Bangladesh’s external sector is showing signs of stability, supported by strong remittance inflows and rising foreign exchange reserves. However, the World Bank says rapid and effective reforms in the banking, energy and domestic revenue sectors are needed to restore economic growth and create jobs.
The recommendations were made in the World Bank’s latest Bangladesh Development Update released on Tuesday, October 6. The report says long-standing structural weaknesses have slowed economic activity, while energy-sector challenges, financial-sector weaknesses, gaps in domestic revenue mobilisation and global uncertainty are putting pressure on investment and economic activity.
The World Bank projects Bangladesh’s economic growth at 3.4 percent in both fiscal years 2025-26 and 2026-27. Growth could rise to 3.9 percent in 2027-28 if energy supply gradually improves and the government accelerates its reform efforts.
The Bangladesh Development Update was released alongside the South Asia Economic Update at the World Bank’s country office in Dhaka. World Bank South Asia Chief Economist Franziska Ohnsorge presented the regional report, while Senior Economists Dhruv Sharma and Nazmus Sadat Khan presented the Bangladesh update. Jean Pesme, World Bank Country Director for Bangladesh and Bhutan, chaired the event.
Pesme said rapid and bold reforms in the banking sector, domestic revenue mobilisation and energy sector were necessary to prevent further economic deterioration and return Bangladesh to inclusive, private-investment-led growth.
He also stressed the need to implement reforms quickly to protect poor and vulnerable people and create more and better jobs.
The World Bank identified reducing the energy crisis, restructuring the financial sector and increasing domestic revenue mobilisation as immediate priorities for Bangladesh.
To stabilise the energy sector, the bank recommended increasing domestic gas production, improving liquefied natural gas infrastructure and diversifying energy sources. It also called for greater investment in electricity transmission and distribution to improve reliability and reduce system losses.
The World Bank further recommended increasing investment in renewable energy, electricity storage and energy efficiency through transparent and competitive processes. It also called for expanding regional electricity trade and encouraging greater private investment in the power sector.
For the financial sector, the bank recommended completing asset-quality reviews of banks quickly and restructuring banks within a defined timeframe based on their viability. It also called for legal and regulatory reforms to strengthen governance and transparency, gradually withdrawing regulatory forbearance and establishing effective mechanisms to resolve non-performing loans.
The report also recommended clarifying the use of deposit protection funds and establishing an effective mechanism for emergency liquidity assistance.
To increase revenue collection, the World Bank recommended separating tax policy formulation from tax administration. It also called for digitising tax administration through an integrated taxpayer database and tax identification numbers, while gradually withdrawing poorly targeted tax exemptions and incentives.
The bank recommended simplifying the VAT system by harmonising VAT rates and reducing exemptions, while strengthening the administration of direct and property taxes.
The report said social protection, energy subsidies and agricultural subsidies play an important role in protecting poor and vulnerable people. However, nearly half of the poorest households are still outside any social protection programme.
The World Bank said beneficiary selection mechanisms need to be improved so that limited public resources reach those who need them most. It identified the government’s proposed Dynamic Social Registry as a potentially important tool for this purpose.
The integrated system could support data-based beneficiary selection and allow new beneficiaries to be included according to changing needs, helping reduce gaps in the coverage and targeting of social protection programmes.
According to the World Bank, better targeting of the Family Card programme alone could help an additional 1.58 million people remain above the poverty line. Coordinating the Family Card with existing cash and food assistance programmes and targeting them more effectively could potentially lift another 2.85 million people out of poverty.
The bank therefore recommended linking the Dynamic Social Registry with the Family Card, the proposed Farmer Card and other assistance and subsidy programmes.
It said Bangladesh should move away from broad-based subsidies towards targeted support systems that can respond quickly during crises. The aim would be to ensure government assistance reaches those who need it most.
Meanwhile, the World Bank’s South Asia Economic Update projects the region’s growth at 6.9 percent this year, supported by strong domestic demand that has helped the region remain relatively resilient to global shocks. Growth is expected to moderate to 6.7 percent in 2027 as global pressures increase.
Johannes Zutt, World Bank Vice President for South Asia, said the region had demonstrated resilience despite difficult global conditions. He said countries in the region would need to invest in new drivers of growth to sustain momentum and create jobs.
He also said South Asian countries need to strengthen skills, infrastructure and the broader environment so workers and businesses can benefit from rapidly expanding AI-based global value chains.
The report said AI adoption is increasing across South Asia, although the region remains well behind advanced economies. Strategic use of artificial intelligence could create new sources of economic growth across the region.
