Bangladesh– 8 October 2025

The World Bank has projected that Bangladesh’s Gross Domestic Product (GDP) growth will rise to 4.8% in the Fiscal Year 2025-26 (FY26), up from an estimated 4.0% in FY25, following a rebound in the latter half of the current fiscal period. However, the global lender issued a strong caution in its latest Bangladesh Development Update, asserting that this moderate recovery is not sustainable without immediate and bold reforms to address deep-seated vulnerabilities in the banking sector and significantly boost domestic revenue mobilisation.

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Headline Points

 * Growth Forecast: The World Bank projects Bangladesh’s GDP growth to rise to 4.8% in FY26 from 4.0% in FY25, and further accelerate to 6.3% in FY27.

 * Rebound Drivers: The economic pickup in the second half of FY25 was driven by a stabilisation of foreign exchange reserves, the adoption of a market-based exchange rate, and robust growth in exports and remittances.

 * Reform Mandate: The Bank insists that strong and timely reforms are critical to sustain growth, specifically targeting banking sector vulnerabilities and domestic revenue mobilisation.

 * Banking Crisis Warning: Key banking reforms urged include restructuring state-owned banks, establishing a framework to manage Non-Performing Loans (NPLs), and ensuring the full independence of the central bank.

 * Fiscal Deficit: The fiscal deficit remains a significant concern, having widened due to weak tax revenue collection and escalating costs from higher subsidies and interest payments.

The Cautious Climb: Unpacking the Growth Trajectory

The World Bank’s forecast offers a ray of hope for Bangladesh’s economy, which has navigated a period of intense financial volatility. The projected climb to 4.8% in FY26, and a stronger 6.3% in FY27, suggests the country is gradually emerging from the shadow of currency pressures and inflation that dominated the last two years.

The report credits the initial signs of stability to decisive policy adjustments undertaken in FY25. The adoption of a market-based exchange rate helped to stabilise foreign exchange reserves and narrow the current account deficit. Inflation, a persistent threat to household incomes and poverty alleviation, also showed signs of moderation due to tight monetary policy, lower essential food import duties, and a strong agricultural harvest. Furthermore, the resilient performance of the RMG export sector and a solid inflow of remittances provided essential foreign currency liquidity, fuelling the modest economic rebound in the latter part of FY25.

However, the Bank’s assessment is firmly anchored in the belief that this upward trajectory is far from guaranteed. The structural flaws that hampered growth remain largely unaddressed, presenting significant downside risks that could easily derail the projected acceleration. The institution specifically highlighted the fragile state of the financial sector and the country’s chronically low domestic revenue mobilisation as the primary threats to long-term stability and job creation.

The Core Weakness: An Urgent Call for Banking Sector Overhaul

The World Bank described the vulnerabilities in Bangladesh’s banking sector as a major impediment to private investment and sustainable growth. The sector, which is predominantly bank-dependent, suffers from persistent issues related to weak corporate governance, lax regulatory enforcement, and a massive stock of Non-Performing Loans (NPLs).

To effectively address this vulnerability, the World Bank outlined a comprehensive 10-point rescue plan, emphasizing the need for urgent legislative and structural changes. Among the most critical demands is the need for the central bank, Bangladesh Bank, to have full independence to enforce regulations without political interference.

The core of the issue, according to the Bank, is the management of NPLs, which are expected to spike, possibly exceeding 30% of total loans, once international-standard classification rules are strictly enforced. The recommended reforms to address this include:

 * Restructuring of state-owned banks which have been major contributors to the NPL burden.

 * Establishing a robust NPL management framework to address both the stock of existing bad loans and the future flow of new NPLs.

 * Enactment of a comprehensive bankruptcy law to allow for quicker resolution and recovery of assets.

 * Strengthening the bank resolution framework to allow the central bank to manage and resolve distressed banks effectively.

 * Improving corporate governance and risk management within financial institutions to prevent recurrences of politically connected lending.

The Bank’s clear message is that without swiftly tackling these structural weaknesses, the banking system will continue to be a drain on the national economy, limiting the credit available for productive, job-creating private enterprises.

The Fiscal Challenge: Boosting Domestic Revenue

A second major bottleneck identified by the World Bank is Bangladesh’s consistently weak domestic revenue mobilisation. The fiscal deficit widened in FY25, largely driven by this deficiency and the need for higher government expenditure on subsidies and debt interest payments. Bangladesh’s tax-to-GDP ratio is among the lowest in the world, collecting only about half of its potential revenue. This severely limits the government’s capacity to finance necessary development expenditure, social safety nets, and climate resilience projects.

To bolster domestic revenue generation—a critical requirement for financing the country’s journey to upper middle-income status by 2031—the World Bank urged bold fiscal reforms. These recommendations focus on modernisation, simplification, and broadening the tax base:

 * Rationalising tax expenditures and exemptions which currently erode the revenue base.

 * Adopting a uniform VAT rate and simplifying the system to improve compliance.

 * Facilitating comprehensive automation of the tax administration process to increase efficiency and transparency.

 * Reducing reliance on indirect taxes (like VAT) by improving direct tax collection.

The Strong and Timely Reforms called for by the World Bank are not merely technical adjustments; they are a necessary foundation for achieving sustainable, inclusive growth and creating more and better jobs for Bangladesh’s rapidly expanding workforce. The next two years will be critical for the government to demonstrate its commitment to implementing these structural changes, transforming a hopeful projection into a secure economic reality.