A major economic shock could push around 62 million people in Bangladesh below the poverty line, as persistent inflation, declining incomes, employment pressures and an energy crisis continue to weaken household finances.
The warning comes from the World Bank’s latest Bangladesh Development Update, released on Tuesday. The report suggests that the country’s progress in reducing poverty over the past several decades is now at risk of being reversed as economic growth remains subdued and the cost of living stays elevated.
According to the World Bank, Bangladesh’s poverty rate was 18.7 per cent in 2022. It could rise to 22.5 per cent in 2026. Extreme poverty is also projected to increase sharply. Based on the international poverty threshold of US$3 a day, the extreme poverty rate could rise from 5.9 per cent in 2022 to 10.1 per cent this year.
Inflation and employment under pressure
High inflation over the past four years has significantly reduced people’s real purchasing power. Although nominal incomes may have risen for some households, higher prices for essential goods and services have reduced what those incomes can actually buy.
The energy crisis has added another layer of pressure. Businesses have faced disruptions to operating hours, while some factories have had to suspend production because of shortages. This has weakened industrial activity and made it harder for the economy to generate new employment.
The World Bank estimates that the poverty rate increased by 1.1 percentage points in the 2026 fiscal year alone. Around 2.1 million additional people are estimated to have fallen into poverty since the 2025 fiscal year.
The employment situation is also a concern. Women have reportedly been more affected by recent job losses as opportunities have contracted. However, the full scale of the deterioration in the labour market remains unclear because updated Labour Force Survey data have not been available since 2025.
This uncertainty makes it difficult to establish precisely how many people have lost jobs or how deeply employment conditions have deteriorated.
Tax system offers limited protection
The World Bank has also highlighted weaknesses in Bangladesh’s fiscal system, particularly its ability to protect poorer households.
Government transfers and subsidies can reduce poverty and inequality. An analysis of 2022 data found that direct taxes and transfers reduced the Gini coefficient, a measure of income inequality, from 52.4 to 50.7. They also reduced the poverty rate from 19.6 per cent to 18.8 per cent.
However, indirect taxes substantially offset those gains. After accounting for indirect taxation, the Gini coefficient rose to 51.4 and the poverty rate increased to 20.6 per cent.
The findings indicate a structural problem: while the state provides support to poorer households through transfers and other measures, those households also bear the burden of consumption-based taxation. This can substantially reduce the net benefit of government assistance.
Middle East conflict adds further risks
The World Bank has warned that the ongoing Iran-US conflict and wider instability in the Middle East could add to Bangladesh’s economic pressures.
Long-standing weaknesses in the financial sector, revenue mobilisation, energy system and public investment have already reduced the economy’s ability to absorb shocks. Higher global prices for energy and fertiliser have intensified those vulnerabilities.
Bangladesh’s fuel import bill has increased by 107 per cent, while fertiliser imports have risen by 42 per cent, according to the report.
If the conflict continues for an extended period, energy import costs could rise further. That would increase pressure on government subsidies and public finances. A prolonged energy shortage could also delay private investment and the recovery of industrial activity, potentially slowing economic growth further.
The World Bank also noted that inflation in most South Asian countries other than Bangladesh is currently within or below their respective central bank targets, highlighting the relatively persistent inflationary pressure facing the country.
Social protection remains fragmented
Bangladesh operates a range of social protection measures alongside fuel and fertiliser subsidies to help households cope with economic hardship. Yet the World Bank argues that the main weakness is no longer simply the amount of money allocated to social protection. Administrative inefficiency and fragmentation are major problems.
In 2026, the government is running 90 social protection programmes through 25 ministries.
The large number of programmes has made the system fragmented, with separate eligibility rules, overlapping beneficiary lists and complicated delivery mechanisms. These problems increase administrative costs and can prevent the poorest households from receiving assistance.
According to the World Bank, 62 per cent of households in the poorest 20 per cent of the population receive no social protection benefit. By contrast, 18 per cent of households in the richest 20 per cent receive such benefits.
A similar pattern exists in electricity subsidies. The richest 20 per cent of urban households receive almost half of the total electricity subsidy.
Fuel and fertiliser subsidies can also encourage excessive consumption, reducing incentives for energy conservation and more efficient use of resources.
Family Card seen as a potential solution
The World Bank views the government’s Family Card initiative as a potential way to create a more unified platform for household-based assistance. Its effectiveness, however, will depend heavily on the accuracy of beneficiary selection.
If the same targeting errors found in older programmes are repeated, the new system may fail to reach the households most in need.
Existing social protection programmes are estimated to reduce the poverty rate by around 3.05 percentage points. Even with similar targeting errors, introducing the Family Card could reduce poverty by a further 0.95 percentage points, potentially lifting around 1.58 million people out of poverty.
If the Family Card is combined with more accurate targeting for old-age and widow allowances and an integrated food assistance programme, the poverty rate could fall by 1.72 percentage points. That could help around 2.85 million people move out of poverty, at an additional cost equivalent to 0.21 per cent of GDP.
Electricity subsidies becoming increasingly costly
Electricity and gas subsidies have become a major burden on public finances. Government subsidies for electricity and gas rose from Tk 8,580 crore in fiscal 2014 to Tk 83,600 crore in fiscal 2025, equivalent to 1.5 per cent of GDP. Between 70 and 90 per cent of that amount goes to the electricity sector.
The average retail electricity price is currently Tk 10.63 per unit. When subsidies for gas used in power generation are included, the actual cost rises to Tk 15.16 per unit. This leaves a gap of Tk 4.53 per unit, with government support covering much of the difference. The associated support is equivalent to around 1.1 per cent of GDP.
Yet wealthier households receive a disproportionately large share of the subsidy. Residential consumers receive around 72 per cent of total electricity subsidies. The richest 20 per cent of households receive 33 per cent, while the poorest 20 per cent receive only 15.4 per cent.
The distribution looks different when the benefit is measured against household income. For the poorest 20 per cent, the combined direct benefit of cheaper electricity and the indirect benefit of lower prices for goods produced using subsidised electricity is equivalent to 18.1 per cent of pre-tax income. For the richest 20 per cent, the equivalent figure is only 2.3 per cent.
The World Bank estimates that completely removing electricity subsidies without introducing alternative social protection measures would increase the poverty rate by 2.8 percentage points. Around 4.7 million people could immediately fall below the poverty line, while the Gini coefficient could rise by 1.6 points.
Energy policy faces a difficult balance
Reliable and affordable energy is essential for industrial production, export competitiveness, private investment and large-scale employment. Bangladesh has expanded its electricity generation capacity considerably in recent years, but weaknesses in fuel supply and transmission infrastructure continue to constrain the sector.
Domestic natural gas was once the main foundation of Bangladesh’s energy system. Declining output from older gas fields, combined with insufficient new exploration, has increased dependence on imported liquefied natural gas, or LNG.
In 2017, Bangladesh could meet almost all of its natural gas demand through domestic production. Today, imported LNG is required to meet around one-third of total gas demand.
The number of private power plants has also increased, and the private sector now accounts for 43 per cent of total electricity generation. But shortages of fuel and limitations in transmission capacity continue to create pressure across the power sector.
The World Bank says stabilising energy supplies and improving management and governance in the sector are among the most urgent priorities.
The planned operation of the Rooppur Nuclear Power Plant is expected to add electricity to the national grid and could reduce some pressure on gas-fired generation.
At the same time, reforming electricity subsidies could create significant fiscal savings. The World Bank estimates that eliminating the major electricity subsidy burden could save the government an amount equivalent to 1.9 per cent of GDP.
Less than one-third of the current subsidy reaches the poorest 40 per cent of the population. The World Bank therefore argues that the government could still make substantial fiscal savings even after fully compensating the poorest 40 per cent for their additional costs following subsidy reform.
Under such an approach, the government could save around 0.6 per cent of GDP while protecting poorer households from the immediate impact of higher electricity costs.
The broader challenge for Bangladesh is therefore not simply whether subsidies should be reduced, but how economic reforms can be designed so that the burden does not fall disproportionately on households with the least capacity to absorb another financial shock.
