was 5.74 percent. In the 2018-19 fiscal year, it crossed 8 percent for the first time. Later, the revised figure came down to 7.88 percent. This is the highest growth in the history of Bangladesh so far.

The following year, growth slowed to 3.45 percent due to the impact of the Covid pandemic. It rose again to 6.94 percent in the 2020-21 fiscal year. The rate exceeded 7 percent the following year, but declined again to 5.78 percent in the 2022-23 fiscal year.

A press conference was organized at the World Bank’s Dhaka office in Agargaon in the capital to mark the release of the report.

There, World Bank Country Director for Bangladesh Jean Pesme said that rapid and bold reforms are needed in the banking sector, domestic revenue collection, and energy sectors to avoid economic recession and return to a path of private investment-led, inclusive growth.

He added that urgent reforms are needed to ensure the protection of the poor and create more and better jobs. In his words, the time to take action is now.

Stagnation in investment is the main reason for the slowdown in growth

The World Bank report says that both private investment and employment have weakened. Industrial production is being hampered by gas and electricity shortages. Non-performing loans and bank capital shortages are increasing. High inflation is reducing people’s real income and purchasing power.

The government spends huge amounts of money on social security, electricity, fuel, and fertilizer, but a significant portion of it does not reach the poor. Many well-off families receive these benefits, while a large portion of the poorest families remain outside the scope of social security.

The report identifies restoring banking sector stability, ensuring energy security and good governance, and increasing tax revenues as reform priorities. The World Bank also recommends gradually reducing general subsidies and increasing targeted support for the poor and vulnerable.

According to the report, the main reason for the slowdown in growth is the contraction in investment. In the 2025-26 fiscal year, private investment fell by 0.5 percentage points and public investment by 0.7 percentage points. At the same time, real exports of goods and services fell by 4.8 percent.

The implementation rate of the annual development program has also fallen to a record low. Development spending has declined due to the reassessment of major infrastructure projects, caution in approving new projects, and weak implementation capacity.

Pressure on industry and employment

According to the World Bank, industrial growth was around 2 percent in the fiscal year 2025-26. Industrial production fell by 0.3 percent in the third quarter of that fiscal year. This was the first contraction in the industrial sector in any quarter since the Covid pandemic.

Many factories have been unable to operate at full capacity due to gas and electricity shortages. Some companies have reduced working hours, production has been halted in some places, and some factories have laid off workers.

Until 2017, Bangladesh was almost self-sufficient in gas. Now, about one-third of its total demand has to be met by importing it. There is an over-reliance on a few large gas fields and the floating LNG terminal at Maheshkhali. As a result, a problem at any one facility can reduce gas supply to a large area.

The economic slowdown has also had an impact on the labor market. Many women who lost their jobs in the industrial and service sectors have withdrawn from the labor market. The female labor force participation rate has fallen from 42.8 percent in 2022 to 38.4 percent in 2024.

However, since a new labor force survey has not been published since 2025, it is difficult to accurately assess the recent situation.

Inflation

The average inflation rate in the 2024-25 fiscal year was 10 percent. It decreased to 8.7 percent in the last fiscal year. Point-to-point inflation was 8.3 percent in August last year.

However, rising electricity and fuel prices, supply chain problems, and money supply growth have kept inflation high. The average retail price of electricity has increased by about 16.7 percent. Wages for low-income workers have not kept pace with inflation; their real wages turned negative again in August.

In the 2025-26 fiscal year, the money supply increased due to government bank loans, current expenditure including subsidies and interest, expatriate income, and the central bank’s purchase of dollars. But private credit and productive investment did not increase. As a result, this growth in the money supply may put more pressure on commodity prices than on production.

Poverty has increased.

The World Bank’s model-based calculations show that the proportion of people living below the international poverty line of $3 a day will increase by 1.1 percentage points to 10.1 percent in the 2025-26 fiscal year. About 2.1 million people have fallen below this poverty line in a single year.

The poverty rate, according to the national poverty line, has increased for the fourth consecutive year. In 2022, the rate was 18.7 percent; in the last fiscal year, it rose to an estimated 22.5 percent. At the same time, income inequality has also increased.

Big risk in the banking sector

The World Bank has identified the weakness of the banking sector as one of the serious risks to Bangladesh’s economy. The non-performing loan rate was 20.2 percent at the end of December 2024. It rose to 33.2 percent in June 2026. The rate was 58.9 percent in Islamic banks and 43.2 percent in state-owned commercial banks.

In December 2025, the overall capital adequacy ratio of banks fell to negative 2.6 percent, while the minimum rate set by the regulatory agency is 10 percent.

Due to the relaxation of provisioning rules, banks did not have to keep provisions equivalent to about $17 billion until March 2026. This does not fully reveal the true weaknesses of the banks.

The amount of unsecured liquidity support provided by Bangladesh Bank to weak banks reached Tk 76,000 crore in June 2026. While the asset quality review of six Islamic banks has been completed, the review of other banks is progressing slowly.

The World Bank has called the passage of the Bank Resolution Act and the Deposit Protection Act a positive step. However, the process of identifying and resolving real losses is being delayed due to repeated concessions and liquidity support to weak banks.

Revenue is low, expenses are increasing

The report said that in the 2025-26 fiscal year, the National Board of Revenue collected 82.6 percent of the target tax collection. Total revenue increased from 8 percent of GDP to 8.3 percent; of this, tax revenue accounted for about 7 percent.

A limited tax base, tax evasion, weak administration, and excessive tax exemptions are hindering revenue growth. Initiatives to separate tax policymaking and tax administration have also not been effective.

During the same period, total government expenditure increased from 11.4 percent of GDP to 12.2 percent. Current expenditure increased from 8.7 percent to 9.7 percent. In contrast, capital expenditure decreased from 2.8 percent to 2.5 percent.

If the new government salary structure is fully implemented, basic salaries and allowances could increase by an average of about 120 percent and pensions by about 70 percent. As a result, the government’s additional expenditure could be about 0.6 percent of GDP in the 2026-27 fiscal year.

Advice to continue the reforms

The World Bank has recommended that asset quality assessments in the banking sector be completed quickly to determine which banks can survive.

The report states that bank owners, investors and other stakeholders should take responsibility for losses and that regulatory exemptions should be withdrawn in stages.

The agency has suggested increasing domestic gas production, expanding LNG infrastructure, improving electricity transmission and distribution systems, and investing in renewable energy in the energy sector. It has also been said to ensure transparent and competitive tendering in power procurement and project acceptance.

The World Bank has recommended separating the responsibilities of tax policy and tax administration to increase revenue, coordinating information from government agencies to identify tax evasion, and gradually reducing ineffective tax deductions.

The title suggests a worrying tone:

• World Bank’s new forecast: Fears of growth dropping to 3.4 percent
• Stagnation in investment, contraction in industry—forecast of further slowdown in economy
• Non-performing loans at 33.2 percent, bank capital negative—warning of major risks
• 2.1 million more people below poverty line in one year, income inequality increasing
• Gas and electricity crisis disrupts factory production, women are also leaving the labor market
• Growth target is 6.5 percent, World Bank forecast is 3.4—a big gap
• Expenditures are increasing faster than revenue, development spending is decreasing—economy under pressure