The timing of elections is expected to weigh heavily on investment growth, said a World Bank report.
Besides, political uncertainty persisting in the country despite the announcement of the national election by June 2026 amid an economic slowdown is likely to reduce growth and increase poverty in the outgoing financial year 2025, said a World Bank report.
Bangladesh is undergoing a period of economic and political transition as the interim government, led by Professor Muhammad Yunus, has initiated reforms in critical areas such as the economy, judiciary, constitution, electoral system, public administration, police, and anti-corruption institution, according to the WB report on 鈥楤angladesh Development Update鈥� released on Wednesday.
Noting that the proposed reforms are yet to be implemented, the WB said political uncertainty persisted despite the announcement of the election between December 2025 and June 2026 with the law and order remaining unsettled.
The WB observed that safety and security concerns remained and were likely to continue until the restoration of a fully functioning police force.
鈥楶olicy uncertainty is significant and compounded by ongoing discussions about the timing of the next election. Disagreements between political parties and the interim government over the election date could heighten political tensions in the future,鈥� said the WB update.
The timing of elections is expected to weigh heavily on investment growth, added the WB.
The WB also said that economic activities were severely disrupted by political unrest, violence, curfews, and internet shutdowns in the FY25.
Conditions gradually improved as private consumption and service-sector activities witnessed increases, buoyed by robust remittance inflows, and rebounded export growth, supported by a resilient global demand.
Still, several large business conglomerates linked to the ousted Awami League regime faced operational difficulties, leading to closures and layoffs, said the WB, adding that the interim government has been rationalising capital expenditure, focusing on continuing only those projects deemed critical for development and limiting the approval of new initiatives.聽
Besides, global trade disruptions, domestic policy uncertainties and high borrowing and input costs are expected to continue to constrain private investment growth and keep industrial growth subdued in the remaining period of the current financial year to end in June.聽聽
The GDP growth is projected to moderate to 3.3 per cent in FY25 from the previous projection of 4.1 per cent, said the WB update.
Focusing on inflation, the WB said high inflation and job losses have strained economic welfare, particularly for low-income households who spend a larger share of their income on essential goods.
Nearly a 4 per cent of the country鈥檚 workers lost jobs in the second half of 2024, with wages dropping by 2 per cent for low-skilled and by 0.5 per cent for high-skilled workers.
鈥楢s a result, extreme poverty at the US$2.15 (2017 PPP) threshold is estimated to have risen from 5.5 per cent in 2023 to 7.7 per cent in 2024,鈥� said the WB update, adding that inequality was estimated to have gone up slightly, with the Gini index rising from 35.3 to 35.5.
The WB said multiple initiatives are critical to overcoming the challenges and strengthening the scams-hit banking sector while enhancement of public-sector transparency and accountability by a separation of tax policymaking and administration, strengthening of tax compliance are imperative to strengthen domestic revenue mobilisation, public investment management, public procurement, and public service delivery.
The current tax-to-GDP ratio of 7.4 per cent in FY24 is insufficient to meet the country鈥檚 critical development financing needs, said the WB.
The WB suggested 10 steps, including enhancing the bank resolution framework, strengthening the deposit insurance system, improving corporate governance and risk management, restructuring state-owned banks and establishing a robust non-performing loan management framework for reform in the banking sector.
