Labonnya Liza; Dbarta24 — Bangladesh is facing severe macroeconomic headwinds as national economic growth slows sharply, poverty rises for the fourth consecutive year, and non-performing loans (NPLs) in the banking sector surge to critical levels, according to the World Bank’s latest edition of the Bangladesh Development Update.
The flagship report, titled “Make Subsidies and Social Protection Work Better for the Poor,” paints a sober picture of the nation’s economic health, pointing to dwindling private investment, persistent energy shortages, and declining real wages that are severely eroding household purchasing power across the country.
Growth Slumps as Investment and Exports Shrink
According to World Bank estimates, Bangladesh’s real GDP growth plunged to 3.4% in FY2025–26, continuing a downward trajectory from 5.8% in FY2022–23, 4.2% in FY2023–24, and 3.5% in FY2024–25. Economic expansion ground to a near-halt in the third quarter of FY2025–26, registering a mere 2.2% growth rate—the lowest post-pandemic quarterly figure on record.
A steep contraction in investment lies at the root of this slowdown. Private investment shrank by 0.5%, while public investment dipped by 0.7% during FY2025–26. Concurrently, real exports of goods and services plummeted by 4.8%. The Annual Development Programme (ADP) implementation hit historical lows due to stringent reviews of major infrastructure projects, cautious new project approvals, and broader implementation bottlenecks.
Industrial Stagnation and Labor Market Strain
The industrial sector expanded by approximately 2% in FY2025–26, but contracted by 0.3% in the third quarter—marking its first post-pandemic quarterly decline. Deepening gas and electricity shortages forced factories to operate well below capacity, leading to reduced working hours, temporary shutdowns, and layoffs.
While Bangladesh was largely self-sufficient in natural gas until 2017, it now imports roughly one-third of its total supply. Heavy reliance on a small number of major gas fields and floating LNG terminals in Moheshkhali leaves the country’s industrial supply chain vulnerable to sudden, widespread disruptions.
The labor market has felt the acute impact of this deceleration. Many women who lost jobs in manufacturing and services have exited the workforce entirely. Female labor force participation fell from 42.8% in 2022 to 38.4% in 2024.
Persistent Inflation and Surging Poverty
Average inflation moderated slightly to 8.7% in FY2025–26 from 10% in FY2024–25, with point-to-point inflation standing at 8.3% in August. However, energy price hikes—including a 16.7% increase in retail electricity tariffs—alongside supply chain disruptions and money supply expansion kept cost-of-living pressures elevated. Real wages for low-income workers failed to keep pace, sliding back into negative territory by August.
As a result, national poverty increased for the fourth straight year, rising from 18.7% in 2022 to an estimated 22.5% in the last fiscal year, alongside widening income inequality. Based on the international poverty line of $3.00 per day, poverty rose by 1.1 percentage points to 10.1%, pushing approximately 2.1 million additional people into extreme poverty over the past year.
Critical Banking Risks and Structural Reforms
The World Bank highlighted systemic fragility in the banking sector as one of Bangladesh’s most immediate economic hazards. Non-performing loans (NPLs) surged from 20.2% in December 2024 to 33.2% by June 2026.
The NPL ratio reached a staggering 58.9% in Islamic banks and 43.2% in state-owned commercial banks. The banking sector’s overall capital adequacy ratio fell to negative 2.6% in December 2025, far below the regulatory minimum requirement of 10%.
To restore macroeconomic stability, the World Bank recommends urgent reforms focused on stabilizing the banking sector, ensuring energy security, strengthening governance, and expanding tax revenues.
The report also calls for gradually phasing out universal subsidies in favor of targeted social assistance programs, noting that current social safety net expenditures often fail to reach the poorest households.