Bangladesh economy raises concerns among businesses and economists

The World Bank’s latest assessment of Bangladesh’s economy has sparked concern among businesses and economists, with weak investment, declining employment, rising poverty, sluggish growth and persistent energy shortages continuing to weigh on economic activity.

The report presents a challenging outlook, with several major economic indicators showing signs of deterioration. Business leaders and economists have urged the government to undertake urgent reforms, simplify policies and create a more investment-friendly environment to restore confidence and revive private-sector activity.

They called for closer coordination between the government and stakeholders to restructure the economy, improve the business climate and create conditions that encourage investment and employment.

Md Fazlul Hoque, administrator of the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) and former president of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), said he broadly agreed with the World Bank’s assessment.

“There may be debate over the growth rate, but broadly speaking, the information the World Bank has provided on the economy and investment situation should be taken seriously,” he told the media.

He said ensuring adequate gas and electricity supplies should be a priority for the government if it wants to boost investment and employment.

“New gas fields must be brought into use. Policy and strategic reforms are needed to increase investment,” he said, adding that greater incentives should also be provided to sectors that are less dependent on gas and electricity.

According to the World Bank, Bangladesh’s real GDP growth declined to 3.4% in the 2025-26 fiscal year, while growth slowed to around 2.2% in the third quarter.

Growth had stood at 5.8% in 2022-23. The latest quarterly growth rate was the lowest since the Covid-19 pandemic.

The World Bank attributed much of the slowdown to weaker investment. Private investment contracted by 0.5%, while public investment fell by 0.7% in 2025-26.

Real exports of goods and services also declined by 4.8% during the period, while implementation of the Annual Development Programme fell to a record low.

Persistent gas and electricity shortages have forced many factories to operate below capacity. Some have reduced working hours, suspended production or laid off workers.

Former National Board of Revenue (NBR) chairman Muhammad Abdul Majid described the economic situation as disappointing, saying expectations of a recovery in investor confidence and private-sector activity had not materialised.

“The investment climate is not favourable at all,” said Syed Ershad Ahmed, former president of the American Chamber of Commerce in Bangladesh (AmCham).

He said restoring law and order and political stability should be the government’s top priority.

“Investors need guarantees that everything is running smoothly and that conditions are normal,” he said, stressing the need to improve infrastructure, ensure uninterrupted electricity and energy supplies and make ports more efficient to attract foreign investment.

Ershad said foreign investment brings more than capital, as it also contributes technology, modern management practices, skills and employment opportunities.

The World Bank reported that industrial growth was around 2% in 2025-26, while industrial production contracted by 0.3% in the third quarter.

It was the first quarterly contraction in the industrial sector since the Covid-19 pandemic.

The country’s gas shortage has also become increasingly severe, with imports meeting around one-third of total demand. The report noted that heavy reliance on several major gas fields and the floating LNG terminal in Maheshkhali leaves the overall supply system vulnerable to disruptions at key facilities.

Inflation has also remained elevated for several years. Average inflation declined from 10% in 2024-25 to 8.7% in the last fiscal year, while point-to-point inflation stood at 8.3% in August.

Despite increased government borrowing, subsidies and interest payments, along with stronger remittance inflows, private-sector credit and investment in productive activities failed to rise significantly.

The World Bank estimated that the poverty rate increased for a fourth consecutive year, rising from 18.7% in 2022 to around 22.5% in the last fiscal year. An estimated 2.1 million people fell below the poverty line during the year.

The banking sector remains another major source of concern.

The World Bank identified weaknesses in the banking sector as one of the most serious risks facing Bangladesh’s economy. The share of non-performing loans increased from 20.2% at the end of December 2024 to 33.2% in June 2026.

The NPL ratio reached 58.9% in Islamic banks and 43.2% in state-owned commercial banks.

The banking sector’s aggregate capital ratio fell to negative 2.6% in December 2025, compared with the minimum regulatory requirement of 10%.

Private-sector credit growth dropped to 4.5% in June, its lowest level in 33 years, while government credit growth climbed to 30.4%.

Economist Dr Biru Paksha Paul, a professor at the State University of New York, said economic growth could not recover without stronger investment.

He proposed a three-pronged approach involving a review of existing policies, implementation of necessary reforms and renewed engagement with the broader business community. Private investment has contracted for a second consecutive year amid high interest rates and energy shortages. Foreign direct investment fell 15% to $1.5 billion, while new equity investment declined by 70.3%.

Fazlul Hoque also stressed the importance of improving law and order to encourage investment. He urged the authorities to tackle extortion and other forms of harassment faced by businesses.

He said Bangladesh Bank’s initiative to provide incentives for reopening industrial units was a positive move, but the private sector was not receiving the full benefit because commercial banks remained reluctant to provide financing.

Despite the broad economic challenges, remittances remain a bright spot.

Bangladesh received a record $35.6 billion in remittances in the last fiscal year, helping strengthen the country’s foreign exchange reserves.

Experts, however, said stronger investment and a more business-friendly environment are essential to turning remittance inflows and other economic gains into sustainable growth and greater employment opportunities.