World Bank Urges Bangladesh to Implement Urgent Reforms for Sustained Growth

Economic Rebound in Second Half of FY25

Dhaka, Bangladesh – The World Bank, in its recently released 'Bangladesh Development Update' and 'South Asia Development Update' on October 7-8, 2025, reported a significant economic rebound in Bangladesh during the second half of fiscal year 2024-25 (FY25). This recovery followed disruptions in the first half of the fiscal year and was primarily fueled by strong export performance, record remittance inflows, and a rise in foreign exchange reserves. External pressures eased due to the adoption of a market-based exchange rate, stabilization of reserves, and a narrowed current account deficit. Inflation also showed signs of moderation.

Call for Urgent Reforms to Address Persistent Challenges

Despite the positive turnaround, the World Bank underscored that urgent and bold reforms are essential to sustain this growth trajectory and create much-needed jobs, particularly for youth and women. Jean Pesme, World Bank Division Director for Bangladesh and Bhutan, stated, 'The economy has shown resilience, but this cannot be taken for granted.' He further emphasized that 'To ensure a strong growth path and more and better jobs, Bangladesh needs bold reforms and faster implementation.' The report highlights several persistent challenges:

• Sluggish private investment: Private investment has remained stagnant, hovering around 23-24 percent of GDP, deterred by political uncertainty and high business costs.
• Stagnant employment and rising poverty: Poverty increased from 20.5 percent in FY24 to 21.2 percent in FY25. Labor force participation declined from 60.9 percent to 58.9 percent, with 2.4 million women disproportionately affected among the three million working-age individuals who left the workforce.
• Vulnerabilities in the banking sector: The sector continues to grapple with persistently high levels of non-performing loans.
• Weak revenue mobilization: The fiscal deficit widened due to weak tax revenue collection and increasing subsidies and interest payments.
• Elevated inflation: Inflation remained high, reaching 8.3 percent in August 2025 and 8.36 percent in September.

Key Areas for Reform

The World Bank outlined several critical areas where reforms are imperative for Bangladesh's long-term economic stability and inclusive growth. These include:

• Enhancing domestic revenue mobilization: Implementing comprehensive tax reforms to expand the revenue base.
• Addressing banking sector vulnerabilities: Strengthening governance and curbing the culture of default to restore credibility.
• Reducing energy subsidies: Phasing out costly energy subsidies to create fiscal space for productive investments.
• Improving urban planning and investment climate: Rethinking spatial development strategies to create more equitable job opportunities beyond major urban centers like Dhaka and Chattogram, and improving the overall environment for private investment.
• Promoting trade openness and AI adoption: Advocating for reforms that reduce trade barriers and embrace artificial intelligence to boost productivity and job creation, a recommendation also highlighted in the regional 'Jobs, AI, and Trade' report.

Growth Projections and Future Outlook

The World Bank projects Bangladesh's GDP growth to rise to 4.8 percent in FY26 from an estimated 4.0 percent in FY25. If the recommended reforms are implemented effectively, growth could accelerate further to 6.3 percent in FY27. The report also noted that Bangladesh's debt distress risk has increased from 'low' to 'moderate', underscoring the urgency of these reforms as the country prepares for its graduation from Least Developed Country (LDC) status.