Although the government spends significant funds on social protection, power, energy, and fertiliser subsidies, a substantial portion fails to reach the poorest households. Well-off families frequently benefit from these subsidies, leaving many vulnerable citizens without adequate safety nets. The World Bank highlighted banking sector stability, energy security, governance, and tax revenue expansion as critical areas for urgent reform, urging policymakers to transition from broad-based subsidies toward targeted assistance for low-income populations.

The report projects real GDP growth to have slowed to 3.4 per cent in FY2025–26, continuing a downward trend from 5.8 per cent in FY2022–23, 4.2 per cent in FY2023–24, and 3.5 per cent in FY2024–25. Growth in the third quarter of FY2025–26 slumped to 2.2 per cent, marking the lowest quarterly expansion since the COVID-19 pandemic. Reductions in both private and public investment, alongside a 4.8 per cent decline in real exports of goods and services, drove this decelerating trend. Historical lows in Annual Development Programme execution, caused by reviews of mega infrastructure projects and weak implementation capacity, further depressed capital expenditure.

Industrial production grew by roughly 2 per cent over the full fiscal year but contracted by 0.3 per cent in the third quarter—the sector’s first quarterly contraction since the pandemic. Chronic gas and electricity shortages forced factories to operate below capacity, leading to reduced working hours, temporary shutdowns, and workforce layoffs. Bangladesh, which was largely self-sufficient in natural gas until 2017, now relies on imports for nearly a third of its total demand. Heavy dependence on a few major gas fields and the floating LNG terminal at Maheshkhali leaves the energy grid vulnerable to severe widespread disruptions whenever technical faults arise.

Weak economic activity has severely impacted the labour market. Female labour force participation dropped from 42.8 per cent in 2022 to 38.4 per cent in 2024 as women who lost jobs in manufacturing and services exited the workforce. Meanwhile, average inflation moderated slightly from 10 per cent in FY2024–25 to 8.7 per cent in the past fiscal year, with point-to-point inflation recorded at 8.3 per cent in August. However, a 16.7 per cent increase in average retail electricity prices and supply chain bottlenecks kept living costs uncomfortably high, driving real wages for low-income workers back into negative territory by August.

Modelled estimates indicate that poverty based on the international threshold of $3 a day rose by 1.1 percentage points to 10.1 per cent in FY2025–26, pushing approximately 2.1 million people into poverty within a single year. According to national poverty metrics, the poverty rate increased for the fourth consecutive year, climbing from 18.7 per cent in 2022 to an estimated 22.5 per cent. Income inequality expanded over the same period.

The World Bank identified banking sector fragility as the most severe systemic risk facing the economy. Non-performing loans escalated dramatically from 20.2 per cent at the end of December 2024 to 33.2 per cent by June 2026. Default ratios reached 58.9 per cent in Islamic banks and 43.2 per cent in state-owned commercial banks. The overall capital adequacy ratio across the sector plummeted to negative 2.6 per cent in December 2025, falling well below the regulatory threshold of 10 per cent. Relaxed provisioning rules deferred nearly $17 billion in required loan-loss reserves through March 2026, obscuring the true extent of financial distress. Uncollateralised liquidity support provided by Bangladesh Bank to weak institutions climbed to BDT 760 billion by June 2026.

Despite Bangladesh Bank reducing the policy rate by 0.5 percentage points to 9.5 per cent on 30 July—its first rate cut in six years—private sector credit growth fell to a 33-year low of 4.5 per cent in June. In contrast, government borrowing from the banking system expanded by 30.4 per cent. Imposing a maximum 4 per cent interest rate spread on non-consumer loans risks restricting credit access for smaller, higher-risk enterprises, as commercial banks increasingly prefer lending to large corporations or the state.

External sector performance showed mixed results. Worker remittances surged by 17.3 per cent to reach a record $35.6 billion, yet the current account deficit widened to nearly $1.6 billion. Goods exports edged down by 0.2 per cent, whereas imports rose by 10.5 per cent to $71.1 billion, driven by a 107 per cent jump in petroleum import bills. Net foreign direct investment dropped by 15 per cent to $1.5 billion—equivalent to just 0.3 per cent of GDP—as new equity investments fell by 70.3 per cent despite higher reinvested earnings.

On the fiscal front, the National Board of Revenue collected 82.6 per cent of its target in FY2025–26, bringing total revenue to 8.3 per cent of GDP, with tax revenue accounting for approximately 7 per cent. A narrow tax base, widespread evasion, administrative inefficiencies, and excessive tax exemptions continue to hinder revenue generation. Total government expenditure expanded to 12.2 per cent of GDP, driven by current spending, while capital expenditure dropped to 2.5 per cent. Full implementation of the proposed public salary structure could raise base pay and allowances by an average of 120 per cent and pensions by 70 per cent, potentially adding an extra fiscal burden equal to 0.6 per cent of GDP in FY2026–27.