A recent report highlights that a prolonged conflict in the Middle East may lead to increased inflation, a wider current-account deficit, reduced exports, lower remittances, and limited fiscal space for Bangladesh. The World Bank’s Bangladesh Development Update forecasts a growth slowdown to 3.9% in FY26. The country is grappling with rising poverty, persistent inflation, a stressed banking sector, weak revenue generation, and subdued private investments, exacerbated by the Middle East crisis.
Inflation in Bangladesh stood at 8.5% in FY26, driven by elevated levels of both food and non-food inflation. The report notes that the wages of low-income earners have not kept pace with inflation, diminishing their purchasing power. The national poverty rate rose to 21.4% in 2025 from 18.7% in 2022, resulting in an additional 1.4 million people falling below the poverty line in 2025.
The report emphasizes that Bangladesh, with limited foreign exchange reserves, stringent fiscal and monetary policies, and a fragile banking system, lacks the capacity to absorb prolonged shocks and mitigate their impact on vulnerable populations. It suggests that sustained political stability post the 2026 elections and swift progress in structural reforms could aid in the country’s recovery. Urgent policy changes and institutional reforms are deemed essential to restore macroeconomic stability, enhance revenue streams, and fortify the financial sector.
The World Bank’s Division Director for Bangladesh and Bhutan, Jean Pesme, stresses the necessity of decisive structural reforms, particularly in revenue mobilization, the financial sector, and the business environment, to maintain resilience. Senior Economist Dhruv Sharma underlines the importance of enhancing the business climate to sustain growth and accommodate a rapidly expanding workforce. The report recommends targeted deregulation, robust competition policies, fair competition for state-owned enterprises, streamlined trade regulations, and improved electricity reliability to foster private-sector-led growth and job creation.
