Around 1.4 million more people fell into poverty in Bangladesh in 2025, reaching the rate to 21.4 per cent, which was 20.5 per cent in 2024, said the World Bank.
Moreover, the Middle East conflict is expected to blunt a projected recovery in 2026, leaving only 0.5 million people lifted out of poverty against a baseline of 1.7 million had the conflict not occurred.
The Washington-based lender made the projection in its report titled ‘Bangladesh Development Update: Special Focus – A Business Environment that Delivers Jobs’, presented at a seminar jointly organised by the Policy Research Institute and the World Bank on Monday in the capital.
Dhruv Sharma, senior economist at the World Bank, presented key findings from the latest report at the seminar.
Bangladesh’s near-term outlook has also weakened, with real GDP growth for FY26 revised down to 3.9 per cent from the previous projection of 4.6 per cent in January 2026.
The projection reflected the combined impact of the ongoing Middle East conflict and persistent domestic macroeconomic challenges, including elevated inflation, weak investment, and vulnerabilities in the financial sector, according to World Bank data.
Inflation is expected to moderate compared to FY25 but remain elevated due to higher import and energy costs linked to the conflict.
Meanwhile, poverty at the $3.0 international poverty line (2021 PPP) was 9 per cent in 2024, which is projected at 8.7 per cent in 2026, 0.7 percentage points higher than the 8.0 per cent that would have been recorded absent the conflict.
This comes against a backdrop of already deteriorating welfare; poverty at the national poverty line is projected to have risen for a third consecutive year, increasing from 18.7 per cent in 2022, 18.9 per cent in 2023, and 20.5 per cent in 2024.
Regarding the inflation, the report says that inflation remained persistently high, averaging 8.5 per cent during July–February FY26, rising further to 9.1 per cent in February 2026 amid seasonal demand pressures and election-related spending.
Real wage growth for low-income workers has turned negative, eroding purchasing power and worsening welfare conditions, it added.
Over the past decade, job creation has not kept up with the growth of the working-age population. Employment growth has increasingly shifted toward low-productivity agriculture while manufacturing and services have lost momentum.
For women, all employment growth since 2016 has come from agriculture, reversing earlier gains in sectors such as ready-made garments.
The report described Bangladesh›s private sector as highly distorted, with a small group of export-oriented frontier firms – mainly in the garment industry – dominating revenues and exports while generating relatively limited employment.
According to the findings, the top 10 per cent of productive firms account for 75 per cent of revenues and 70 per cent of exports but only 15 per cent of employment.
Meanwhile, SMEs and informal businesses account for the overwhelming majority of jobs yet receive limited policy support.
Business regulations were also identified as a major obstacle to investment and job creation. Senior managers spend an average of 13 per cent of their time complying with regulations, rising to as high as 60 per cent in Barishal.
Starting a formal business can cost up to $10,000, while Bangladesh ranks among the weakest performers in South Asia on market competition, insolvency, and dispute resolution indicators.
The World Bank also said that vulnerabilities in the financial sector intensified, posing growing systemic risks.
The system-wide non-performing loan ratio peaked at 35.7 per cent in September 2025 before easing to 30.6 per cent in December 2025.
Moreover, system-wide regulatory capital stood at 4.6 per cent in June 2025 against 10 per cent minimum regulatory requirement.
22 banks holding 47 per cent of banking sector assets are undercapitalised, said the report.
Private sector credit growth fell to 6 per cent in February FY26, down from 6.8 per cent a year earlier.
Revenue collection declined in FY25 to its lowest level (in percent of GDP) in the past 15 years and is expected to increase modestly in FY26. The revenuetoGDP ratio declined by 0.3 percentage points to 8 per cent in FY25, and the taxtoGDP ratio fell below 7 per cent for the first time in 15 years.
Public debt increased to 39.5 per cent of GDP in FY25, up from 37.6 per cent in FY24, with researchers warning that the rapid accumulation of domestic debt could create future sustainability risks.
The report recommended comprehensive tax reforms, including phased reductions in tax exemptions, VAT restructuring and stronger tax administration.
The report warned that prolonged instability in the Middle East could significantly worsen Bangladesh›s economic outlook, especially in the sector like exports, imports, and remittances.
The report recommended a two-stage reform strategy, focused first on macroeconomic stabilisation and later on long-term job creation.
Short-term priorities include maintaining a tight monetary policy, rebuilding foreign exchange reserves, restoring banking sector stability, and increasing domestic revenue mobilisation.
Over the medium term, researchers said Bangladesh must address four major structural gaps: infrastructure, business regulation, skills development and gender participation in the labour market.
The report also called for ‘smart deregulation,’ greater competition, expanded private capital formation and stronger support for SMEs to ensure that future growth translates into sustainable employment generation.
PRI chairman Zaidi Sattar said that job creation remains Bangladesh’s defining economic challenge.
In the context of Bangladesh, growth, jobs, and poverty reduction are interconnected, and without growth, there will be no job creation, and without jobs, poverty reduction cannot be sustained, he added.
At the seminar, a panel discussion featured distinguished economists and business leaders, including Fahmida Khatun, executive director of the Centre for Policy Dialogue, TIM Nurul Kabir, executive director of the Foreign Investors’ Chamber of Commerce and Industry, and Ashikur Rahman, principal economist at PRI.
