Bangladesh economy under stress, WB flags growth slide

These findings were presented by Dhruv Sharma, Senior Economist at the World Bank, at a programme organised by the Policy Research Institute (PRI) at its conference room at Banani.

The event, titled “Bangladesh Development Update: Special Focus – A Business Environment That Delivers Jobs,” offered a sweeping assessment of the country's macroeconomic vulnerabilities and the structural barriers holding back job creation.

Dhruv Sharma painted a sobering picture of welfare outcomes, saying an estimated 1.4 million additional people fell into poverty in 2025 alone. National poverty is projected to rise from 18.7 percent in 2022 to 21.4 percent in 2025, driven by high inflation, weak labour incomes, and a shortage of productive jobs.

The Middle East conflict has compounded the damage. While a pre-conflict baseline projected 1.7 million people could be lifted out of poverty in 2026, the actual figure is now estimated at just 500,000 – a shortfall of 1.2 million people who remain trapped below the poverty line because of the conflict's ripple effects.

The presentation flagged severe vulnerabilities in Bangladesh's financial sector. The non-performing loan ratio stands at a troubling 30.6 percent, with a provisioning shortfall of approximately US$28.5 billion. System-wide regulatory capital has fallen to just 4.6 percent as of June 2025, less than half the 10 percent minimum requirement.

Twenty-two banks holding 47 percent of total banking sector assets are undercapitalised. State-owned commercial and development banks are in the worst shape, with deeply negative return on assets and NPL ratios far exceeding private and foreign commercial peers.

On the fiscal front, tax revenue as a share of GDP fell to 6.9 percent in FY25, its lowest level in 15 years. Meanwhile, rising subsidies and sticky current expenditure are crowding out capital spending. Public debt has climbed to 39.5 percent of GDP in FY25, up from 37.6 percent a year earlier, and is projected to reach 41.9 percent in FY26.

Inflation averaged 8.5 percent in FY26 (July-February), remaining stubbornly high despite monetary tightening, a stable exchange rate, and strong agricultural output. Real wages for low-income and unskilled workers have stayed negative, eroding household purchasing power across the board.

A central theme of the presentation was the disconnect between economic growth and job creation over the past decade. New employment has shifted overwhelmingly towards low-productivity agriculture, while manufacturing and services have lost momentum. For women, all net job gains since 2016 came from agriculture, reversing hard-won earlier progress in garments and other non-farm sectors.

Bangladesh's private sector, the report noted, is structured like a pyramid. A small group of “frontier firms”, the top 10 percent by productivity, mostly export-oriented RMG companies, account for 75 percent of revenues and 70 percent of exports, yet employ only 15 percent of the workforce. The remaining 85 percent of jobs sit with SMEs and informal firms at the bottom, which operate with far less support.

The World Bank economist identified the weak business environment as a key drag on job creation. Senior managers in Bangladesh spend 13 percent of their time complying with regulations, rising to as high as 60 percent, and starting a formal business can cost up to approximately $10,000.

Bangladesh ranks lowest in South Asia on the World Bank's B-READY indicators for market competition, dispute resolution, and insolvency. State-owned enterprises operating under preferential regimes are crowding out private players, while distortive tax incentives, such as preferential rates of 12 to 15 percent for RMG against a 27.5 percent standard rate, concentrate benefits at the top of the corporate pyramid.

Sharma outlined a set of immediate and structural reform priorities. In the short term, the focus must be on macroeconomic stabilisation, tightening monetary policy credibly, boosting domestic revenue mobilisation, and restoring banking sector health through recapitalisation and accelerated NPL resolution.

Over the medium term, the report called for closing four structural gaps to generate more and better jobs: the infrastructure gap, the regulatory and business environment gap, the skills gap, and the gender gap in labour force participation.

“Stabilising the economy and strengthening macroeconomic fundamentals is a necessary precondition for creating more and better jobs,” Sharma said, adding that smart deregulation, levelling the playing field for SMEs, and enabling private capital would be critical to reversing the jobs deficit, reports UNB.