Challenges like inflation, external pressure, financial sector vulnerabilities, and political uncertainty will continue to put pressure on Bangladesh’s economy in the current FY25, according to the World Bank.
The organization further said that the gross domestic product (GDP) of Bangladesh will decrease by 4% in the current FY25. However, in the next FY26, it may increase to 5.5%.
However, inflation will come down at the end of FY25, which will bring some relief to the people of Bangladesh, the World Bank said in its bi-annual update which it released on Tuesday.
The latest Bangladesh Development Update also highlights that global and domestic factors have created a challenging macro-fiscal context for the country. Bangladesh’s real GDP growth moderated to 5.2% in FY24, primarily due to weak consumption and exports.
It is projected to decelerate to 4% in FY25, driven by subdued investment and industrial sector activities, before accelerating to 5.5% in FY26 and returning to a robust growth trajectory soon after.
Bangladesh also faces increasing income inequality, particularly in urban areas. From 2010 to 2022, Bangladesh’s Gini index—a measure of income inequality—increased by nearly three points from 0.50 to 0.53.
The report highlights urgent and bold reforms that are necessary to help the country return to a strong, inclusive and sustainable growth path.
Despite the overall unemployment rate declining between 2016 and 2022, young people face significantly higher unemployment rates, particularly in urban areas. The availability of jobs has declined for urban educated youth, and job creation in large industries, like the readymade garment sector, has stagnated.
Since 2016, while more jobs were created in Dhaka, three divisions—Chittagong, Rajshahi, and Sylhet—faced significant net employment losses.
“In recent years, Bangladesh’s growth has not translated into job creation for the large number of youths entering the job market every year. Particularly, the educated youth and women face difficulty in getting jobs to fulfill their aspirations,” said Abdoulaye Seck, World Bank country director for Bangladesh and Bhutan.
“But time and again, Bangladesh has shown extraordinary resilience and determination in the face of adversity. I am confident that with urgent and bold reforms to enhance economic and financial governance, improve the business environment, Bangladesh can return to a strong and inclusive growth path, with millions of jobs for its youth.”
The fiscal deficit is estimated to have moderated marginally to 4.5% of GDP in FY24 and is expected to remain within the government’s target of 4.3% of GDP in FY25, with fiscal space for productive expenditures increasing only gradually. The implementation of the Annual Development plan declined to 80.9% in FY24 compared to 85.2% in FY23.
The current account deficit narrowed to $6.5 billion in FY24, thanks to a contraction in imports and robust remittances. Remittances declined in July due to disruptions but rebounded. The balance of payments deficit also improved.
“Pressure on the external sector is expected to persist in FY25, easing later if global conditions improve and exchange rate flexibility increases,” said Dhruv Sharma, World Bank Senior Economist and Co-author of the report.
“In May 2024, Bangladesh Bank implemented a crawling peg exchange rate system as a step towards a market driven exchange rate system. This led to a narrowing in the gap between the formal and informal exchange rates. While the banking sector faces tight liquidity conditions and elevated non-performing loans, the Bangladesh Bank has made restoring discipline and stability in the sector a priority alongside managing inflation,” he also explains.
The Bangladesh Development Update provides an assessment of the state of the economy in Bangladesh, poverty trends, the economic outlook, risks, and key reform challenges.
It covers real sector developments; inflation; monetary and financial sector developments; external sector trends, focusing on the balance of payments, foreign exchange reserves and the exchange rate; and fiscal outcomes, focusing on revenue mobilization, public expenditures, and deficit financing.
Inflation will fall at 9% in FY25, 7.5% in FY26
The World Bank forecast that inflation will come down to 9% in FY25 from 9.7% in FY 2024. They also forecast that in FY26 it will be 7.5%.
Regarding inflation, Dhruv Sharma, World Bank senior economist and co-author of the report, said: “Though we have seen significant disruption in first quarter, but by the end of this fiscal, inflation will come down.”
Earlier Abdoulaye Seck explained that inflation, driven by high food and energy prices, averaged 9.7% in FY24. Inflation spiked in the month of July and moderated in August.
It is expected to remain elevated in the near term, but gradually subside in the medium term if supply-side issues stabilize and prudent monetary and fiscal policies are maintained, he also said.
However, according to Bangladesh Bureau of Statistics (BBS) data, in the first quarter of FY25, consumer price index (CPI) also increased by an average of 10.7%. Meanwhile, food inflation rose to 14.1% in July and averaged 11.9% in the first quarter.
The World Bank report further said that inflation rose as supply chains were disrupted by social and political unrest during the change of political government on August 5.
However, inflation is showing signs of easing as challenges to the food supply system begin to ease.
On the other hand, Bangladesh Bank has kept the monetary policy tight even in the first quarter of FY25 to deal with high inflation.