Bangladesh’s external sector showed resilience, supported by strong remittance inflows and improving foreign exchange reserves, says the World Bank in its new update, released today, says BSS report.
The washing-based lending agency also said Bangladesh needs urgent financial, energy and revenue reforms to restore growth and create jobs.
The report highlighted that Bangladesh’s economic growth has been facing slowdown as persistent structural constraints—including deepening energy sector, financial sector vulnerability, and weak domestic revenue mobilization—along with global uncertainties weigh on investment and economic activity.
The updates include the latest state and outlook of economy for the South Asia Region and Bangladesh, respectively.
Franziska Ohnsorge, World Bank Chief Economist for South Asia, presented the South Asia Economic Update while World Bank Senior Economists, Dhruv Sharma and Nazmus Sadat Khan jointly made power-point presentations on the Bangladesh Development Update at the World Bank resident office in the capital. Jean Pesme, Division Director for Bangladesh and Bhutan, chaired the session and also spoke.
The latest Bangladesh Development Update projects 3.4% growth in FY26 and FY27. Despite these challenges, the external sector showed resilience, supported by strong remittance inflows and improving foreign exchange reserves. GDP growth is expected to improve to 3.9% in FY28, if supported by a gradual easing of energy supply, and acceleration in the government’s reform drive.
“To avert economic downturn and return to an inclusive growth path, driven by private investment, fast and bold reforms are needed in banking sector, domestic revenue mobilization, 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 added.
The report said social protection, energy and agricultural subsidies help protect the poor and vulnerable. However, about half of the poorest households remain outside of any social protection programs.
The poverty impact of these programs would be materially improved with better targeting; a more responsive social protection program can ensure that limited public resources reach poor and vulnerable households more effectively.
Implementation and scale-up of the government’s Dynamic Social Registry—an integrated system that is intended to enable evidence-based targeting and continuous enrollment of beneficiaries—will be critical to address targeting and coverage gaps.
Analysis suggests that consolidating multiple food subsidies and combining the Family Card with better targeting of existing cash programs could lift an additional 2.85 million people out of poverty.
The World Bank identified some immediate priorities for Bangladesh: easing energy constraints, repairing the financial sector and mobilising domestic revenue.
To stabilise the energy sector, the report recommended increasing domestic gas production, improving LNG infrastructure and diversifying fuel sources. It also called for investment in power transmission and distribution to improve reliability and reduce system losses.
The World Bank recommended scaling up renewable energy, storage and energy-efficiency measures through transparent and competitive procurement. It also suggested expanding regional electricity trade and private-sector participation.
For the financial sector, the report called for completing asset-quality reviews and implementing time-bound bank restructuring based on viability and burden-sharing.
It also recommended stronger governance and transparency through legal and regulatory reforms, phasing out regulatory forbearance and improving the framework for resolving non-performing loans.
The World Bank further recommended clarifying the use of the deposit protection fund and establishing an emergency liquidity assistance mechanism.
On revenue mobilisation, the report suggested separating tax policymaking from tax administration, digitalising tax administration through integrated taxpayer databases and identification numbers, and phasing out poorly targeted tax exemptions and incentives.
It also called for simplifying VAT by consolidating rates and reducing exemptions, while strengthening the administration of direct and property taxes.
The report said better targeting could significantly improve the effectiveness of existing programmes. It estimated that the Family Card alone could keep an additional 1.58 million people out of poverty.
A broader package combining Family Card consolidation and better targeting of existing cash and food programmes could keep an additional 2.85 million people out of poverty, it said.
The World Bank recommended linking the Dynamic Social Registry with the Family Card and other benefit programmes, including the proposed Farmer Card and subsidy schemes.
The World Bank said Bangladesh should shift from broad-based subsidies towards targeted and shock-responsive assistance rather than simply reducing support.
The report said South Asia’s growth is expected to increase to 6.9% this year, with strong domestic demand keeping the region resilient to global shocks. The report projects growth to slow to 6.7% in 2027 as headwinds mount.
“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.”
The report explores how the strategic use of AI can build new sources of growth. Adoption of AI in South Asia is rising but it remains well behind that in advanced economies.