The World Bank has issued a cautious outlook for Bangladesh’s economy in the fiscal year 2025 (FY25), warning of continued pressure from inflation, external challenges, and domestic political uncertainty. According to the latest Bangladesh Development Update, the country’s GDP growth is set to slow to 4% in FY25, down from 5.2% in FY24, with a more optimistic 5.5% growth projected in FY26.
The global lender pointed to several factors contributing to the economic strain, including weakened consumption, falling exports, and a stagnant industrial sector. High inflation, driven by surging food and energy prices, has also played a significant role, with the inflation rate averaging 9.7% in FY24. The World Bank expects inflation to slightly ease to 9% in FY25 before dropping further to 7.5% in FY26.
Despite the bleak short-term forecast, the World Bank remains hopeful for long-term recovery, emphasizing the need for bold economic reforms. Abdoulaye Seck, World Bank Country Director for Bangladesh and Bhutan, expressed confidence in Bangladesh’s resilience, stating, “With the right reforms to enhance governance and improve the business climate, Bangladesh can return to a strong and inclusive growth path.”
Job Creation and Income Inequality Remain Key Challenges
The report also highlighted the ongoing struggle with income inequality, especially in urban areas, with Bangladesh’s Gini index (a measure of income disparity) increasing from 0.50 to 0.53 between 2010 and 2022. While unemployment has declined overall since 2016, youth unemployment, particularly in cities, remains high. The ready-made garment sector, which historically created numerous jobs, has seen stagnation, leaving educated youth and women facing difficulty in securing employment.
The fiscal deficit is also under strain, estimated at 4.5% of GDP in FY24, with limited capacity for the government to increase spending on developmental projects in FY25. However, Bangladesh saw a slight improvement in its current account deficit, which narrowed to $6.5 billion in FY24 due to reduced imports and steady remittances.
Inflation and Monetary Policies: A Tightrope Walk
On the inflation front, the World Bank reported that food inflation in Bangladesh spiked to 14.1% in July 2024, with overall inflation averaging 10.7% in the first quarter of FY25. The political unrest that occurred during the government transition in August also disrupted supply chains, exacerbating inflation. However, the World Bank anticipates a slowdown in inflation as supply issues stabilize.
In response to inflationary pressures, Bangladesh Bank has maintained a tight monetary policy, focusing on stabilizing the economy despite challenges in the banking sector, including non-performing loans and liquidity problems.
Looking Ahead: Reform and Recovery
The World Bank’s report remains cautiously optimistic, suggesting that Bangladesh’s economic resilience will be key to navigating these difficult times. The country’s move toward a market-driven exchange rate system in 2024 has helped narrow gaps between official and informal exchange rates. However, structural reforms in governance, business regulation, and employment creation are deemed essential for fostering inclusive growth.
The World Bank forecast a slow but steady recovery, with inflation set to fall to 7.5% by FY26, while Bangladesh’s growth trajectory could return to strength, provided it implements the necessary reforms to boost economic and financial governance.
